High Risk Credit

by Ron Paul

As markets went on a rollercoaster ride last week, our economy is coming close to a day of reckoning for loose credit policies being followed by the Federal Reserve Bank. Simply, foreign banks we have been relying on to buy our debt are waking up to the reality of much higher default rates than predicted, and many mortgage backed securities have been reduced to “junk” ratings. Wall Street fears the possibility of tightening credit and the tightening of America’s belts. Why, they say, “if Americans spend only what they can afford, think of the ripple effects throughout the economy!” This is the cry, as the call comes for the fed to cut rates and bail out companies in trouble. More inflation is, however, never the answer to inflation. The truth is that business involves risk, and businesses that miscalculate risk should be liquidated, so their assets can be reallocated to businesses that correctly judge risk and make profits. Instead, the Fed has injected $64 billion into the jittery markets, effectively amounting to a bailout that keeps these malinvestments afloat, but eventually they will become the undoing of our economy.

In addition to the negative reactions in financial markets, many Americans have taken on too much personal debt owing to exotic mortgage products and artificially low interest rates. Unfortunately, these families are now in the position of losing their homes in unprecedented numbers as the teaser rates expire and the real bills are coming due. The real answers are, and always have been, found in the principles of the free market. Let the market set the interest rates. If we had been functioning under a true and transparent free market system, we would not be in the mess we are in today. Government, like the American household, needs to live within its means to get back on stable fiscal ground. We’ve been headed in the wrong direction since 1971. This week marks the 36th anniversary of Nixon’s decision to close the gold window, which convinced me to seek public office to call attention to the runaway money train that would come in the aftermath of that decision.

The temptation to print and spend money with impunity, like the temptation to max out lines of credit, is too strong to for government to resist. While Nixon brokered exclusivity deals with OPEC to prop up demand for the tidal wave of green pieces of paper the Fed pumped into the markets, the world is tiring of marching to the beat of our drum in order to secure their energy needs. The house of cards Nixon built is now on the verge of collapsing on our heads, and on our children’s heads. As the dollar weakens, it becomes ever clearer that we need a return to sound, commodity-based money for a secure future. Money based on real value, not empty promises and secretive backroom machinations, is the way to get out of the current calamity without causing even bigger problems.

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High Risk Spending

by Ron Paul

Last week this column addressed the train wreck that federal spending has become. To score political points politicians will make loud noise about fairly small matters such as earmarks, even while refusing to address the real problem. Namely, that our federal government is too big and does too much. Politicians prefer to pass a bill or create a program every time somebody points to a new social problem, this way they can tell their constituents how much they are doing to help. Instead of rationally explaining the proper role of government, politicians have attempted to play the role of friend, preacher, parent, social worker, etcetera– in essence, whatever any organized special interest can demand. Waste, fraud and abuse are often easy targets. Everybody knows a story of the government doing something absolutely ridiculous and wasteful. Plus, recent headlines have been packed with stories of corruption in Washington. One thing that has not drawn enough attention is the link between the size of government and the mismanagement that leads to wasted money. If the government was restrained within its proper constitutional functions, it would be far better managed and much more readily would proper oversight occur. You see, while waste, fraud and abuse are very easy to attack, it seems they are much more difficult to actually address within the current federal behemoth.

For example, the General Accounting Office puts out a “high risk list” and describes this list as programs with “vulnerabilities to fraud, waste and abuse and mismanagement.” There are currently 27 programs and operations on this list, up from 26 last year. But here are the more surprising facts, the list was originated with 14 programs in 1990. Of those original 14 programs, from 17 years ago, only 8 have been removed. How can it be that 6 programs remain on such a list nearly two decades later? While government is supposed to move slowly, this is ridiculous. What GAO is saying is that a problem exists, we have been aware of it for 17 years, and it is still not corrected. Of course, with the size and scope of federal activity, including attempting to rebuild societies in the middle east, and massively expanding federal involvement in education (along with thousands of other “programs”), it is small wonder that this list doesn’t really get addressed.

Yet it does seem reasonable to ask “If you can’t stop waste in 6 federal programs after 17 years, how exactly will you improve local schools or foreign nations?” In the time that the GAO list has existed, there have been 33 additions and a mere 18 removals, including two this year. Only when the people demand the federal government stop trying to meet any and all demands, and instead return to a constitutionally limited republic, will the list of programs subject to waste, fraud and abuse be dramatically reduced. While government will never be perfect, a limited government is far more able to not only identify problems, but to actually correct them.

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As Recess Begins, Spending Spree Continues

by Ron Paul

These last few weeks the House has been in a rush to pass spending bills before August recess. In fact, visitors walking the hallways of Congress become immediately struck by the apparent spending battle between the “conservative Democrats” of the so-called “Blue Dog Coalition,” and the Republican Study Committee, or RSC, generally representing the more conservative bloc of Republican House members. Members of each of these groups place large posters on easels outside their offices. The purpose behind this seems clear, to point the finger at the opposite party for the current budget mess that continues to threaten America’s future. When Republicans had control of the Presidency and both houses of Congress, very little was done to stem the tide of federal spending.

In fact, spending increased every year over the past decade. New programs such as “No Child Left Behind,” and entitlements like the Prescription Drug Benefit, were added at great cost to federal taxpayers. During this period, the Blue Dogs continued to make the rhetorical point of government financial misdeeds. Now that Democrats control the House, the RSC is highlighting the increases in spending and debt that will occur based on bills passed this year by the new majority. While both sides continue attempting to score political points, the country goes further and further into debt, because neither side is really willing to make the tough decisions necessary to halt the run away train of federal spending.

Several Republicans go to the House floor with amendments to stop spending directed by Congress, often seeking to cut projects that total $100,000 or less. While it is true that hundreds of thousands can and do add up, the same people who argue for these spending cuts think nothing of spending billions more in Iraq. At the same time, basically every spending bill that comes to the House Floor would have the majority spend more, even over and above the increases requested by the Administration. Current arguments over spending really have no connection to the idea of the overall reduction in the size and scope of government. The Democrats who argue that tax cuts are a form of spending are just as misleading as the Republicans who say they can make a serious dent by changing congressionally directed spending into administration directed spending. The federal government has a spending problem.

Each year our current accounts balance gets worse and worse, and the amount of foreign held government debt has skyrocketed. Both Republicans and Democrats; conservatives, liberals and moderates, indeed nearly every single-member of the Washington political establishment, is addicted to one form of federal spending or another. Only when the American people absolutely demand that the spending spree be stopped, will their representatives in Washington stop using this issue as a political football to score public relations points, and finally face-up to the fact that we are a nation in a very precarious financial position, which demands real spending cuts in order to avoid bankrupting our next generation.

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