Ron Paul Response to the President

Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and
other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul

Right Issue, Wrong Commodity

High oil prices reflect a supply and demand problem in the market. The only problem is people pick on the wrong commodity. There don't seem to be shortages of oil.

The problem is that the dollar under the Bush Administration has fallen about 50 percent. There are an over supply of dollars in the market with no comparable demand for dollars.

To reduce the price of oil the dollar needs to be strengthened. That means Congress needs to stop deficit spending and the Federal Reserve needs to raise interest rates to at least 25%.

This would drive the economy into a deep recession and dry up easy credit as we know it. The only other plan of attack is to hyper-inflate the currency...which will drive prices to unbelievable levels. But this is the most likely exit that the Federal Reserve and Congress will take. "Inflate of Die!" is the unspoken motto of the Fed.

Remember the Fed has only two weapons in its arsenal: Inflation and Blarney. Every fiat currency system ends in hyper-inflation. The dollar won't be any different. What a joke our nation has become.

The Federal Reserve's Two Weapons

According to Franklin Sanders, the Federal Reserve has only two weapons to manipulate the dollar: "Inflation and Blarney."

The Income Tax

There is no reason for an income tax. All Congress has to do is pass a budget and have the President sign the budget into law. The Treasury issues bonds and the Federal Reserve creates the currency for the Treasury.

The budget is monetized.

So if the government can create limitless amounts of currency anytime it wants and for any purpose, why enforce an income tax? After much thinking for the last year or so, I've realized that there are two reasons why the income tax is enforced.

First, the income tax is enforced to keep people in submission to the government. It is designed to make certain that we know who our masters are. It is enforced to create a system of slavery.

Second, the income tax is enforced to keep inflation under "control". Inflation is the increase in the money supply. Congress know this. As does the Federal Reserve and the Treasury. If the income tax were not enforced, inflation would quickly get out of control and the government would lose credibility pretty quickly. So the government siphons off significant amounts of currency through the income tax. We think were doing our patriotic duty by supporting the government. In reality were being snookered by one of the greatest frauds in history. Shame on us.

This June 5th

It's time to withdraw from the banking system.

Are you in or out?

This June 5th.

Inflate or Die!

Today may very well mark the date as to when the Federal Reserve began to hyper-inflate the money supply.

A rate cut of seventy-five basis points is going to pump a lot of liquidity into the system.

The stimulus package that is most likely going to pass Congress will do nothing long-term to restore fundamental soundness to the American economy. Rather the general price level will increase. Those rebate checks will mean nothing in a few months. We'll all be paying for it with higher prices.

The Federal Reserve has two tools at its disposal: Inflation and Blarney.

Today was an example of both of them. Secretary Paulson spoke about the strong fundamentals of the economy and the Mighty Bernanke Superbanker opened the floodgates of currency by lowering the fed funds rate by seventy-five basis points.

These people are nuts.

Evil Schemes And The Merchants Of Debt

Hans Schicht

Evil Schemes And The Merchants Of Debt - In the light of the mention on the web of possible nationalization of the US precious metal mines, there are easier ways for a government to get possession of the nations gold rather than by expensive, inefficient, bureaucratic, and cost inflating nationalization.

In order to make good for the "deep storage" bullion of Fort Knox, not accounted for, the most subtle course of action for the US government will be to establish a Federal Gold Bank, under the Federal Reserve, to which all the US gold mines will be obliged to surrender their production against a, by the government established, price.

Internationally, in order to protect their own respective gold hoards in their national interest, most other nations, "guided" by their Central Banks, will most likely replicate the US action. In such way the Central Bank Cartel will keep the bulk of the world's gold stock under its control. Against freely competing gold outside their control the Central Banker's fiat paper scam would not survive for long and they know it!

Pigs in Congress

Here is a copy of a letter that I wrote to the Roanoke Times. It was printed.

Dear Editor

Congressman Goodlatte recently introduced legislation to establish the Woodrow Wilson Presidential Library (HR 4846) and issued a press release to let us know that the Committee on Government Reform unanimously passed his bill.

I am not inclined to share in Congressman Goodlatte's enthusiasm.

It was under President Wilson that we got the nightmare called the income tax.

Additionally, under President Wilson the Federal Reserve Bank was created. The Fed has destroyed the value of the dollar by creating excessive amounts of money and credit out of thin air. This has enabled greedy politicians like Congressman Goodlatte to spend foolishly and expand the scope and power of the federal government well beyond its Constitutional boundaries.

As the purchasing power of our pieces of paper declines and prices keep rising, let us not stupidly complain. After all we have ourselves to thank. We elected these morons to Congress.

Perhaps the Woodrow Wilson Presidential Library is not a bad idea. It will stand as a witness, testifying of our own insatiable appetite for plundering the public Treasury.