Game Over For Fiat Currency

Texas Congressman Ron Paul delivered the following address to the United States Congress.  Paul has run for President of the United States twice–in 1988 as nominee of the Libertarian Party and, in 2008 as a candidate for the Republican nomination. He is the founder of the advocacy group Campaign for Liberty and publisher of “End the Fed” in 2009.

I rise today to talk a bit about our economy and the marketplace which, if anybody has observed, is in shambles. A couple of years ago we had a financial crisis, basically a bit of problems with debt with the financial institutions, the banks, and a lot of corporations. And that was a rather hectic period of time, but I think what we’re moving into now is much, much more serious. And what I see happening is that this is not a financial problem as much as a currency problem.

Everybody knows there are major problems in Greece right now because of the debt load that they have and they cannot finance, and nobody’s there at the moment to bail them out. But a lot has been happening, and I’ve been interested in this subject for a long time. Matter of fact, in 1971 with the breakdown of the Bretton Woods agreement, I became fascinated with economics and politics. At that time there was a devaluation of the dollar of 3.8%, and it was very, very big news, and that’s when the dollar was connected to gold and there was a devaluation against gold. And this was a major event that ushered in a major amount of inflation in the 1970s.

And yet this process continues. Matter of fact, the breakdown in 1971 opened up the doors to massive inflation, and that’s what we have been doing for 35, 40 years; inflating the currency, creating many and multiple financial bubbles which have burst and have given us a great deal of trouble. But a currency crisis is much worse because people lose confidence in the dollar.
Now I have talked a lot about the value of the dollar, and somebody might wonder exactly why I would come today and talk about a concern I have for the value of the dollar. Because if you look at the dollar, the dollar is a haven, the dollar has banking going up sharply in terms of other international currencies. And they would say that this is a haven, it’s still strong, people are buying our treasury bills.

But I still argue the case that there is a currency crisis going on. Because if you look at the one true money, the one money that has existed for 6000 years, that outlasts all the paper money and all the fiat currency, and that is gold. And it doesn’t look very good. It’s sending a signal that a lot of inflation lurks in the future.

In the past several years, maybe even 10 or 15 years, the dollar and the gold relationship depended on gold acting as a commodity; it moved with the stock market, it moved with commodity prices. But no longer. Instead of the gold going down when the stocks went down, and instead of the gold going down when the commodities go down, instead of the gold going down when the dollar goes up, all of a sudden people are resorting to putting dollars and other currencies in gold. This is sending a signal that the confidence is being lost in the entire fiat monetary system. And the dollar, of course, is the reserve currency of the world, and therefore this is a very significant event.

But there are even other statistics to suggest that we’re in for a lot more inflation. If we look what has happened to producer prices in the past 12 months, we find out that producer prices have already moved up significantly. For instance, finished consumer goods are up 8.2% in the last 12 months, finished consumers excluding food are up 8.3%, finished energy goods are up 20%. Now, that has not yet affected the consumer price index, but in the months to come, the producer prices will move in to the consumer products, so we can expect a lot more inflation. Now, the way we get in this trouble is due to accepting some notions about money that are false. We have believed, since 1971, that there should be no linkage of our money to anything sound, as the Constitution mandates. There should be no linkage of the dollar to gold or silver, which then gives the Congress the leeway of spending endlessly, deficits don’t matter, we can tax and we can borrow. But if we still don’t have enough money, we can depend on the Federal Reserve just to print the money.

Now that has lasted for a long time, and we’ve been getting away with it. But the market is more powerful than the central bank and the politicians. The market usually rules and they come and say, “The money isn’t worth what it used to be and there is too much malinvestment, too much debt, and therefore a correction must occur.” This happened with the financial situation. There had to be correction, the bubble burst and there were some adjustments.

But everything that we have done over these past several years and even over the last several decades has always been to resort to more inflation, print more money, spend more money, which only produces a problem that delays the inevitable. But I am afraid the inevitable is here and we must do something about it.

Ron Paul is widely regarded as America’s leading voice for limited constitutional government, lower taxes, a free market economy, and a return to sound monetary and fiscal policies.