Ron Paul, Godzilla, The Fed - and Gold

By: Alex Wallenwein | Sat, Sep 8, 2007
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Ron Paul has been saying it all along, for decades, now - and it's finally happening.

We are facing very serious domestic and international problems because of the way the federal reserve honchos have been handling our economy. Well, actually it's not because of how the Fed handled the economy. There really is not a "better way" in which they could have handled it. It's because of who and what the Fed represents and how it is designed to operate.

Here are some of the problems the Fed has caused:

Fed-Caused Problems:

Number one: Inflation. Since its founding in 1913, the dollar lost over 98% of its buying power.

Stock market crashes caused by power or under-"adjusting" interest rates. Examples: The 1928 stock market crash, the 1987 crash, and the 2000 Nasdaq crash.

Our government has to "borrow" the money it needs from the Fed at interest. To pay the interest on that debt, it needed to tax our incomes, so in effect, it is the Fed - a private consortium of bankers - that is taxing us! Roughly one tird of what you make goes to the Fed as payment of the "interest" the government owes it.

There is no congressional oversight of the Fed. Although Fed chairmen regularly testify to Congress, members oif Congress routinely defer to the "expertise" o fthe chairmen. Nobody (other than Ron Paul) ever questions their policies and their judgment.

The Fed's interest rate policy determines how much people and businesses borrow. By allowing the rates to remain too low for too long, they put everyone in debts because money is "cheap". At the same time, this discourages savings because interest on deposits is too low.

This, in turn, causes people who have no business investing in stocks (for lack of judgment and paucity of expendable financial resources) to do exactly that, which causes the great stock bubbles. Every time one of these deflate, people get hurt. A lifetime of savings disappear - savings that otherwise still would have been there for them had they not gambled them away in the stock markets.

Through Fed-government collusion, the Fed's excessively low interest rate policy in combination with legislation that tried to "guarantee" every American a home, mortgages became so cheap that people who should have been renting started buying homes. Others started speculating in homes, overextending themselves. Still others (too many) borrowed on their home equity at low ARM rates, basically spending their children's inheritance.

That last one is now about to do the US economy in.

Zero Savings

Americans have zero savings to fall back on. What they have is severely at risk in either stocks or in over-leveraged real estate.

When the Fed was forced to raise interest rates to "combat" already under-reported inflation (in truth the Fed never combats inflation; instead, its very existence and modus operandi causes perpetual inflation) the housing market went "bye-bye."

As home prices drop and interest rates rise, overextended home buyers can't make their mortgage payments anymore. This started in the sub-prime sector (the loans to people who never should have been given loans) and has now metastasised into the prime sector.

Since these mortgages are the "assets" backing lots and lots of "commercial paper" (short-term lending arrangements in the corporate market), and because commercial paper is the backbone of businesses' day-to-day financing needs, and because issuers of commercial paper are becoming increasingly unwilling to roll these loans over, "credit" (i.e., borrowed money) is becoming increasingly hard to obtain, which means economic activity is slowing dramatically.

That spells R-E-C-E-S-S-I-O-N!

When people lose their jobs in a normal recession, that's bad enough - but they are losing their homes right along with their jobs, and what should have been their savings but is now invested in stocks, is going down the drain right along with it. In other words: the easy credit-chickens are coming home to roost. Unfortunately, there are way more of them than the Fed can accommodate.

What's the Fed's solution?

More chickens are cloned. More credit is issued - the exact same thing that caused the problem in the first place.

In addition, Bush wants our government (that means me and you through our tax money and the interest we and our children will pay on the increasing government indebtedness caused by having to borrow what taxes don't pay for) to bail out homeowners who got themselves into hot water.

More of the same.

Into this corrupt, collusive, and destructive system - a system that is ripe for dramatic changes one way or the other - now rips Ron Paul, Godzilla himself, by daring to say what nobody is supposed to know in the first place, and what those who do know are expected to never, ever explain to the general public.

Who Will Really Run the Country?

By running for president Ron Paul has gained himself a huge, widespread audience of real Americans, people who just want to pursue and work and save for their dreams, think what they want, say what they think, be safe from criminals, and otherwise be left alone. Not only has he gained that audience, he has mobilized it to an extent never before witnessed in American politics.

That extraordinarily educated and freedom-oriented mass of Americans, right alongside Godzilla Paul, is about to tear the roof off the federal reserve bank headquarters and its regional branches, all at the same time.

It's easy to rip people off when they don't realize what is happening - but now Americans do realize what is and what has been happening, and that is especially true for young people.

Policy wonks discount the impact of the Internet numbers generated by Ron Paul, but the Internet is where yougn folks hang out. They are getting an education that public schools, major media, and evening TV news shows will not provide - for obvious reasons.

They are the ones who will be running the country, long after Ron Paul is dead.

They are the ones who will decide how to pay for the current administration's spending and tax-deferment spree.

So far, Ron Paul's opponents have always had ammunition for their attempts to shoot him down. "What? We're doing alright. The economy is humming along just fine. Where's the problem?" they all said.

Well, the problem is here, and it's called the international credit meltdown.

The fault for causing his credit meltdown can be traced directly to the front steps of the federal reserve headquarters in Washington, DC, where an army of recently returned credit hens is setting up a major roosting operation as we speak. Washington is about to get the bird flu.

Ron Paul's Answer

So what's Ron Paul gonna do about all this? The answer is simple:

As little as possible.

He answer is not to "do more" to save the economy. It's to do less!

As we can see from Bush's classic big-government response, doing "more" makes things worse. A government bailout would mean throwing gasoline on the fire. The same thing is true for any Fed action. All the Fed can do is to lower interest rates or to become a buyer, rather than a lender, of last resort.

Okay fine, then. Exactly how would Ron Paul do "less" to save the economy?

Here are a few suggestions on what he might do that would be consistent with things he has said and written about in the past. Naturally, you can't hold him to these, as they are only my understanding of what he wants to achieve and how he might go about it. Here we go:

Abolishing the IRS

He has often stated that in his first week in office he will disband the IRS. As president, he cannot abolish the Internal Revenue Code. That needs congressional action. He can, however, stop operating the IRS. As an executive agency under the Department of Treasury, he is in complete control over how or whether to operate. The money saved in IRS salaries and operating costs alone would a lot of people who are currently dependent on Medicare, for example.

Abolishing the Federal Reserve

Without income taxes collected from us, the government would not have any funds to pay interest and principal to the Fed for the dollars the Fed prints or create electronically and then loans to Congress. All Congress could then do is to keep borrowing (by selling its Treasury debt-paper to the Fed) without any means of redeeming the Treasury debt when it comes due. If you were the Fed, would you keep lending to the US government under these circumstances?

Without being able to charge Congress for exercising the monopoly privilege that Congress granted the Fed in 1913, the Fed would no longer have any reason to exist. (Side Note: Doesn't the person who exercises a privilege normally pay the one who grants it for the right to exercise it? Not so with the Fed. In this case, the grantor of the privilege [Congress] has to pay the grantee [the Fed] for doing what Congress allowed the Fed to do in the first place. Interesting, no?) Although the Federal Reserve Act itself would still stand at such a time (absent congressional action), the bankers who own it would simply have to give up and go away. No point in hanging around. There won't be any money coming from Congress. This way, one stone would literally kill two nasty birds of prey at the same time.

With the Fed gone and no more income taxes for Congress to pay for what it borrows from the Fed, Congress would have to rely on the American public and international governments for its borrowing needs. That means the Treasury would have to issue and auction off more bonds, which would increase the supply of bonds in the marketplace, thereby depressing their price. At the same time, without collecting income taxes, the government would not be able to repay the money it borrowed from the public and other nations, so the demand for Treasury paper would drop even more.

Now, bond yields - which determine long term interest rates - have an inverse relationship to bond prices. The lower the price, the higher the yield. That would jack up long term interest (like on mortgages, for example) tremendously.

That's a definitive "no can do." In an already depressed housing market, high mortgage rates spell economic death to the nation's credit system. So, what's the only possible alternative?

Well, duh: cut spending of course!

What a refreshing development. Isn't that what Ron Paul wants to do, anyway? Wow. Now we're up to killing three ugly vultures with one stone! But it gets even better.

Other Unconstitutional Executive Departments: Gone!

Alright, since we're already on the right track, cutting more spending would be easy as pie. The Departments of (a) Homeland Security; (b) Education; (c) Energy, etc., etc., would be gone in under a minute. No more taxes for the Fed and no more blank-check borrowing from the Fed means no more money for useless and unconstitutional federal executive departments. I'm running out of fingers to count on! And all that by simply cutting out the IRS.

Can you see how destructive of our privacy, liberty, security, and prosperity that one little government agency is? Amazing, isn't it?

But now, let's go back to the economics of gold ... or rather, forward to the economics of gold - because we haven't been there, yet.

Does Ron Paul Want to Reintroduce the Gold Standard?

No. Not as it existed back in the early nineteen hundreds before FDR abolished it to bail out the banks who had created too much paper money against the gold backing to be able to pay their depositors/creditors - the citizens.

Reinstituting a gold standard of that type only means that you give the government the power to decree that the banks have to keep a certain percentage of gold on deposit to satisfy depositors who no longer trust the paper. If the government can decree such a standard, it can take it away as well.

What would be much better would be to simply allow people to use gold and silver as a currency again, and to allow them to write gold clauses into contracts again (i.e., enabling any party to a contract to demand payment in gold if it so chooses.)

If Gold Becomes Cash Again ...

If gold and silver become cash again, what will happen?

Well, for one, people will have a choice again as to what type of money they will use and save.

What's more, people will have a chance to demand payment for their goods and services - and their labor - in specie or hard currency. Just imagine that.

If you are a seller of goods or services, you probably wouldn't just insist that people pay you in gold or silver. Most people won;t have any. But you could offer serious discounts to people who are willing to pay you with real money. You benefit by getting something in return for your product that woin't lose value, ever, and your customer benefits by being able to save a lot of money.

Wow. A voluntary exchange that benefits both parties. Who would have thought os such a thing?

The law right now says that you cannot refuse paper cash or "legal tender" if it is offered to you. You must accept it. But you absolutely can entice your customer to offer you something better than federal reserve notes by offering him a discount.

Now imagine the current credit crisis (in which lenders refuse to lend short term money because they fear defaults) continues and deepens. Wouldn't it be nice to have an alternative? If you had gold or silver to collateralise what you borrow, do you think your lenders woul still have second thoughts?

This is in my view, judging from everything I hear and read, how Ron Paul would handle a transition from our current fiat system (where currency only has buying power because the law says you have to accept it) to a specie-based system where money indeed does have real value that can always be relied upon.

Drawbacks of the Classical Gold Standard

How can the problems of the classical gold standard be avoided?

The problem with the gold standard was that banks issued more bank "notes" (IOUs that say the bank will repay you in gold on demand) than they had gold on hand. When the banks got into trouble as a result, government (under FDR) bailed out the banks, rewarding their profligacy, and slammed the people who had been cheated.

On the other hand,if you don't force banks to redeem every dollar in gold on demand but simply allow people to use gold as a currency and not have to pay taxes on an illusory "appreciation of value", then people can choose to exchange federal reserve notes or FRNs for specie whenever they prefer, in the open market.

That would automatically result in a true value adjustment, over time of course, between paper money and specie. The market will determine how much paper money will be worth in terms of gold, and vice versa.

And that will take the monopoly over money issuance out of the hands of not only the federal reserve, but out of the government's hands as well. There would be no better guarantee than this for keeping the government or the banks from over-issuing paper or credit money.

Problem solved.

Will there be adjustment pains during the transition period? Sure. But they will be much more benign than what will happen during a total currency collapse with no alternative available before the collapse occurs, with no chance for any kind of a transition, whether smooth or otherwise.

So, ...

In order to make all of this possible, the capital gains tax on the dollar-appreciation of gold as a capital investment would have to be repealed. Why? Because currently, the IRS takes the stance - backed up by our federal courts - that an appreciation of gold or silver in terms of dollars, once realized by "selling" or exchanging the metal for a good or service that is also priced in dollars, is a "taxable event" because it constitutes an "accession to wealth."

Just imagine: Right now the IRS can tax you every time unbacked paper money depreciates against gold if you exchange your gold for something else. The same is not true for currency. If the dollar appreciates against a foreign currency and you exchange it for a foreign currency to buy something in a foreign country, you are not taxed on that appreciation.

Do you see how the game is stacked against gold and silver being used as a currency - even though the Constitution says that it is the only legitimate money? But, wait a minute: Ron Paul would have already disbanded the IRS at this point, so who would be there to demand payment of such a tax? (!)

Amazing! By merely disbanding the IRS and no longer collecting (a) income taxes and (b) capital gains taxes on precious metals exchanges for goods and services, we would have cured all of the aforementioned ills in one fell swoop.

To Recap:

No IRS > no collection of income taxes from citizens > no payment of interest and principal to the Fed on money borrowed from it > no more Fed > no more excessive borrowing by Congress > no more financing of needless, destructive and unconstitutional executive departments > no more inflation tax > no more capital gains tax on gold appreciation > gold regains circulation as a viable currency again > people become secure in their savings and property again.

But it doesn't end there. Disbanding the IRS will have many more beneficial consequences. It will also mean that:

Congress can no longer extract excessive money from citizens in the states to then redistribute it to maintain its supremacy > state governments become more autonomous again so political power becomes more decentralized as envisioned in the Constitution > foreign military occupations and needless wars cannot be paid for any longer and so will not easily be pursued > other countries and extremist groups have less reason to fear and hate us > we are more secure here at home > our government is out of our face > we become more prosperous and produce more, thus still remain able to finance the kind of military we need to defend our country > we will have all three blessings again that were bestowed on us by our founders: Liberty, Prosperity AND Security.


And all of this just by getting rid of the IRS!

Now, you know why Ron Paul is Godzilla himself when it comes to the federal reserve and those who hold power because of it (and now you also know why Ron Paul is the most threatened man in American history).

Now, you know how important it is that he actually becomes president and actually disbands the IRS.

Now you know how important it is to pray to God for his and his family's safety - for who else could possibly protect him from those whose power he threatens?

The good news, though - and Ron Paul's greatest protection short of that from God himself - is the fact that removing him from the scene would no longer be effective for those whose illegitimate power he threatens.


Because now YOU know the best-kept secret in world politics.

Now YOU know how illegitimate power is created and maintained - and how to dismantle it!

YOU decide who will be our next president - and now there are millions of "you's". Ron Paul is only one man, and he is 72 years old. Although he is a very healthy and obviously sprightly gentleman, he may not be able to become president for purely age or health-related reasons. Who knows?

The most stunning truth of modern times is that YOU are "Godzilla" - not Ron Paul.

The Revolution is on.

The point to remember is that, even if the revolution does not succeed before the crash, you will fare better if you own gold and silver, for the crash will come, regardless. It's only a question of time.

Got gold?



Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
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