A Spooked Economy in October

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Recently
by Ron Paul: Demagoguing
the Mosque

Last
week we received worse than expected unemployment numbers, challenging
recent claims that the recession has come and gone. Also, as the
economy continues to suffer the after effects of the Federal Reserve-created
bubbles of the last decade, there is renewed interest in gold. Fears
that the Federal Reserve will pump even more money into the system
had caused the price of gold to reach new highs. Also contributing
to enthusiasm for gold is continued instability in the banking industry,
symbolized this week by fraud allegations that have caused many
banks to halt foreclosure proceedings, thus further destabilizing
the housing market. Yes, October has a reputation for being a scary
month economically and this month is shaping up to be frightening,
as well.

The
Fed has been wreaking havoc and devaluing our monetary unit steadily
since 1913, and greatly accelerating it since the collapse of the
Bretton Woods agreement in the 1970s. This severing of the dollar’s
last tenuous link with gold allowed the Fed to create as much new
money as it pleased, and it has taken full advantage of this opportunity.

In 1971, Gross
Domestic Product (GDP) was $1.29 trillion. Today it is $14.6 trillion,
nominally. But adjusted for all the inflating the Fed has been doing,
it is only $2.73 trillion, which constitutes only a 1% real increase
per year! So with all this extra money going around, we may appear
nominally wealthier, but the reality is, we have barely moved at
all. This is unfortunate especially for the prudent, conscientious
savers, whose nest eggs are constantly being devalued. Unless of
course, they have saved in something out of the Fed’s reach,
like gold.

While the economy
has basically been in a holding pattern against the leeching of
wealth by the Fed for 39 years, gold has seen an inflation adjusted
increase in value of over 5% per year, if measured in 1971 dollars.
This is due to the Fed’s ability to make dollars plentiful.
And yet, this is the only tactic the Fed can come up with to rescue
an economy already devastated by “quantitative easing,”
as they call it.

The turmoil
in the housing market demonstrates how disastrous it is to flood
the economy with fiat money. Latest events with foreclosures are
good examples of mistakes made in the market, in this case, by the
banks, in the rush to soak up manipulated currency. This is why
the truly free market depends on sound, honest money, free from
false signals of artificially low interest rates.

The government
finds ways to spend money even faster than the Fed can create it,
bringing our national debt well past the point of the taxpayers
ever being able to pay it off. Other nations who, in the past, have
eagerly bought up any amount of debt we produced are now starting
to resist. We are reaching a crucial point at which the dollar will
no longer function, and in the absence of a functioning dollar,
restoring sound money will be the only alternative.

The truly scary
notion is that those in power might allow our system to collapse
so chaotically to the detriment of so many people rather than simply
obey the Constitution.

See
the Ron Paul File

October
12, 2010

Dr. Ron
Paul is a Republican member of Congress from Texas.

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