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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.
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.
August 21, 2007 Dr. Ron Paul is a Republican member of Congress from Texas. |
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.