Dr. Ron Paul talks about Interest Rates, Gold and Government Debt

Last month, Global Gold’s Claudio Grass met with Dr. Ron Paul in Lake Jackson, Texas at the Ron Paul Institute for Peace and Prosperity. Here we show you how their discussion unfolded.


Global Gold’s Claudio Grass met with Dr. Ron Paul

Claudio: Dr. Paul, thank you very much for taking the time to speak with us. It is a pleasure to meet with you and learn your perspective on political and economic developments. But first, how would you describe your days since you’ve retired from Congress?


Dr. Paul: I’m staying busy! I’ve been involved in several things in my life. One was practicing medicine. That was very important, but I don’t do that anymore. Even when I got started into politics, I did both for a long time. When I left Congress and went back home I practiced medicine for twelve years.

The other activity was promoting the cause of liberty, believing that it’s the lack of liberty that causes war and causes poverty and suffering and that if people were to understand the importance of personal liberty that the world would be a much better place. So the organization that I created was called “Campaign for Liberty” but all those years whether I was in Congress or out of Congress, I have been campaigning for liberty in different ways.

When I ran for office, it gave me a chance to speak about the issues. It actually all started with the breakdown of Bretton Woods in 1971. That was a big monetary event for me because I’ve been observing the developments and had studied Austrian economics. Even though it was anticipated, it was still very dramatic when it happened. So, a couple of years later I decided to run for office. I did not expect to win any election because, as you know, my philosophy was different. It didn’t seem to fit the pragmatism that everybody wanted.

“Even the judicial system rules against us

and violates our liberties.”

When I got elected in ‘76, I started an organization called “The Foundation for Rational Economics and Education”, the F.R.E.E. foundation, which is also the parent of the new organization now, the Institute for Peace and Prosperity. Since leaving Congress, I went in different ways, including Internet broadcasting, programming and interviews; I do a bit of that. I also have a speaking activity, where I go as frequently as I can. College campuses have received me pretty well. I enjoy that and do a lot of it.

I also started a Ron Paul curriculum for homeschoolers, believing once again in the importance of education. I don’t believe that everyone should be homeschooled or that some are more inclined than others but there is a certain group that can handle it – parents and students. I think that is very important. I stay pretty active and though I am retired from Congress, I am not retired from promoting the cause I am talking about.


Claudio: Fantastic! What has changed since you left Congress? Are you freer in the way you can speak and address people?


Dr. Paul: My schedule is more under my control and I only go where I want to go. And if I don’t want to fly every single week, I don’t.

When you’re in Washington, government is on autopilot, it just goes. The old saying used to be “boy you’re lucky the legislature is out of session, liberty is safe”. This isn’t true anymore, because right now the President uses executive orders to go to war, issues statements, violates civil liberties and gets involved in the economy through the central bank, his central economic planner.

Even the judicial system rules against us and violates our liberties.

The whole thing is so out of control. I feel I am much better off now because I can still do what I think is important, as far as writing and speaking out is concerned. At the same time, I don’t have to spend a lot of time with those politicians in Washington.


Claudio: When you look at the United States, or let’s say the western world in general, what do you think of the shape we’re in? The stock market is skyrocketing and the real estate market seems to be recovering or even spiking in certain areas.


Dr. Paul: If you look at things from the surface, it looks like things are great. I am convinced, however, that we are probably in the worst shape the world has ever been financially. There’ve been bubbles and distortions and currency breakdowns for thousands of years, but I don’t think that the world has ever had a universal acceptance of a fiat currency like we have with the paper dollar, US Dollar, today. It is being used endlessly as the reserve currency.

Debt and investments have been pyramided.

Even now, stock markets are doing well and people think that bonds are lovely. It’s all a deception and even if people claim there’s no consumer price inflation, I think there is plenty but not as much as we are still going to see in the future. A lot of people forget that the distortions created by the inflation of the money supply will and does lead to higher prices and these may arise in different areas. In stocks and bonds, prices are very high, so the distortions are great.

Somebody might say the housing market is back and doing well again. However interest rates are distorted. Interest rates tell you the right thing to do, they give you a hint. Business people aren’t perfect, half of them might do a good job, the other half might do it badly, but it’s all ironed out and taken care of. But when governments fix the rate of interest, everybody, in a way, makes a mistake. Some are lucky and make more money than the rest, but this is still based on bad information. That is why debt is out of control, and the bubbles keep building.

If you look at the malinvestment and the amount of debt as a consequence of the dollar being the reserve currency, I think that the problem is gigantic. Despite the power of the central banks, especially our Federal Reserve and the power of politicians to spend money, ornamentally, markets are more powerful than governments. The market always reigns.

 “We printed money and pretended it didn’t matter.

And that’s why we had that breakdown.”

I was watching and waiting for 1971 and the breakdown of Bretton Woods after we dumped almost 500 million ounces of gold, trying to prove that the government is smarter than the market. I even remember Lyndon B. Johnson in the 1960s saying “I am going to mint so many Kennedy half dollars that the people will never be able to hoard them”. But it didn’t work. Silver reached USD 1.23 and people started hording them, because the silver value was higher than the nominal value of the coins. Markets are very powerful. The markets overwhelmed Bretton Woods! We printed money and pretended it didn’t matter. And that’s why we had that breakdown.

Now we have that strange phenomenon of this unbelievable trust in the US Dollar. This could only happen because our country is (still) wealthy, but a lot of the wealth is superficial because it’s based on debt. So, the people are going to be really shocked when the hit finally comes because this system has existed for so long and longer than any paper currency before it.

The other thing that gives some confidence is the size of the economy and the perceptions of its health, but there is also the size of its military. If you have a very solid currency, even if you have the strongest currency, but people anticipate you will be defeated in a war next week, then all of a sudden that particular currency loses value even though common sense says it’s a strong currency.

Military power puts some support behind the currency. That is why I don’t think the US is vulnerable economically, but I think it’s vulnerable militarily.

We cannot sustain what we do, even though it seems like we can. We go everywhere and “solve” everybody’s problems. Just recently we’ve been talking in the news about what we should do in Syria and Iraq. Should we continue an 11-year war in Iraq and go back? Some politicians have come up with this astute idea that it’s our moral obligation. But somebody has to pay for it!

We did get a couple of dollars back when we went in to fight Saddam Hussein when he invaded Kuwait, for example. The question wasn’t whether it was morally correct for us to get involved in the war, or overthrow governments and that we should do it without following the constitution. The only point being made was “we can do it and we will but we won’t pay for it”.

In a way, that statement made by politicians was translated to “we are the mercenaries of the world”. Well, that’s not going to work for very long. When it’s realized what kind of a problem we have with the currency and the debt, the military is going to continue to shrink.

I believe that, right now, the military is on the defensive. It took a long time for Obama to really work the war propaganda to be able to enter Syria. The day will come when the dollar will weaken and we won’t be able to afford our welfare state. The debt will be a big burden and we won’t be able to maintain our military presence around the world. And then, believe me, the world is going to change.


Claudio: When you look at the Japanese economy, they’re printing money like there’s no tomorrow. And now we have a lot of countries in Europe back in a recession and inflation in the Eurozone is non-existent. So, Mario Draghi is trying everything to depreciate the Euro and at the same time put more money into the system. The ECB even recently introduced a negative interest rate for deposits at the central bank.


Dr. Paul: When interest rates are zero or even negative, everyone wants to buy more. Back in 1979-1980, you could buy a US government bond and earn 15%. Nobody wanted it. Right now, of course, what people don’t quite realize is interest rates are lower because the dollar is strong, but the average person who wants to educate their kids in 10-15 years is not actually investing in government bonds.

“When interest rates are zero or even negative,

everyone wants to buy more.”

It’s all being bought by people who are playing this big game. Sometimes we even give money to another country just so they end up buying our treasury bills. It is amazing that this gimmick keeps working.

What I believe is that one day we will wake up and the system will dissipate just as fast as it has grown, maybe even faster. It has taken lots of years to build up. It keeps getting knocked down; things have been rocky and I’ve seen this quite a few times in my lifetime: in the 70s with high interest rates, asset bubble in 2000 and then the housing bubble. And we had this horrendous bailout and people still came back to rebuild the bubbles. They will not concede that it is better to use a hard asset as money than pieces of paper that a couple of people in a secret room decide how many of them there will be, and that whatever they decide they execute it with a click on the computer.

The foreign nations are all at fault. America’s not at fault, because they keep taking our money. We’re not going to go back to work! In fact, Americans would never have to work again, because we can just print more money and buy everything that we need. Almost everybody knows that something will happen at some point along the way. But that’s not going to happen anytime soon. Right now there’s a lot of trust by foreign takers of our dollars, they keep taking them. And as long as they do that, I guess, we’re going to limp along and the bubble keeps getting bigger and bigger.


Claudio: We believe we are witnessing a geopolitical power shift like we had right before the First World War where the British Empire was fighting against the rising Kaiserreich. We have a power shift where China, other Asian countries and the BRICs, are taking over. Also the US contribution to world GDP has been shrinking in the past ten years. How would you interpret this?


Dr. Paul: The market is anticipating the vacuum that is building up and will come eventually. With the Russian situation and the sanctions, we’re deliberately almost pushing them out of the dollar. There’s a vacuum out there and the BRICs or somebody else is going to come along and create a substitute.

Right now it’s not clear what’s going to evolve, there are still some questions. Something’s got to fill the vacuum, but right now the vacuum isn’t big enough. The dollar still does function, but there will be a day when it won’t. I think it’s a shift, as you say to the East, because we will keep selling gold and China is going to keep buying gold.

I think it is so ironic that our policy is to deliberately keep the gold price down. This might be really building the case for China. But the people who are doing this don’t believe gold is money anymore, so they pretend at least they don’t care, because then they would have a different monetary policy. They actually convinced themselves that they’re smart enough to manage money and not to have gold.

One time I asked Alan Greenspan, because he had been pro-gold standard in the past and said: “What about this? You know, when we have a balance of payments problem we shift back and forth and make these adjustments”. He said: “Well, it is different now, because we have learned to manage paper money as if it were gold”. He said that very sincerely. And probably they do believe that they are smart enough to substitute the market.

They have to be arrogant, because why should one person, like our Federal Reserve Chairman know how to fix the price of every transaction. One half of every transaction depends on the fixing of the interest rates and at the same time they decide on the level of the money supply. And yes, they have the Federal Reserve Board, but it is one person that makes the decision. They can fool a lot of people for a long time but markets will eventually catch on.


Claudio: You mentioned Greenspan. Usually when I have a presentation I always quote Greenspan about the article he wrote about gold and economic liberty in 1966 when he was still a supporter of Ayn Rand. You asked him a while back if he would like to repeal the article. What happened exactly when you asked him?


Dr. Paul: I had him sign that particular article and I said ”Would you write a disclaimer on it?”. He said: “I still support everything I wrote”. To me it was like “What is going on here? Who are you kidding?” He sounded serious. Maybe he believed in what he said but felt that the world wasn’t quite ready for him.

Ronald Reagan, for example, he was a loved president and he said all the right things, but deficits exploded and lots of financial problems developed over time. To Greenspan it was: “We’re not ready to do it, the conditions aren’t right. I’ll be a good manager, you know. If someone has to manage the money, I’ll do it.“ Of course history is going to show he didn’t do a good job managing it.


Claudio: I think he really created the biggest bubble.


Dr. Paul: History will show Bernanke didn’t do a good job either. When low interest rates are the cause of the problem, what would you do? Lower them even more to make them negative?


Claudio: You’re a fan of the Austrian School of Economics. We recently published a report on ABCT, the Austrian Business Cycle Theory, because we believe that economies operate in cycles and that the main drivers behind the cycles are the central banks by reducing the interest rates and printing large amounts of money.

We also believe that we have the short-term debt cycles and the long-term debt cycles. When we go back in history, we see that the long-term debt cycle bursts every 50 to 70 years. What do you think about this cycle theory? Do you also believe we will see a big bust?


Dr. Paul: Well, I think there is some truth to the big cycles. I don’t think they’re absolute, but the cycle is there. What if you’re off ten years or so? I don’t think we need cycle theories; I think that basic fundamental laws are sufficient to understand what is coming: The longer you print money and distort the market, the bigger the bubble and the bigger the bust.

I wanted to study all the details of the cycles, I just know a bit about them. I know there are a lot of variables involved, because if the charts worked perfectly, that would mean that cycles would be predictable and the theories would be objective. However this conflicts with the subjective theory of value. People place value on certain things for other reasons, maybe because there’ve been no wars for a while, or maybe war breaks out and maybe somebody just dropped a bomb – this changes things all at once.

I think cycles theories are interesting, but I wouldn’t depend on them.


Claudio: In the United States, you now have almost 50 million Americans living off food stamps. In Europe, we have a high unemployment rate, especially among the young, 30-60%. So what we are witnessing is that the real economy is basically not growing in the western world, we only have this unlimited amount of money which is going into certain asset prices and spiking up the prices there. But it’s not going into circulation. Do you believe that this world is going to recover? Is it getting better in the next few years or do you think the opposite is likely?


Dr. Paul: It is not going to recover soon, because we haven’t allowed the correction to come. The market wants it to correct. Right now, the market is saying that the conditions aren’t right and confidence hasn’t been restored and they’re not going to build new businesses for various monetary as well as regulatory reasons. People aren’t ready and I think the old saying about ‘pushing on the string’ is pretty true. When you don’t have confidence, you can push that money in it and it doesn’t go in the desired direction.

The fact is that the correction has never been permitted. A correction means that when you have malinvestment, a lot of debt and the market quits functioning because of this imbalance, that you have to allow a correction. You have to liquidate the debt and have to get rid of the mistakes that were made and people have to go bankrupt. Instead, in our so-called recovery, we printed a lot of money and we bought the debt. We just transferred the debt from the rich over to the taxpayer who is ultimately behind the currency and the Federal Reserve.

Recently I was surprised to see this USD25 billion purchase of more mortgage debt by the Fed. We thought this was all over! How is that we are doing well? But evidently there wasn’t enough money to keep those interest rates down at 2 and 3%, so the Fed ends up buying even more debt.

This is the exact opposite of a correction. We have to liquidate the debt and that’s what happened traditionally, even biblically, it was known as the jubilee. Debt getting too big seems to be human nature. When we compound this human factor with a currency that encourages debt, we find ourselves in a very problematic situation.

I think a little more jubilee is what we need. But the debt is still out there and people have trouble understanding it. When people think of Detroit they recall it is bankrupt. They can’t tax them, everybody left town. Well, how are we going to pay the retirees? The money is gone. That is a true bankruptcy but they’re even going to say: “You can’t let Detroit crumble, go to the federal government print some more money” and delay the inevitable.

But on the federal level, nobody gets denied a cheque.

More food stamps and more retirement benefits encourage people not to produce. Again, it’s trust in our monetary system. As long as they trust the money, it is going to go on for a while, the bubble gets bigger and the inevitable bust gets worse.


Claudio: When we look back in history, economically unstable times are associated with a lot of debt, which is often followed by war. We just wrote an article comparing 1914 to 2014, because we see some parallels like massive centralization of the system, a lost generation due to massive unemployment and many more. This created the foundation for the extremism we saw at the time.

Now when we look at what is happening on the borders of Europe, in Eastern Ukraine, and what’s happening in the Middle East, Central Asia and North Africa. What is your take on that? Do you think that the situation will deescalate or is that just the beginning?


Dr. Paul: No, I think it’ll continue but I think it will calm down just as the confrontation with the Soviets did when they were spreading their empire and going into Afghanistan. That situation calmed down because they went bankrupt and had to go home.

If people don’t trust us or our money anymore, we will have to tighten our belts. Once the trust is lost, the more money you print, the less the trust is going to be. Right now, they have no other place to go. They could go and beg Europe to print Euros, but they trust the dollar more. As long as they keep doing that, these insane policies will continue.

I think that governments need to fold. They need to be blamed for what they are doing. Central banks need to be able to defend hard asset money, gold and silver, because it works. And yet, right now, there’s just a few of us who believe that, but I think the day will come where people will realize the truth. We have been through similar situations before. In the 1860s, during the civil war, we went off gold for maybe 18 years. It can be done.


Claudio: I personally believe that no one knows the future. Pericles once said “we can’t predict the future, but we can prepare for it”.


Dr. Paul: I think one can recognize trends, but knowing the timing of events is impossible. That’s a challenge for investors too and that’s why people should be cautious. If people listen to me talking, they could go out and sell everything they have and buy gold. But I’ve been looking at gold since it was USD35/ounce, and my assumptions made it pretty safe, buying a little here and there wasn’t too bad, but the trends are very definite. I believe in a climactic end to our current monetary system. So, I am convinced that we can’t tell the future, however recognizing trends is possible.


Claudio: So you invested your savings in physical gold? What’s your rationale?


Dr. Paul: Yes, but I don’t usually call it investing. I usually call it my little insurance against those crazy people in Washington.

I didn’t want to pretend that I know how the charts are going to work. If I knew gold was going to go up the next three years, I would have bought a futures contract, gotten leveraged up and made a ton of money. I didn’t know when to get in and when to get out. I just wanted to have an insurance policy because I believe the government will continue to do what they’ve been doing: spend too much and run up too much debt. It was part of what’s been engraved in our society. All the politicians, news, everybody believes that deficits are good, spending is good, printing money is good. So, it is going to last until someday all the people rush for the exit.


Claudio: Gold has been money for 5000 years and now we have been living on a pure fiat money standard for 40 years. Like you, we think of gold as a monetary insurance. China is buying gold, India is buying, Russia is buying and Central Asian countries are also buying. Do you believe they think of gold as money?


Dr. Paul: The person holding the gold when the world crisis hits will likely establish the new currency. We certainly were in the driver’s seat after World War II for various reasons, because we still had a good gold standard. People who were safe from all the bombings and the killing, came to us to buy goods and they paid in gold.

There was more gold in the United States back in 1945 than any one place in the world. It would’ve been a perfect time after 1945 to establish a gold standard and live up to it, instead of saying we can print money forever and nobody will ever notice. But the French woke up and started to take back their gold. But we were in the driver’s seat back then.

We’re not in the driver’s seat now, even though it looks like we are. We have military might. We have economic wealth, still. But we are not in the driver’s seat because eventually it will be the East, mainly China, maybe Japan and Russia, India maybe too, the BRICs.


Claudio: My final question. Switzerland is a small country and we operate within a federal structure. We are the last remaining direct democracy left on this planet and we believe in limiting the power of politician. Aristotle used the term ‘demokratie’: ‘demos’ (the community) and ‘kratia’ (power), meaning that power is vested in the people. I believe that democracy might work on a very small scale. I also believe that if we’re going to see more centralization in the future it will lead to more totalitarianism. What do you think about these tendencies?


Dr. Paul: I think that’s where I’m optimistic. I think we live in a special time. Communications are better now than ever before. The fact is that I never thought of myself as being an important Congressman, yet I was saying things that touched a lot of people. And all of a sudden through the internet, a lot of people heard about this and it was sort of like ‘where did this come from?’. This is just fantastic.

We’ve been testing dictatorships and authoritarianism for a long long time, from the pharaohs down to the authoritarianism of the 20th century, the Nazis, the communists, fascists. They all failed. Even Keynesianism now is a failure and central banking is even going to be in worse shape.

Having failed, there is going to be a replacement and it’s going to be seen in the disintegration of the mighty states.

I recently saw a map where they listed every single spot of every unit of government that wanted independence, maybe they can all become like an independent canton in Switzerland. Everyone should be independent and if the canton or state gets too large, then go smaller, because the sovereignty in a free society is with the individual, and the individual who commits no violence against another person, should be totally independent. That would be of course a perfect world, but that’s one that we should strive for. But the evidence says that the big states are failing, that the people are waking up and they are sick and tired of them. And let’s hope this moves along rather quickly.

Claudio: Thank you very much, Dr. Paul. It was a pleasure.


And thanks from us at Q Wealth to Claudio for letting us carry this fascinating interview with Dr Paul on our blog: many of us – although not all! –  share his views.

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