Ron Paul’s Economic Theories Winning GOP Converts

[Hubbs]

But, as people keep pointing out to me when it comes to the stock market, if the value of my home goes down, but I don't sell the home, and I keep making the payments, then nobody loses any money. (Including me. All I've lost is some "net worth" on paper.)

And also, I was talking about what I'm being told is a "real estate price bubble" phenomenon. But you folks are throwing "the stock market has gone down by" numbers at me.

You're making my point for me.

Is the problem, here, that Real Estate prices went down by, say, 20%?

Or is the problem that, when Real Estate prices go down by 20%, the stock market goes down by more than half?

I'm not the "you folks" talking about the stock market.

You would be right about the "net worth" thing if mortgages were that simple. There are two problems - one, a whooooole lot of people got zero-down mortgages back in 2002, 2003, etc. As prices rose, they borrowed against the equity they gained. Then, prices crashed, and homeowners suddenly owed the banks a lot more than their properties were worth. This wouldn't have been such an immediate problem if it weren't for a massive wave of subprime mortgage "resets," and rather than re-typing something I've already written for my site, I'll just give you a link to a simple graph that will show you exactly what happened:

http://www.meltingpotproject.com/mpp/2009/04/the-next-wave-of-the-real-estate-collapse.html

The stock market crashed along with real estate because, like I said before, virtually all growth since 2001 has been caused by real estate. On top of that, the decade of illusion caused significantly more borrowing to be done because of perceived growth that wasn't actually there. So now, when the bubble pops, everything is even worse.

[GibbsFactor]

But, as people keep pointing out to me when it comes to the stock market, if the value of my home goes down, but I don't sell the home, and I keep making the payments, then nobody loses any money. (Including me. All I've lost is some "net worth" on paper.)

And also, I was talking about what I'm being told is a "real estate price bubble" phenomenon. But you folks are throwing "the stock market has gone down by" numbers at me.

You're making my point for me.

Is the problem, here, that Real Estate prices went down by, say, 20%?

Or is the problem that, when Real Estate prices go down by 20%, the stock market goes down by more than half?

Yeah, I'm not following you. What's the difference? It's all the economy.

Say you have had 20 years worth of savings tied up in a fund. You just lost 35% over the last couple of years. Now you have to save more over the next 10 years to recoup your losses. Now you aren't spending that money on other things that make the economy work.

The problem the housing bubble showed us is that we had $50 tril. plus in over valued monies in the world economy. Dominoes will be a falling. The real estate market and the stock market are intertwined thanks to the way banks finance each other.

[mcsluggo]

No wonder that Obama needs to have Ron Paul.

In his cabinet over the economy.

As Paul would do a great job!

I am confused... is this Haiku?

(if it is .. it doesn't quite fit the exacting requirements)

[PeterMP]

The problem I have with the Fed is that it essentially tries to outsmart a phenomenon that no one really understands.

I wonder if a simpler answer is the right one. Paul's ideas are much simpler. All he wants to do anyways is legalize gold and silver as tender to compete with fiat monies. I don't see the problem with that. It's essentially that way now. I mean, why can't I give you a pound of gold for a new car? If you accept it, what's the problem? It's a barter, a trade.

Most think Paul wants to go back to the original gold standard, that simply isn't true. But he does believe in sound money. Perhaps it isn't that bad to be unable to increase your money supply. Just think of the tax we are all paying in inflation. No one talks about that.

But I think most don't want to get rid of the Fed, but just keep it in check. And I'm all for that. While credit/debt sucks, it's how we get wealthier. I bet we'd have much smaller shocks and panics if we could only manipulate the rate at dire times. The problem with that is that the Fed is a business and that's bad for it's bottom line.

We've discussed this before. I'm not quite sure why you keep bringing it up. What you are describing here is perfectly legal now.

If you can get somebody to give you a car for a pound of gold, the government wouldn't stop the transaction.

The Liberty Dollar company got in trouble because they were trying to pass it off as "just like" the real dollar, but there's nothing illegal about barter or trading, and there's nothing technically illegal about you starting your own currency.

[PeterMP]

The more I read about how convoluted the relationship between the fiat monetary system, the wall street elite, higher ups in federal government and reserve, the less crazy Ron Paul seems to me. Or maybe I'm the one that's going crazy.

One take on how the Great Depression actually took hold: http://seekingalpha.com/article/134219-plunge-protection-team-attacks-bofa-this-ends-now

The similarities to our current situation are striking. Anyone care to set me straight?

Well, I do think that interest rates were likely to low for to long in the 1920s, which helped cause the over valuation of the stock market (though I do wonder if the market is such a great thing why can't take into accounts simple things like that), just as low interest rates on mortgages helped contribute to our current problem, but it isn't like there aren't issues with the gold standard, especially in a modern connected economy where people would likely try and manipulate currency/gold values/availibility to make money.

Some people blame the gold standard and associated speculative attacks for at least the severity of Great Depression. Anyway, with respect to the gold standard here's a slightly different persepctive.

"I argued in a paper titled, "The Role of the International Gold Standard in Propagating the Great Depression," published in Contemporary Policy Issues in 1988, that counting on a gold standard to enforce monetary and fiscal discipline in an environment in which speculators had great doubts about governments' ability to adhere to that discipline was a recipe for disaster. International capital flows became more erratic, not less, as doubts were raised about whether first the pound would be devalued and then the dollar. Britain gave in to the speculative attacks and abandoned gold in 1931, whereas the U.S. toughed it out by deliberately raising interest rates in 1931 at a time when the economy was already near free fall."

"Ben Bernanke and Harold James, in a paper called "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison" published in 1991 (NBER working paper version here), noted that 13 other countries besides the U.K. had decided to abandon their currencies' gold parity in 1931. Bernanke and James' data for the average growth rate of industrial production for these countries (plotted in the top panel above) was positive in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began. The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth."

http://www.econbrowser.com/archives/2005/12/the_gold_standa.html

[PeterMP]

For the record, Madison, there are many of us who believe that even a laissez-faire/Austrian/whatever you want to call it approach has plenty of room for certain government programs to provide a basic "safety net."

Anyway, under a true sound money system, the FDIC would be unnecessary, because it insures leverage. But if we're to be on a fiat currency system until God knows when, then I actually find it to be perfectly necessary, because I'm a very strange creature called a "demand-side libertarian."

Banks are always going to be leveraged. Sound money or not, to function a bank needs to be leveraged.

[Hubbs]

Peter, you're actually right in that getting off the gold standard in order to inflate the currency was part of what helped us to get out of the Great Depression. This is because inflating the currency is a great way to get out of debt, which is what kept the economy in a standstill once the stock market crash created a mountain of debt. But take a look at this graph:

See that? This time, we've created our mountain of debt before the crash. And notice when that mountain started to grow - right off we got off of Bretton-Woods. That's not a coincidence. With the last resemblance of an anchor taken off the dollar, the dollar became nothing but a representation of debt. That's what a fiat currency is. Paper debt.

This isn't all to say that I believe a move specifically back to a Bretton-Woods-esque system or strict gold standard is the best idea. But the one-time saving grace of devaluing the dollar during the Great Depression doesn't automatically mean that a fiat currency system is best, or that the Federal Reserve does more good than harm.

[PeterMP]

See that? This time, we've created our mountain of debt before the crash. And notice when that mountain started to grow - right off we got off of Bretton-Woods. That's not a coincidence. With the last resemblance of an anchor taken off the dollar, the dollar became nothing but a representation of debt. That's what a fiat currency is. Paper debt.

This isn't all to say that I believe a move specifically back to a Bretton-Woods-esque system or strict gold standard is the best idea. But the one-time saving grace of devaluing the dollar during the Great Depression doesn't automatically mean that a fiat currency system is best, or that the Federal Reserve does more good than harm.

I don't disagree with much of what you said here. I think two things:

1. I think the Keyesian approach did help end the Great Depression and that included (required) leaving the gold standard.

2. I'm not sure at all, because of our debt, the same approach will work this time. I doubt there would be a credit crisis if our governments debt wasn't already tying up much of the world's credit. It isn't clear at all to me that our further tying up the world's credit is a good thing.

In general, I don't blame the Federal Reserve though, I blame the American public that is voting for the people spending the money. This was true in the 1970s when the debt really starting racking up, right through today.

I think the whole, 'The Fed is bad argument.' is bunk. We're bad. We have a large debt because we vote for people that can't/won't balance a budget.

[Hubbs]

Banks are always going to be leveraged. Sound money or not, to function a bank needs to be leveraged.

Not necessarily. Look at all the things banks do right now that they either charge for or could charge for if they needed a new way to make money. ATM fees. Checkbooks. Financial assistance. Etc., etc. If banks were told that they could only loan out the profits they were making on services, there wouldn't be leverage. Would it suck that we'd all be charged for things we used to get for free? Sure. But this situation seems to suck more.

[PeterMP]

Not necessarily. Look at all the things banks do right now that they either charge for or could charge for if they needed a new way to make money. ATM fees. Checkbooks. Financial assistance. Etc., etc. If banks were told that they could only loan out the profits they were making on services, there wouldn't be leverage. Would it suck that we'd all be charged for things we used to get for free? Sure. But this situation seems to suck more.

The amount of money they would need to charge to stay in business would be prohibitory. People would take their money out of banks and there would be few to no banks and getting a loan would be difficult.

From essentially the start of the banking industry, banks have been leveraged.

[Hubbs]

I don't disagree with much of what you said here. I think two things:

1. I think the Keyesian approach did help end the Great Depression and that included (required) leaving the gold standard.

2. I'm not sure at all, because of our debt, the same approach will work this time. I doubt there would be a credit crisis if our governments debt wasn't already tying up much of the world's credit. It isn't clear at all to me that our further tying up the world's credit is a good thing.

In general, I don't blame the Federal Reserve though, I blame the American public that is voting for the people spending the money. This was true in the 1970s when the debt really starting racking up, right through today.

I think the whole, 'The Fed is bad argument.' is bunk. We're bad. We have a large debt because we vote for people that can't/won't balance a budget.

While I agree with you about We the People not holding the government to task for its massive annual deficits, that graph was of all debt, not just national. That means corporate, personal, household. If it only showed national debt, it wouldn't even be at 100% of GDP. It's at 360%, and that's before the massive GDP contraction started.

[Hubbs]

The amount of money they would need to charge to stay in business would be prohibitory. People would take their money out of banks and there would be few to no banks and getting a loan would be difficult.

From essentially the start of the banking industry, banks have been leveraged.

People would take their money out of banks? How many people do that because of those $2.00 ATM surcharges? Overdraft fees? Paying for checkbooks? Those damn hidden fees in certain accounts?

Banks have been leveraged forever because it's easy. You've got a big pile of other peoples' money that you can make money with as long as everybody doesn't try to withdraw at once. The history of leverage is the history of human nature.

[PeterMP]

While I agree with you about We the People not holding the government to task for its massive annual deficits, that graph was of all debt, not just national. That means corporate, personal, household. If it only showed national debt, it wouldn't even be at 100% of GDP. It's at 360%, and that's before the massive GDP contraction started.

So your saying people that vote for people that can't balance a budget don't bother to balance their own budget? SHOCKING!!

[PeterMP]

People would take their money out of banks? How many people do that because of those $2.00 ATM surcharges? Overdraft fees? Paying for checkbooks? Those damn hidden fees in certain accounts?

Banks have been leveraged forever because it's easy. You've got a big pile of other peoples' money that you can make money with as long as everybody doesn't try to withdraw at once. The history of leverage is the history of human nature.

But $2.00 isn't that much money (and my bank doesn't do any of things you describe. I have FREEE overdraft protection), and $2.00 ATM fees aren't going to keep a bank in business, much less keep them in business AND have money left over to loan.

To keep a bank in business those fees are going to have to go up. At some point, it will become so much people will do whatever is necessary to quit paying them, including take their money out of the bank.

[boofMcboof]

In general, I don't blame the Federal Reserve though, I blame the American public that is voting for the people spending the money. This was true in the 1970s when the debt really starting racking up, right through today.

I think the whole, 'The Fed is bad argument.' is bunk. We're bad. We have a large debt because we vote for people that can't/won't balance a budget.

From what I gather, neither the fiat monetary system nor the federal reserve is inherently bad. It's the current relationship between all of the relevant parties coupled with the possibility/probability that all our past and present, democratic and republican political leaders have been paid off, that is killing us. The numerous ties between the Federal Reserve and Goldman Sachs can't be good as it clearly gives the insiders way too much power and influence over economic policy allowing to them to serve their own interests over any other.

Here's an condensed article with a timeline of events taken from a 231 page report: http://www.financialsense.com/fsu/editorials/wilson/2009/0504.html

The Transfer of Power Took 25 Years

• Beginning in 1983 with the Reagan Administration, the U.S. government acquiesced to accounting rules adopted by the financial industry that allowed banks and other corporations to take money-losing assets off their balance sheets in order to hide them from investors and the public.

• Between 1998 and 2000, Congress and the Clinton Administration repeatedly blocked efforts to regulate “financial derivatives” — including the mortgage-related credit default swaps that became the basis of trillions of dollars in speculation.

• In 1999, Congress repealed the Depression-era law that barred banks from offering investment and insurance services, and vice versa, enabling these firms to engage in speculation by investing money from checking and savings accounts into financial “derivatives” and other schemes understood by only a handful of individuals.

• Taking advantage of historically low interest rates in the first few years of this decade, mortgage brokers and bankers began offering mortgages on egregious terms to purchasers who were not qualified. When these predatory lending practices were brought to the attention of federal agencies, they refused to take serious action. Worse, when states stepped into the vacuum by passing laws requiring protections against dirty loans, the Bush Administration went to court to invalidate those reforms, on the ground that the inaction of federal agencies superseded state laws.

• The financial industry’s friends in Congress made sure that those who speculate in mortgages would not be legally liable for fraud or other illegalities that occurred when the mortgage was made.

• Egged on by Wall Street, two government-sponsored corporations, Fannie Mae and Freddie Mac, started buying large numbers of subprime loans from private banks as well as packages of mortgages known as “mortgage-backed securities.” (See my article entitled “Our Worst Nightmare: The Puncture of the U.S. Housing Bubble” which outlined their house of cards approach.)

• In 2004, the Securities and Exchange Commission, now operating under the radical deregulatory ideology of the Bush Administration, authorized investment banks to decide for themselves how much money they were required to set aside as rainy day reserves. Some firms then entered into $40 worth of speculative trading for every $1 they held.

• With the compensation of CEOs increasingly tied to the value of the firm’s total assets, a tidal wave of mergers and acquisitions in the financial world — 11,500 between 1980 and 2005 — led to the predominance of just a relative handful of banks in the U.S. financial system. Successive administrations failed to enforce antitrust laws to block these mergers. The result: less competition, higher fees and charges for consumers, and a financial system vulnerable to collapse if any single one of the banks ran into trouble.

• Investors and even government authorities relied on private “credit rating” firms to review corporate balance sheets and proposed investments and report to potential investors about their quality and safety. But the credit rating companies had a grave conflict of interest: they are paid by the financial firms to issue the ratings. Not surprisingly, they gave the highest ratings to the investments issued by the firms that paid them, even as it became clear that the ratings were inflated and the companies were in precarious condition. The financial lobby made sure that regulation of the credit ratings firms would not solve these problems.

None of these milestones on the road to economic ruin were kept secret, says Rosenfield. The dangers posed by unregulated, greed-driven financial speculation were readily apparent to any astute observer of the financial system but few of those entrusted with the responsibility to police the marketplace were willing to do so and those officials in government who dared to propose stronger protections for investors and consumers consistently met with hostility and defeat. The power of the Money Industry overcame all opposition, on a bipartisan basis.

[Larry]

But $2.00 isn't that much money (and my bank doesn't do any of things you describe. I have FREEE overdraft protection), and $2.00 ATM fees aren't going to keep a bank in business, much less keep them in business AND have money left over to loan.

To keep a bank in business those fees are going to have to go up. At some point, it will become so much people will do whatever is necessary to quit paying them, including take their money out of the bank.

I seem to remember a time when banks actually paid interest on things like CDs, and then loaned that money out.

Granted, they weren't loaning it out at 4%.

But I seem to remember times when banks were paying 5-8% on CDs, and loaning money out at 8-9%. When even savings accounts paid interest that wasn't a joke. (It didn't cover inflation, but it wasn't completely pathetic, either.)

Maybe I'm just an Old Fart with a bad memory The Way Things Used To Be.

----------

This is one of the things that really puzzles me about this "credit crisis".

The claim is that there just isn't any credit, which the economy desperately needs. That nobody's got any money to loan.

I manage my parent's money (what's left of it.) Between the various accounts, they've probably still got around a half million sitting in various bank accounts.

Why isn't everybody in the world knocking on my door, engaging in an interest-rate bidding war, begging for me to put this money in their bank? You'd think my parents would be sitting on top of the financial world. They're people with cash, in a market that supposedly doesn't have any.

But no, I think I can get about 4%, unless I'm willing to do things like a mutual fund.

[Ignatius J.]

They aren't coming to your door because you are implicitly asking for a risk free interest rate higher than 4%, which you aren't going to get. If you want risk I can show you a mutual fund that has already made 33% on the year. That's a risk premium, it might fail tomorrow. The risk free interest rate is below 4%. The reason people can't get loans is that they won't make money paying back loans with an interest rate as high as they need to cover their risk premiums since any business investment is inherently risky in this environment.

[PeterMP]

This is one of the things that really puzzles me about this "credit crisis".

The claim is that there just isn't any credit, which the economy desperately needs. That nobody's got any money to loan.

I manage my parent's money (what's left of it.) Between the various accounts, they've probably still got around a half million sitting in various bank accounts.

Why isn't everybody in the world knocking on my door, engaging in an interest-rate bidding war, begging for me to put this money in their bank? You'd think my parents would be sitting on top of the financial world. They're people with cash, in a market that supposedly doesn't have any.

But no, I think I can get about 4%, unless I'm willing to do things like a mutual fund.

Because they don't have any better idea who or what is going bankrupt in the next couple of months than your or I do.

My experience is at the individual level that credit isn't too bad if you have pretty good credit. We've refinanced the house in the last couple of the months and have been approved for a new car loan with an interest rate at about 4%.

The credit crunch, to me appears to businesses (for which banks have an issue of really determining their ability to pay going forward (because they might go bankrupt)) and for individuals that don't have really good credit, which probably represents it going back to historic norms, instead of the situation over the last decade or so.

[Hubbs]

I seem to remember a time when banks actually paid interest on things like CDs, and then loaned that money out.

Granted, they weren't loaning it out at 4%.

But I seem to remember times when banks were paying 5-8% on CDs, and loaning money out at 8-9%. When even savings accounts paid interest that wasn't a joke. (It didn't cover inflation, but it wasn't completely pathetic, either.)

Maybe I'm just an Old Fart with a bad memory The Way Things Used To Be.

----------

This is one of the things that really puzzles me about this "credit crisis".

The claim is that there just isn't any credit, which the economy desperately needs. That nobody's got any money to loan.

I manage my parent's money (what's left of it.) Between the various accounts, they've probably still got around a half million sitting in various bank accounts.

Why isn't everybody in the world knocking on my door, engaging in an interest-rate bidding war, begging for me to put this money in their bank? You'd think my parents would be sitting on top of the financial world. They're people with cash, in a market that supposedly doesn't have any.

But no, I think I can get about 4%, unless I'm willing to do things like a mutual fund.

Because this isn't a credit crisis and never was. It's a debt crisis.

[SnyderShrugged]

Update::: HR 1207, the "audit the Fed bill is now up to 148 co-sponsors, including one of the leaders of the "blue dogs" Dems. Once they are on board, we may very well see enough support to have this discharged from committee.

I'm really stunned this has made it this far. It's a much bigger deal than most realize.

[Elessar78]

Not really familiar with RP and his stance on things. What else does he bring to the table other than his economic beliefs?

[SnyderShrugged]

Not really familiar with RP and his stance on things. What else does he bring to the table other than his economic beliefs?

Hi!

here is the "about Ron Paul" from his library of statements and other communication vehicles.

Who Is Ron Paul?

Dr. Ron Paul, a Republican Congressman from Texas, is the leading advocate for freedom in our nation’s capital. As a member of the U.S. House of Representatives, Dr. Paul tirelessly works for limited constitutional government, low taxes, free markets, and a return to sound monetary policies. He is known among his congressional colleagues and his constituents for his consistent voting record. Dr. Paul never votes for legislation unless the proposed measure is expressly authorized by the Constitution. In the words of former Treasury Secretary William Simon, Dr. Paul is the "one exception to the Gang of 535" on Capitol Hill.

Ron Paul was born and raised in Pittsburgh, Pennsylvania. He graduated from Gettysburg College and the Duke University School of Medicine, before proudly serving as a flight surgeon in the U.S. Air Force during the 1960s. He and his wife Carol moved to Texas in 1968, where he began his medical practice in Brazoria County. As a specialist in obstetrics/gynecology, Dr. Paul has delivered more than 4,000 babies. He and Carol, who reside in Lake Jackson, Texas, are the proud parents of five children and have 17 grandchildren.

While serving in Congress during the late 1970s and early 1980s, Dr. Paul's limited-government ideals were not popular in Washington. In 1976, he was one of only four Republican congressmen to endorse Ronald Reagan for president.

During that time, Congressman Paul served on the House Banking committee, where he was a strong advocate for sound monetary policy and an outspoken critic of the Federal Reserve's inflationary measures. He was an unwavering advocate of pro-life and pro-family values. Dr. Paul consistently voted to lower or abolish federal taxes, spending and regulation, and used his House seat to actively promote the return of government to its proper constitutional levels. In 1984, he voluntarily relinquished his House seat and returned to his medical practice.

Dr. Paul returned to Congress in 1997 to represent the 14th congressional district of Texas. He presently serves on the House Committee on Financial Services and the House Committee on Foreign Affairs. He continues to advocate a dramatic reduction in the size of the federal government and a return to constitutional principles.

Congressman Paul’s consistent voting record prompted one of his congressional colleagues to say, “Ron Paul personifies the Founding Fathers' ideal of the citizen-statesman. He makes it clear that his principles will never be compromised, and they never are." Another colleague observed, "There are few people in public life who, through thick and thin, rain or shine, stick to their principles. Ron Paul is one of those few."

Brief Overview of Congressman Paul’s Record:

He has never voted to raise taxes.

He has never voted for an unbalanced budget.

He has never voted for a federal restriction on gun ownership.

He has never voted to raise congressional pay.

He has never taken a government-paid junket.

He has never voted to increase the power of the executive branch.

He voted against the Patriot Act.

He voted against regulating the Internet.

He voted against the Iraq war.

He does not participate in the lucrative congressional pension program.

He returns a portion of his annual congressional office budget to the U.S. treasury every year.

Congressman Paul introduces numerous pieces of substantive legislation each year, probably more than any single member of Congress.

This link is great for getting his stances in his own words. You will find a great deal of misinterpretation elsewhere on the web unfortunately from his naysayers, but here lies the straight poop.

http://www.ronpaullibrary.org/index.php

Thanks for the interest! I hope this helps some.

[SnyderShrugged]

If you ever had any doubt about auditing the Fed Reserve, they should go away once you watch this Q & A (A. Grayson(D)) counducts the questioning.

[boofMcboof]

Update::: HR 1207, the "audit the Fed bill is now up to 148 co-sponsors, including one of the leaders of the "blue dogs" Dems. Once they are on board, we may very well see enough support to have this discharged from committee.

I'm really stunned this has made it this far. It's a much bigger deal than most realize.

Saw this the other day. It blows my mind that all Democrats except for one in the committee are against auditing the Fed. I guess I shouldn't be surprised since Goldman Sachs just hired one of Barney Frank's aides as their top lobbyist. :doh:

[Elessar78]

Definitely sounds like an interesting guy from that brief synopsis. I could get behind a guy like that. Will do more research into him.