Sunday, November 13, 2011

"Ron Paul's Plans are Too Extreme"

By Dan Beaulieu

 "I am an imperfect messenger, but the message is perfect"  –  Ron Paul

One thing is certain of Dr. Ron Paul, he is not a sound-bite candidate. That is, he often speaks over the heads of voters which causes a lack of understanding. It is in my personal opinion that Ron Paul cannot be understood in the 30 seconds allocated to him in debates. His ideas must be studied; however, once one does understand Dr. Paul, they often stick around.

For this reason I present to you my series:  

Understanding Ron Paul

"Is Ron Paul Too Extreme?"

An argument I encounter time and again is that Ron Paul’s fiscal plan is just too extreme to accept. To those who subscribe to such a notion I offer the burden of knowledge, because without question you don’t understand the urgency of the matter.  Not unlike the frog who boils himself to death when the water in the pot is gradually brought to a boil. We have long been blind to the subtle changes around us which, like the frog, will ensure our own doom. Economically, we are nearing the boiling point; a precipice.

The Road to Hyper-Inflation

It began upon the installation of the Federal Reserve central bank in 1913, which introduced government micromanipulation of our money supply; or Keynesian economics. This greatly accelerated in 1971 when America unceremoniously departed from the gold standard at the behest of then Chairmen of the Federal Reserve Arthur Burns in an effort to introduce elasticity to the money supply. This gave the private Federal Reserve an unlimited ability to expand our money supply along with unlimited secrecy.

Furthermore it allowed the Fed to interject the business cycle to make economic booms last longer, which in turn caused the recessions last longer. The Federal Reserve does this by way of inflation (inflation is the act of injecting money into the money supply resulting in the depreciation of the dollar). Despite the Fed’s efforts to prop the boom, the presence of the real market restricts the boom from perpetuity, that is, every period of economic euphoria must be respected by an equal period of economic misery.

The great bubble was largely attributed to the bad policies of Alan Greenspan who was the chairman of the Federal Reserve from 1987 until 2006. Greenspan intervened in the recession that should’ve followed the dot-com bubble. Instead of accepting the natural recession that should have occurred in 2001, the Fed began expanding the Housing Market. This didn’t negate the previous bubble; it merely stalled it by creating a bigger bubble. The Fed arrogantly continued its efforts to stop recession through low interest rates and actual interest rates fell below historical averages. At that point the Fed had abandoned all monetary rules in attempts to prop the market.

The housing market collapsed as a direct result of government intervening in the business cycle. In January of 2001, Alan Greenspan slashed the federal fund targets from 6.5% all the way down to 1% by June 2003. He fixed the rates at an artificial low of 1% for a full year, which encouraged tremendous bad investments and caused a massive expansion of the bubble. Then, by June of 2006, Greenspan had raised it back to 5.25%, a move that popped the bubble and unleashed the havoc of three overdue recessions.

However the unforgiving travesty has truly occurred since the financial market collapse in 2008. Instead of taking the needed hands off approach by letting the market correct itself, we have continued with the Keynesian manipulation of the business cycle with Ben Bernanke’s quantitative easing efforts (now inflating the student loan bubble). What’s worse is we have now become addicted to a hyper-accelerated devaluation of the dollar through the immense injection of money from the TARP bailouts, secret handouts  by the Fed (here and here) and Obama’s continued bailout efforts, most of which we haven’t experience the effects of yet, but we will. All of this injected money has resulted in dramatic devaluation of the dollar (see graph).


Is it really so hard to imagine inflation of our dollar on the level that Zimbabwe experienced in recent years? Zimbabwe had subscribed to the same monetary model that we use; central economic planning and Keynesian micromanipulation, and in recent years experienced inflation of 23,000,000%. We need to wake up to the warning signals before it is too late. As the crisis gets worse our Federal Reserve will work harder to prop the market, just as the Central Bank of Zimbabwe did and the Central Bank of Germany did with the German Mark in the 1920s. The devaluation is exponential, meaning at first the inflation will go unnoticed, though, once it is notice able it will be much to late to stop. Compare graphs, notice a similarity? (please listen to the audio file at the end of this article for a deeper understanding of how hyper-inflation happens.)

Extreme Measures for Extreme Times

So you might still be asking yourself, “Why administer such extreme cuts? If the problem is inflation then why don’t we just go back to a gold standard and avoid the loss of federal jobs?” The answer is simply because we cannot afford to. The elasticity of our dollar has led us to a predilection to over-spending, it is a reality that we currently spend much more than our government takes in. Raising taxes to meet that demand would be devastating to our private sector as consumer spending would be reduced, the need for production would drop, followed by the demand for workers. 

It should be noted that these cuts must apply to our militarism in order for us to return to fiscal sanity. We cannot have such a presence in the Middle East while in financial chaos, it's simply impractical and damaging to our recovery. It should be noted that it was only possible to afford such military expansion through our elastic money supply and deficit spending, both of which we must do away with. With a sound currency this type of foreign policy would not be possible, though, nor would be possible noticeable depressions and recessions. But fret not, those of you who lust for militarism, Ron Paul’s budget of $500 billion per year will still far exceed that of any other countries military budget. To be sure, we will reign in our military either way  either by choice or, like Rome, by collapse.

Ron Paul’s plan would not bring us back to the Stone Age, nor back to Colonial Times. His plan would reduce spending back to 2006 levels while balancing the budget by 2016. Paul's plan would also guarantee that we never have a crisis like this again which is not a bad exchange if you ask me. It would come with about a year of necessary short lived agony, but we must be adults and take the medicine or risk total hyper-inflation and a world wide financial collapse. After the markets correct themselves we would, without doubt, experience greater prosperity than we’ve experienced in the last 100 years. We would no longer succumb to the hidden inflationary tax nor would we be tricked into malinvestment by the Fed. Most of all, our dollar would remain the reserve currency of the world, which provides us many benefits that we take for granted. Only Ron Paul's plan offers us this and only Paul's plan will work.

Ron Paul was right in his predictions predating the market collapse of 2008, and he is right now.
(predictions: 1983, 2001, 2002, 2003, 2007)

For a deeper understanding on why we must change our monitary policy please listen to this audio from one of Ron Paul's mentors, Murray Rothbard, titled "Economic Depressions: Their Cause and Cure".


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