The markets seem to believe the dollar is healthy. Ron Paul is not so sure. Trouble is brewing with the expanding dollar bubble. When will it pop and what should we expect?
The markets seem to believe the dollar is healthy. Ron Paul is not so sure. Trouble is brewing with the expanding dollar bubble. When will it pop and what should we expect?
The markets seem to believe the dollar is healthy. Ron Paul is not so sure. Trouble is brewing with the expanding dollar bubble. When will it pop and what should we expect?
Hello everybody and thank you for tuning in to the Ron Paul Liberty Report.
With me today is Daniel McAdams who is the co-host and also the executive director of the Institute for Peace and Prosperity.
Daniel, good to see you today.
Thanks.
Good to be with you.
I thought we'd talk a little bit about the dollar.
Is the dollar healthy?
Right now the markets are saying the dollar is pretty good and yet the other day I was on CNBC and they were rather taken back because I had a bit of a different opinion and I thought the dollar is vulnerable and it's way out of whack.
It's overvalued in many ways and even said that we ought to be concerned because I believe the dollar is in a bubble.
I don't know you saw a little bit of that and some follow-up on that.
But I think that the dollar issue is so crucial because the world is still, in spite of the transition going on, the dollar is still a pretty important currency and we get a free ride because it's reserve currency.
Everybody holds them.
When trouble brews, you know, whether there's a war breaking out or whether there's a crisis like there was in 08 and 09, people still, you know, go to the dollar.
But there's a point where it has to has to, it's limited.
For instance, in the last year, the dollar went up about 33% in relationship to the other currencies.
Now that's part of what I'm talking about, about the bubble.
But in other ways, a bubble on a currency or the dollar, I see is differently than a bubble in housing markets because it's related to dollars.
So is this something that makes you curious about how this thing works?
Yeah, absolutely.
And I was wondering because everyone says the dollar's up, the dollar is doing so well.
And then when you came in and said there's a bubble, they thought, what is he talking about?
But then you pointed out it's, you know, it's, I think it's distorted.
You know, it's it, the market's distorted because it's artificial, it's not a gold standard, it's a political system, it's paper, and therefore values which are subjectively valued means that they can have sudden changes.
Housing bubbles, you know, it looks great when the bubble's being blown up and everybody has houses and interest rates are low, but eventually it has to crack.
Well, this reserve currency and the dollar will have to make these corrections.
It's up strongly against other currencies, the basket of currencies.
Does that mean that's good for the dollar?
Well, some people think the one downside is it hurts our exports, but that's a technical argument.
I was going to ask you why you think the dollar, why would you argue that the dollar is in a bubble?
Well, it's because, well, I think this is part of the reason, part of the way the other countries have valued it.
They think it's very good, out of proportion to what it really is.
But the trust is still there, and the trust factor is very, very important.
So it's just, I'm a contrarian, believe it or not, that when the whole world, even on the short-run technical way of saying, you know, you know, the Euro is lousy and all the other currencies are lousy, therefore we have to stick with the dollar, well, that's about the time you have to think things will change.
I believe we could be in the transition already.
Because if you look at what the foreign banks are doing and foreign investments, they essentially haven't increased their holdings of Treasury bills in our debt in the last two years.
What do you think that is?
Well, I think they're worried about the dollar bubble in the future.
Well, I would think that you spend a lot of time on thinking about foreign policy.
And we know that sanctions on countries like Russia sort of pushes Russia to the Far East.
And we have China Looking toward more independence and talking about another reserve currency.
But the one thing that's on my side of the argument is that paper money never lasts.
I remember one time bringing this up to Alan Greenspan before a committee, and I said, well, if you can achieve this, that is perpetuate this paper money.
And I knew he knew better since he used to believe in Austrian economics.
I said, you're actually changing 6,000 years of history that you can make paper money true currency, you know, on Australia.
And he acknowledged that.
Like, we're smarter these days.
That was sort of his attitude, you know, that they could do this.
But I think there will be a change.
Foreigners are buying them less.
They haven't increased their holdings in the past two years.
And yet there's been a tremendous increase, which is part of this bubble, since we had the financial bubble of since 08.
And the Fed has increased their holdings of Federal Reserve credit five-fold.
They went from $800 billion up to over $4 trillion holding.
And yet it hasn't, people say, well, if the dollar's weak and you're worried about it, you know, they ask about where's the inflation.
Well, I would ask you, do you think there's any inflation in the military expenditures?
Are the costs of military weapons going down these days, would you think?
On the contrary, you know, especially with the new technology and weapons that often doesn't work, as we see with the F-35, the costs go through the roof.
And there's a bit of malinvestment there, too.
This is not a market decision, so a lot of money goes into the military-industrial complex.
But other people say, well, GPI is not going up, which I don't believe anyway, because the CPI is going up, not as fast as it did in the 1970s.
But they always argue, and especially when I'm on these financial statements, well, there's no inflation.
Well, what about stocks?
Could those prices be inflated?
You know, the other day we heard about GE selling their property, which I thought was a hard asset, and you'd want to hold.
They sell their property, get $50 billion, and they buy their stock, and the price of their stock goes up, and their profits and their executives get bigger bonuses.
But where did this $50 billion of credit come from?
Did it come from savings?
No.
It is such a distorted system that we have, and it won't last, and people will accelerate leaving the dollar.
So you talk about the dollar being in a bubble.
Could you maybe walk us through what a dollar bubble burst would look like?
How would we notice?
How would we recognize it?
Well, the best thing is to admit nobody knows exactly when or exactly what it'll look like.
But generally speaking, the value of the purchasing power of the dollar will go down, which I think that's happening now, but it's going to go down a lot more.
So the conventional measurement of inflation, cost of living, that's going to go up.
And when this happens, you will see a break in the interest rates.
Now they're essentially minus, but they can't stay there.
And the Fed probably will never raise interest rates.
But if people reject the taking of the dollars, in order for the dollar to survive, they have to raise interest rates.
In some ways, they ran into that in the 1970s, and interest rates went to 21% in order to save the dollar.
Well, something like that could happen, but to predict exactly who gets hurt the most, I think everybody's going to get hurt.
And hopefully the outcome will be that people will wake up, recognize that this problem is the fact that we have a fiat currency, that the politicians, right and left, can print money for their special interest, and that'll all be rejected.
I think one of the consequences will be a good one.
We won't be able to afford our empire.
We want to bring our troops home.
And that means we would maybe have less incentive to use the NSA spying on us because of all these things going on.
But what has happened when we have this artificial system is they destroy the most important instrument for dealing with a free market, healthy economy.
And that's the signal we get from interest rates.
And this bubble has been built because there has been no interest rate information for us.
And that's why I see almost everything as distorted.
Nobody knows which is a good investment or a bad investment.
And I think that's why it's going to be very harmful.
I think the economy will get very weak.
I think interest rates are going to go up.
And unfortunately, even though I would like to see our troops come home, sometimes a result of this will be that governments will resort to militarism, more militarism, and more force and coercion and a command society.
And that would be very, very bad.
But the benefits could be that we wake up.
And you know, we talk to a lot of young people and they're interested in the Federal Reserve.
They're interested in the sound money and all these things and less wars.
So it's an opportunity for us to present the case for peace and prosperity.
But I know in our Institute for Peace and Prosperity, we concentrate on civil liberties and foreign policy, but you can never ignore the economics because you've got to pay for these wars.
And one thing, and we could maybe do a little bit more work on the Institute's part of dispelling this myth that wars are good for the economy and that wars are devastating to our economy.
And they say, well, we got all of the Depression with World War II, which is not exactly true.
How many millions of people had to die?
And we got out of the Depression after World War II, not during World War II.
So I think all I can suggest to our listeners is that the dollar is very important.
It's a reserve currency in the world.
Sure Gold, Long Run00:01:08
Nobody knows exactly what the true value is.
The best measurement throughout history for the value of a currency is its relationship to gold.
The immediate reaction on the financial reports is: well, gold isn't even going up.
Gold is just lingering and it drops on some of these days, which is true.
But who knows exactly what's happening on the short run?
On the long run, it is in the interest of governments to make sure that gold prices do not go up.
And during the 60s and the 70s, they did everything to dump gold and pretend gold was $35 an ounce until the market overwhelmed.
So even though gold may seem to be in the doldrums right now, eventually this will break out.
And when they lose confidence in paper, which they always do, hard assets will serve the interests of the consumers and to the investors and to the average person.
Unfortunately, it's very precarious now, and nobody's quite certain exactly how to protect, but it isn't going to be just hanging on to paper dollars that will not protect us.