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Aug. 11, 2015 - Ron Paul Liberty Report
12:53
China Devalues: Currency Wars Explode!

China's surprise currency devaluation yesterday has fueled the ongoing currency wars. Escalation is on the way. Who wins? Who loses? China's surprise currency devaluation yesterday has fueled the ongoing currency wars. Escalation is on the way. Who wins? Who loses? China's surprise currency devaluation yesterday has fueled the ongoing currency wars. Escalation is on the way. Who wins? Who loses?

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Biggest Currency War Yet 00:08:45
Hello everybody, and thank you for tuning in to the Liberty Report.
With me today is Daniel McAdams.
Daniel, nice to see you.
Good morning, Dr. Paul.
Good to be here.
Good.
Big issue in the news today is China's devaluation of the won.
It has caused a lot of excitement in the financial markets, the stock markets around the world, and it is a significant event.
And I'd like to try to put that in a perspective because it's a continuation of currency wars.
We've all heard about currency wars and competitive devaluations.
But this one seems to be a little bit bigger and has gotten more attention.
But I don't think it's a good sign.
I think they're going in the wrong direction because our economies throughout the world are a mess.
It isn't separate economies.
Europe is connected with what we do in Asia.
It's all connected because it's all built on a dollar standard, dollar reserve standards.
It's a fiat dollar.
And we would expect problems.
We would expect inflation in that printing a lot of money causes distortions and then you have downturns.
And I think what we're in the middle of is a worldwide downturn.
And people are starting to hurt.
And all of a sudden, China, which has been doing fantastically and has served as our banker, and they sell us a lot of good stuff at cheap prices, they have turned down.
So they're not exporting as much to us.
Instead of saying, well, why is that?
Is there a problem with Keynesian economics?
Or is it a problem with the currency?
So they conclude, as many, many others throughout history have concluded, well, if we just make our currency weaker, that will lower prices and people will keep buying stuff from us.
And so they've devalued.
But this is a common practice.
But it never solves the problem.
It might lower prices for a short period of time, but eventually the inflation in those economies come back up.
So there's no long-term net benefit, but it's a policy done, especially when you have fluctuating paper fiat currencies, and that, of course, is what we live with.
But I want to put up a couple charts to show you and the audience, you know, what we have done.
Because so often, like in foreign policy, we claim that we complain about others doing certain things, but we never do it and we never look to, we may be doing exactly the same thing.
Well, I think we're the big devaluators.
We have devalued like crazy over the years.
You take our Federal Reserve.
They inherited a dollar that was $20 to an ounce of gold 100 years ago, and now it's $1,100.
So they've devalued 98%.
So they've purposely devalued the dollar and they continue to do it.
But right now, it's popular to blame somebody else.
So our politicians, there's a few in the presidential race, well, let's blame the Chinese and maybe we just have to have a tough negotiator and negotiator can ignore all these fundamental problems with currencies and interference with interest rates.
But I'd like to put up a chart on where we were in 1971 before the breakdown of the Bretton Woods Agreement.
And that was when before in Bretton Woods, we honored the dollar at $35 an ounce.
So it worked relatively well, although we constantly abused it by devaluing the dollar.
It finally caught up and it destroyed the pseudo-gold standard and it broke down.
But then we immediately saw the market change.
So we have the Japanese chart up here, Japanese yen, and in 1971, It took 360 yen to buy a dollar.
And that meant the current, the Japanese yen was very, very weak.
But now on the lower part of that, it's down around 100.
It's been under 100, which means the yen has gotten much stronger.
So we were devaluating constantly.
And if you measure our devaluation against the Swiss franc, we have a chart here on the Swiss franc.
The Swiss franc was at one time valued over $4, you know, four Swiss franc for a dollar.
Now it's under a dollar.
So there's been a tremendous devaluation according to the Swiss franc.
So we don't have a right to lecture people about devaluations, but it is very popular.
It's going to continue.
But the big problem that we should think about are the international aspects of this, the politics of this, the economics, you know, maybe a little complicated about this, but it certainly represents what happens if you don't have an anchor.
And the anchor is a currency that can be universally accepted and a commodity which the politicians can't touch.
And we don't have that.
It's not going to happen.
But we're setting the stage for a major change.
And we just wonder now who it might be that will get some advantages after this breakdown.
Yeah, I was wondering about the global political implications of this, and especially if, as they say, China, to get where it was last year, will need to do another 15% devaluation.
So I wonder, you know, because I remember when you were in the House, and especially in the Foreign Affairs Committee, it was very popular to bash China for manipulation of its currency.
They wanted to pass all sorts of bills attacking that.
So there's a political implications of it too, and especially with the mood in Washington regarding China, China being seen as a great threat to the U.S., how do you see this sort of devolving downhill?
Well, I think China is in a better position than it appears.
They're having a weakening economy.
They inflated their currency because they had a lot of dollars.
Instead of just allowing people to spend those dollars and spend them back here, what they did, they inflated by printing won, and the people who sold us goods had their money in won, but the dollars or the dollars we sent over there came back to us to prop up our debt, which further perpetuated the problem.
But the countries will inevitably want to be protectionists.
And my concern is that this devaluation first won't work.
We did 10% and 8% in 1971.
This is 2%, but it's still bad and going in the wrong direction.
And I think what's going to happen is that these currency wars are going to get much worse.
We're going to see price inflation.
Then there will be a breakdown.
And then there will be somebody's going to come along to restore confidence.
And there's never been a time in history that they can restore confidence in the currency once they destroy the confidence in the currency is they have to use some type of commodity to do so.
What do you think now?
Who will pick up the pieces?
Who are the winners and losers?
Well, you know, I think we're going to be the losers because, you know, we're the ones who are most out of balance, the biggest debt, biggest foreign debt.
Although we have been the biggest beneficiaries of this system because we had control of the fiat dollar.
But when we lose that, I think it's going to shift over to China.
And they're going to have allies with maybe Iran, India, Japan, and Russia.
And maybe they can restore some confidence.
And you say, oh, that can't be.
You know, they're very weak right now.
But I think we're destined to have a big problem.
But you know, the biggest problem is we talk a lot about foreign policy and the antagonisms that go on.
But the history shows that the more currency wars and competitive devaluations, because that's a form of a tariff, and the more protectionism that goes on, you know, keep the goods out.
And we did it in the 30s, they had this.
What did it do in the 30s?
It led to a bad time, bad war.
So that is what I'm afraid might happen, is that it might help precipitate a major military conflict among the nations.
The Chinese are taking our jobs, that kind of mentality.
Yeah, they'll be continuing to do that.
But I think the hardest thing for people to understand is that this whole economy appears to be half decent, it's an illusion.
It's been built on a foundation, a foundation of sand.
Although it's sitting there and it looks okay, it's based on expectations that shouldn't have been there.
Illusion Of Wealth 00:03:57
That you can create real wealth by just a computer.
And of course, wealth to some degree was preserved for the rich during this period of time, you know, and by just printing like crazy.
Our monetary expansion since the recession started, that's a devaluation.
When you do QE, you're printing money like crazy, so you're devaluating the value of the currency.
And it makes it so often look okay for the short run.
Well, in the long run, we're just building up more anxiety and more problems.
So I think this is a sign, I think this is a consequence that China, right now, economically, is weaker than they want to admit.
And people realize, and I think that's why most of the markets are reacting in a certain way, because all of a sudden, if China wasn't buying enough stuff from us already, they're going to even buy less, but we're not going to buy from them either.
So it's going to be compounding.
But I really push it back to the fundamental fact that you can't have a sound economic system built on fiat money because it's distortion.
It's inevitable that almost everything will have a mistake in it.
Although some people will benefit by it, but if you don't have the price of something, like if you don't have, socialists don't have prices for commodities, that's why they never knew how many to produce or what the people wanted.
So if we've distorted the pricing structure in the financial markets between the currencies, instead of having one currency that is agreed upon voluntarily and everybody agreeing that gold will be the backbone of the currency, we have all this competing currencies and leading to exactly what we have today.
This shouldn't surprise anybody and shouldn't surprise anybody to see this get much worse.
And that should be our concern.
It should inspire people to really look into the wisdom of having a currency that is not political, no political money.
And of course, I'd like to see more discussion in the presidential race on what people think about sound money.
I had a struggle trying to get their attention last time to get them to talk about it.
But the establishment love it.
The military-industrial complex.
Well, you can't do that.
We're making money off this.
And it's going to go on.
The bankers like it.
politicians like it frankly when the bankruptcy arrives and then we will have to you know change the system or the system will change us and that that is what is is coming The Soviet system fortunately was not defeated militarily because we didn't have to.
They defeated themselves from within and that is what we're going to do if we don't look at this inwardly and find out how did we participate in this fiasco?
Is it all the Chinese fault?
And I would say no, it's because it's a complex monetary system, which is a political system and it causes gross distortions, distortions on the value of the money, distortion on all the trades that are going on.
And that will have to be unwound.
And that is where the pain and the sufferings will come from because you can't prop it up just by creating more credit, which has led us into this predicament.
So once again, I vote for sound money and I vote that we don't need central banking.
And the sooner the American people wake up and find out we don't even need the Federal Reserve, the better off we'll all be.
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