China has been accumulating gold for years, and are now taking steps to tie it to yuan. Interest rates in the U.S. are rising, and the Chinese are not so eager to keep piling up on U.S. dollars and U.S. Treasury debt. Ron Paul discusses on The Liberty Report!
China has been accumulating gold for years, and are now taking steps to tie it to yuan. Interest rates in the U.S. are rising, and the Chinese are not so eager to keep piling up on U.S. dollars and U.S. Treasury debt. Ron Paul discusses on The Liberty Report!
China has been accumulating gold for years, and are now taking steps to tie it to yuan. Interest rates in the U.S. are rising, and the Chinese are not so eager to keep piling up on U.S. dollars and U.S. Treasury debt. Ron Paul discusses on The Liberty Report!
Hello, everybody, and thank you for tuning in to the Liberty Report.
With me today is Chris Rossini, as co-host.
Chris, welcome to the program.
Great to be with you, Dr. Paul.
Well, very good.
I want to talk a little bit about monetary policy.
The Chinese were in the news this week.
There was an article out there where they were threatening we're not going to be buying as many treasury.
We might even sell some treasuries, which stirred up the markets.
It pushed interest rates up, and then later on we saw an article that said, well, maybe they're not quite ready to do it.
Anyway, that's a potential.
They've talked about that for years.
And the Chinese are not completely happy with our monetary policy, our system, and the dollar reserve standard.
And they have threatened to promote their own.
And at the beginning of this year, and it's ongoing now, they have a futures contract that's backed by gold and oil, which is very, very important because if it catches hold, that will be a challenge to the dollar.
It will cause the dollar to go down and interest rates to go up.
So we're looking at a situation now where interest rates have moved up.
I like to watch the 10-year bond yields.
And it looks like the bottom of those yields are the top price for the 10-year, because the price is high when the interest rates are low, was in July of 2016, and the rates were actually below 1.4%.
And now they're 2.5%.
So that's a significant move.
And that's, you know, not two years yet.
So something is moving the interest rates.
They quit the QEs, which would act to keep the interest rates down by us buying everything and making sure that there's nobody to push the rates up.
So it looks like the market may be raising interest rates.
China may be threatening to do some things that would raise interest rate.
It's unknown about the Fed.
They claim that they're going to shrink their balance sheet by $50 billion a month.
In the old days, that used to be a lot, but when you have $4.5 trillion on the balance sheet, that's pretty slow.
That puts a little bit of pressure on interest rates.
And why I want to bring this up, Chris, is the fact that interest rates are pretty darn important.
It's a shame that they've destroyed it as an economic indicator for the free market, because interest rates should tell people what to do with savings and investment.
But right now, I'm sure you're well aware of, Chris, is when the interest rates start creeping up, boy, if they ever go up a full percentage point or something, which is very possible, what's that going to do to our national debt?
I think it's a big threat to our financial system.
Yes, interest rates should be set by the marketplace, not by central planners.
Interest rates are prices, and prices are supposed to be accurate.
They're supposed to tell us the truth about the supply and demand of a situation so that you can make good decisions.
And in the case of interest rates, they're supposed to give us an accurate picture of savings that have been put aside that won't be spent that can be invested.
Well, with the Federal Reserve, it's all falsified.
It's all fake.
And they keep their rates artificially low.
People make investments that should never be made.
And we've been through this so many times just in the last decade with the stock market, with the housing market.
And as you mentioned, once the rates go up, all the bad investments are exposed on a massive scale.
And we're in for that, Dr. Paul, once again.
Yes, and I think it's fascinating to watch what the expectations are when interest rates go up because it has been said for years that, oh, well, the gold is going to be under attack as soon as the interest rates go up because gold, of course, doesn't pay interest.
And therefore, if the dollar is starting to pay more interest, people will not buy gold, but they will buy dollars, stay in dollars.
But here, with this emphasis on what looks like an increase in interest rates, gold's been doing quite well.
And I remember very clearly what happened in the 1970s.
Interest rates went as high as 21%, and that was when there was a big bear market or bull market in gold with gold reacting to the breakdown of the Bretton Woods, gold going from $35 an ounce up to $800.
So this whole idea that rising interest rates will be damaging to gold is not necessarily true.
I think interest rates and what's going on and the threat by China and Russia and some other countries about our dollar, it will knock the dollar down.
But the dollar might go down for more natural market reasons.
And the dollar has gone down.
This past year, it's down over 10%.
And it's probably going to go down another 10% this year.
And that, of course, is going to increase prices of a lot of things.
It will increase prices of imported goods.
It's going to import.
It'll increase prices of things that are internationally based on the dollar.
Gold, for instance, in dollar terms, it's going to go up, and gold has been doing pretty well.
Same way with oil.
Oil, I think, went down below $30 for a short period of time.
It's up to $64 now.
So it's moving along.
And it all may represent this whole idea that there's talk about alternative currencies.
There's talk about people buying less of our Treasury bills.
And then on top of that, the Fed is talking about selling off some of their balance sheet because they went from $800 billion up to $4.5 trillion.
And now they own mortgage securities and treasuries.
And they will have to eventually get rid of these, but they can't do that without raising interest rates.
So they're hanging in the balance.
And this is part of my argument that the consequence of this quantitative easing, this massive inflation, is still with us.
People say, what are you talking about?
There's no inflation.
The Fed says they've been working hard to get prices to go up 2%.
Well, if you look at inflation as a monetary event, I think you would agree, Chris, that there's probably plenty of inflation around.
Oh, absolutely.
I know from my own bills, they never seem to go down, that's for sure.
But with regards to, as our central planners bumble things over in China, I hate to say it as an American, but they're doing the smart stuff.
They've been accumulating gold.
They're our major creditor.
They manufacture everything.
And probably most importantly, they're not conquering the world, bankrupting themselves militarily.
And this reminds me of what America did prior to the World Wars, which they should have never been involved in, but they were.
But they let the Europeans knock themselves out militarily.
And here came America with all the gold, all the credit.
We were the major manufacturer.
And Europe has never recovered since then.
So the Chinese are just sitting there biding their time as we go in the wrong direction, unfortunately.
Yeah, and one of the principles of inflating a currency and lower than market interest rates is that you can't predict where that money is going to go.
And that's why the CPI is going up faster than they'll admit.
But it still isn't going up like it was in the 70s, and it reassures people and reassures the Fed, don't worry about it, there's no inflation.
But I think there's plenty of inflation in the stock market.
The stocks are very, very high, and they don't seem like it's ever going to quit.
But it will quit because it's probably overinvested.
It's a malinvestment.
And the bonds the same way.
And that looks like it's cracking.
The fact that the price of a bond probably peaked out in 2016 when it was lower than 1.4%.
And long term, somebody's going to look back and when did this finally occur?
Because it was a big event in probably 1979 when the inflation had gone on for 30 years or so, and it peaked out at 21%.
And then we've been in this bull market for bonds, which meant the interest rates were going down.
And I think we're turning a point here.
And it will be significant.
So there will be a lot of market factors.
There'll be people who will say, well, the momentum is in the other direction.
And there will just be investors and they're going to start selling bonds.
And then all these other things that we've mentioned, whether the other countries sort of give up on the dollar.
But we still have the attack on the dollar, which is the thing that I watch and have been concerned about.
And there are other factors on the dollar.
For instance, if you print too many of them, why do you do it?
Well, we have to pay our bills and we have a lot of debt.
It doesn't look like this so-called conservative administration is all of a sudden going to be spending less money, you know, whether it's overseas or whether it's domestic spending or whether it's to cover the interest payment for the national debt.
So the debt is going to go up.
So it's all mixed in, and therefore, the pressure on for the Fed to continue to create the money supply is dampen their enthusiasm for shrinking, you know, their balance sheet.
I don't think the plans several years out on how they're going to shrink the balance sheet.
I think that it's going to be interfered with.
I think economic factors are going to say, hey, this isn't going well.
The last thing we need to be doing is something that looks deliberately like we're raising interest rate.
So there's a lot of factors worked in here.
And I think it's safe to say that we can relate this back to a philosophy of big government, which has been financed by a lucky deal for us of issuing the reserve currency of the world, and we get to print the money.
So I think big events are about to occur.
Yeah, and Dr. Paul, I'd like to close with a little statement on the Fed because they really enable all of this, the wars, the welfare, and all the booms and busts that we go through.
And they create them on a massive scale.
Now, obviously, we want market rates, but that's not going to create a utopia.
There's going to be plenty of bad investments, but they'll happen on a localized scale.
Right now, it happens on a massive scale.
The whole economy is affected by these wild swings that should not occur.
So we'll always have bad investments by entrepreneurs, but they won't affect everyone the way that they do now.
And each time that there's a bust, the Fed and the government move in and give themselves even more authority.
So it's a vicious cycle, and we have to get out of it someday.
Yeah, and I think we will, but not gracefully.
I think there's enough information out there by Austrian free market economists to explain what it is, and you could gradually work your way up.
But the odds of that are nil.
From my experience in Washington, they're not going to respond with any common sense.
So it's going to continue, and it's going to end badly.
And I think it's going to be climactic, like I've talked about.
It's not going to be gradual and smooth.
It's going to be the end of a system that's been around basically for 100 years when it comes to Keynesian economics that literally teaches spending is okay.
That is necessary.
That's where economic growth comes from.
Borrowing money is okay.
And if you don't have enough lenders, we'll print the money.
It goes on and on.
You can have a foreign policy of interventionism.
If you want to finance an empire, that'll be okay too.
If you want to get more votes by promising all this free stuff and socialism is our answer, all that I think is going to come to an end.
So what's really up for debates is what is it going to be replaced with?
And that's where I'm optimistic.
I think there's knowledge now about the importance of the monetary system and that the role of government has to change.
And I think an event is coming along every bit as significant as what the founders had to face.
You know, they had to decide what should the role of government be.
Unfortunately, we drifted a long way from that in the last 100 years, certainly.
But I think the events will be there.
And I think with the help of the internet and understanding and the need for something, that we will come out of this, but not without a lot of pain for a lot of people because we have to pay for the mistakes.
And the longer we paper it over and just say, well, spend more money and borrow more money, yeah, it may work, but it's sort of like giving drugs to a drug addict.
It doesn't work on the long run.
Restoring the American Dream00:00:27
So what we as a nation must do, we have to look at it and say, hey, folks, look, what we want is to live in a free society.
We want to be able to keep what we earn.
We want to have a voluntary society.
We want to have honest money.
And we have to restore an American dream mainly by restoring American liberty.
That would be the way I would restore an American dream.
But Chris, I want to thank you very much for being with us today.
Thanks very much, Dr. Paul.
And I want to thank our audience for joining us today.