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Dec. 16, 2022 - Ron Paul Liberty Report
25:00
Another Fed Rate Hike In A World Where Rates Must Be Set By The Market

Birch Gold Rep, Phillip Patrick joins us once again to discuss the Federal Reserve manipulation economic disaster in the making. Central planning has failed again. When it's time to remake the monetary system, with sound money finally make its triumphant return.

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Time Text
Inflation's Aggressive Return 00:14:49
With us today is Chris Rossini, our co-host.
Chris, welcome to the program.
Great to be with you, Dr. Paul.
Chris, once again, we are honored by the presence of the economist from Birch Gold.
He's been with us several times.
Now, Philip Patrick is here, and he has a lot of explaining to do.
I don't understand what's going on in these markets, and I've been looking at them for 30 years.
So Philip is going to straighten us out and explain all the problems going on.
Philip, welcome to our program again.
Thank you so much for having me, guys.
It's an honor, as always.
Very good.
Philip, I want to start off with talking a little bit about the Fed, because they are big in the news, not only this week, but eternally.
The Fed has been an issue, a big issue since 1913, certainly since the middle 30s, certainly since 1971, and all the tragedies that have occurred with our dollar.
But this week was very, very active, and they were doing things, and I thought it was fascinating.
They said that they would lower the rate of decrease of increase in the interest rate because their solution to a weak economy is raise interest rates.
And the whole thing is fallacious.
And I want to address the subject, and you're good at this, is where did they get this authority?
Is it a good idea that we think, and so many trillions of dollars depends on a few words by a Federal Reserve, like, oh, next week we are going to do this, and boom, boom, boom, the money exchanges.
I just think it's a rather fragile system.
But tell us what you thought about this week.
Did you get any reassurance that we're on a road to recovery and everybody's going to be happy next year?
Sadly not, Dr. Paul.
It was a little bizarre.
I mean, this Fed telegraphs more so than other Federal Reserves have.
And I think most people were expecting a 50 basis point rate hike.
But it was a little surprising or a little strange, I should say.
The whole point of these rate hikes ultimately is to lower inflation.
And rates hikes now are slowing, even though inflation isn't really, right?
We've seen a small reduction in overall inflation, right?
It came down from 7.7 to 7.1.
But when you delve into the numbers, it gets a little bit more concerning.
So core inflation, which is everything outside of food and energy, was up about 6% year over year.
The only metric within core inflation that reduced was used cars.
And of course, that's because prices had gotten so high, they had to come down.
Outside of core inflation, it was energy that saw the real reduction, about 1.6%.
Food prices, however, up.
So what it's showing us, I think, is that the Fed really don't have a handle on inflation, right?
What's come down, energy and used cars.
What's gone up?
The essentials, food, shelter.
So taken all together, I think the Fed have a lot of work to do.
And of course, the strong employment numbers we're seeing, I think are still working against them.
Chris, do you have a question for Philip?
Yes, Philip, great to see you again.
I wanted to talk about inflation targets because it's so ridiculous.
Even the idea that targets exist, I mean, nobody gave the Fed any taxing authority over us, whereas they want to steal 2% of our purchasing power, as a matter of fact.
And that was for years.
Oh, we want to get 2%, 2%.
Then it shot up to, it's probably 15% now.
Correct.
And now they're just talking about, oh, we just need new targets, new higher targets.
I mean, so I thought of an analogy.
What if the government, you know, and we believe that the income tax itself is theft.
You know, so if we pay 35% income tax and one day they just take 75%, would we just accept, oh, sorry, we overshot this year.
We'll try to bring it down to 50.
I mean, can you just talk about this whole charade called inflation targets?
I mean, it's absurd, right?
Particularly where you can just move the goalpost.
It's like me not achieving our company's targets and saying, well, let's just lower the target.
That way we achieve it.
It's nonsensical.
Look, the Fed is, as you know well, have a dual mandate to maintain maximum employment and that 2% target.
For me, it's not going to be achievable for the foreseeable future.
I think the Fed are really pinned into a corner here.
They can raise rates, and I think next year when the reality that they really haven't got a grip on inflation kicks in, they're going to have to get more aggressive with the raising of interest rates.
But the problem, as we've discussed before, I don't know how aggressive they can.
And it has a significant effect on the federal government.
Let's not forget with $31 trillion in debt, every time the interest rate goes up 1%, that adds $310 billion in debt service.
That alone accounts for a massive category of government spending.
A 1% raise equates to our Medicaid outlays.
2% are defense spending, which is colossal compared to other nations.
And 3% Social Security.
I don't think they're going to be able to raise rates enough to really slow the inflation.
And I think the 2% target is a pipe dream for a long, long time.
Very good, Philip.
You know, the timing of all this is a big problem because the markets move quickly.
So the Fed only has to say a couple words and the markets can shift and trillions of dollars can be bought or sold or whatever.
So it doesn't make any sense.
And I think one of the basic problems is this idea that you can plan an economy.
You can raise interest rates a certain point and then you know what's going to happen and they make these calculations.
And so now when somebody gets a PhD in economics, you have to learn these mathematical equations that's going to perceive the human action of billions of people who are dealing in the market.
And so what the Fed does, of course, is the best thing, and they can get away with it as long.
Well, keep interest rates low.
Prices aren't going to go up immediately.
And the people love it.
But that locked into place.
So someday, that artificial manipulation of interest rates is going to give us this downturn, which always comes.
But then they're in a dilemma.
The downturn occurs and they achieve at least their 2% price inflation that they want.
And it turns out to be 10% price inflation.
And then what do they have to offer?
Can they recalculate?
No, the market is more powerful than they are.
So what they do is they say, the only thing we can do is stop this boom that we created.
Give the people a recession or depression.
That'll solve our problem.
How crazy could that get?
I mean, it is absolutely absurd.
And we've seen this.
Listen, Federal Reserve policy, quantitative easing, government spending has driven massive bubbles in the economy, right?
And the old saying is what goes up must come down, particularly when that growth was not driven by fundamentals.
It wasn't driven by earnings.
It was driven by policy.
And I think the point you made earlier was absolutely spot on.
Look at what we're seeing in the markets now.
Markets are rallying on the back of Federal Reserve minutes, right?
They're combing through looking for any sort of dovish words, right?
And then markets respond on the back of it.
Since when did Federal Reserve minutes become more important than earnings reports?
Like, that's how crazy things have gotten.
And for me, this is classic late-stage bubble behavior.
Heading into next year, I think we start to see this bubble unwinding, and it could get tough.
Very good.
Speaking of the bubble.
Chris.
Sorry, Dr. Paul.
Yes, speaking of the bubble, in the past, when the Fed wants to pop the bubble that it created, if you go back to dot-com, the housing bubble, they would raise rates until something finally breaks.
Well, it seems like they're doing that again, waiting for something to break, but nothing major, at least in America.
You know, we've had some crypto problems, but no major dominoes have come down.
And, you know, everybody speculates, how can this market now keep stay up?
You know, the Fed just keeps raising into it.
And, you know, one of the speculations, and I tend to think along these lines, is that because Europe is in such bad shape, that money has to go where it feels safest.
And it's probably flowing into the United States and into the dollar and into our markets.
So when something major breaks, do you think it will be in Europe?
I mean, Europe's falling apart, quite frankly.
And you're correct.
I think, you know, a lot of the dollar strength we've seen over the last few months has really been by proxy.
It's been on the back of weakening of other currencies.
But you're right.
The Fed has a really tough task, right?
What they're trying to do right now is to kill demand, and it's not really working.
The Fed has raised the effective interest rate 400 basis points over the last year, and it hasn't really slowed consumer spending that much, which is about two-thirds of U.S. GDP.
It's the bulk of the story for the U.S. economy.
So it's left us in the position today of too much money tasing too few goods and services.
It's a tough position.
Could Europe be the catalyst for broader correction, broader sort of recessions across the globe?
Absolutely.
I think they have big, big problems, as do we.
Theirs may be slightly bigger than ours at the moment.
But, you know, for me, it's really interesting because we're in a position now where, you know, we have to combat inflation by killing demand, by forcing a recession.
But there's another way to combat inflation, which is, of course, increasing supply.
And that, for me, is another failure of leadership.
This was an opportunity that the Biden administration has.
Listen, the U.S. used to manufacture things, right?
We used to make things.
We've lost 91,000 factories, 5 million manufacturing jobs.
Our destiny is out of our hands.
And that, for me, is another side of the problem that not too many people are talking about today.
But for me, what we need is some good leadership.
We start need to be making some fiscally responsible decisions.
It's not happening at the moment, and it's creating a big problem.
You know, we talk about the dollar.
We talk about gold.
Gold is the real money, but the dollar reigns as the king still of the world, even though it's being challenged.
In the last probably a year or so, especially when the rates started to go up because they were artificially low, and people knew they would start up.
But as the rates went up, it drew money and some dollars away from gold, and gold tended to go down.
It's still related to that.
On a daily basis, you might see this.
If the rates are going to go up, and that's where the Fed sends very confusing information.
You know, once some one thing is happening and they're doing something opposite to it, and to sort it out, it's just practically impossible.
But right now, though, my theory is that eventually, yes, interest rates are very, very important on gold.
But as I recall watching what happened in the 70s, it wasn't the whole thing.
We ended up with very high interest rates and very high gold prices.
So do you think about that connection one way or the other?
Do you agree that the dollar, you know, the interest rates is dominating some decisions, but maybe there'll be a lot more fed into the system than just that?
Absolutely, yes.
And, you know, we saw gold up until the last couple of months dip off on the back of major market downside earlier in the year.
And a lot of times when stocks drop, right, and when, as you mentioned, other currencies are getting hit worse than the dollar, a lot of people flood to dollars.
It tends to be short term, right?
After the crash in 2000, we saw a strengthening of the dollar that lasted two or three months before it corrected down.
Same thing in 08, right?
And, you know, everyone thinks about 2008.
They think about gold prices going through the roof.
What they forget, initially, gold dipped about 30% on the back of a stronger dollar, and then it went parabolic.
But I definitely see parallels today to the 1970s.
That was the last time we had a climate of stagflation.
And I think one of the big drivers for gold, obviously, was the inflationary piece, right?
As inflation rises, it drives gold and silver up.
They are, at the end of the day, intrinsically, they are commodities.
So by definition, as inflation rises, it drives them up.
The other thing about the 70s is there weren't too many options, right?
Stocks were coming down, housing was coming down.
So it drove a lot of safe haven demand to gold.
And gold grew tenfold between the 70s and the 80s.
Let's not forget something.
In the 1970s, we had more options than today, because at least in the 70s, you could put your cash in the bank and beat inflation, getting 16, 17%.
We don't even have that today.
And I think, you know, I talk to people a lot.
I think we got a very conducive climate for gold in terms of the nature of our problems.
But I think the other side of it is a lack of viable options out there.
For me, precious metals are the way to weather this storm.
Right, Chris?
Dr. Paul, this will be my last question.
I wanted to make a comment about Birch Gold because we value our relationship with Birch.
We love having Philip on from time to time.
But me personally, I'm the one that deals with the company behind the scenes.
And I do want to say that these are from everyone that I've dealt with, they are a bunch of professionals.
It is a pleasure to deal with them.
And I'm glad that we have our partnership.
But the question I wanted to get to is: a lot of our viewers, some, in our comments, will say, you know, we love what you have to say about gold.
Everything you're saying is true, but it's just too expensive.
You know, we don't have the money to buy gold.
So I wanted to get your thoughts on that, Philip.
Oil Prices and Currency Fluctuations 00:05:20
And I also wanted to say, you know, this week, the price of silver has gone up substantially.
So what are your thoughts?
And how do you handle people that, you know, they think that gold is just out of their reach?
Look, you know, gold as a price per ounce today is about 80 times the price of silver.
So, you know, in terms of dollar amount, it's a sizable chunk of change.
In terms of value, though, I think gold is still cheap today, right, in that respect, in the sense that look at where it was in 2011.
Gold was 1,960 an ounce.
Today, over a decade later, we're trading below that level.
So it constitutes a good buying opportunity.
But you are right.
Look, thousands of dollars is a lot of money.
Silver, for me, is a very good alternative.
Price per ounce, very, very low relative to gold, right?
Spot price is around $26 today.
And really interesting from a growth perspective, silver is actually very undervalued relative to gold.
Historically, they traded around 16 to 1.
Today, they're over 80 to 1.
Post 70s, 30, 40 to 1 is about normal.
So silver's really cheap.
It's also used a lot, right?
Industrial consumption is rising.
Solar technology, electric cars require it.
So silver is a very interesting alternative to gold and a very interesting growth play today.
So I would say to those listeners where gold is maybe out of reach today, look at silver.
Very interesting alternative.
You know, we talk a lot about the various things in the economy that will affect the dollar and gold.
And under a gold standard, we wouldn't have enough activity to do because we would probably say gold is a stable currency and we can define it.
And as long as you have free market pricing, it works pretty well.
But that's not the case.
We have this interventionist economy and they have to weigh things.
Like earlier, we talked a lot about interest rates, how that affects it.
But, you know, if you look at just the CPI, that's pretty important if it's up and down.
Sometimes when it goes up, gold goes down.
I keep thinking, oh, no, when the CPI is going up, the gold ought to be going up.
Eventually it does that.
But on the short run, the interpretation might be different.
Also, the value of the dollar on an international exchange market.
And Chris touched on that.
The dollar is very, very strong compared to the other ones.
But maybe the other ones are just very, very weak.
Anticipating, you know, what the dollar is going to do, I think, is a major challenge to the people who are in and out of the currencies.
But the dollar, it's interesting to see and try to speculate and when will happen.
And I'll tell you what, I don't think it's very easy.
That's why I like stable definitions.
I want people to know what the definition of a currency is.
And interest rates, we've already talked about the interest rate.
But the other thing that we haven't mentioned yet, but was a big deal in the 70s and has been a big deal already, and that is oil.
And, you know, Saudis, it's not the same as it was in the 70s, but we had oil skyrocketing and boycotts, and oil went from a couple of bucks a barrel up, you know, huge, huge amounts, increases.
And that always, the oil went up, gold went up.
We kept doing this.
And right now, we've had, at the beginning of this downturn and this inflationary siege that we're under, you know, the oil prices did go up up to over $100.
Tell us a little bit about how you look at these oil markets, because, you know, basically, if you look at the fundamentals over a period of time, my impression would be, well, the oil prices are going to go up.
But there are variables.
Right now, gold is gold.
I mean, oil is significantly down from a peak, you know, a few months ago.
But what's your opinion of what's going to happen in the oil market?
Look, oil is an interesting one.
We've seen a reduction in oil prices, as you rightly point out, but it was basically on the back of oil prices absolutely skyrocketing.
A lot of it depends on policy, right?
Let's see what happens in the elections in 2024.
If we start pushing domestic, you know, we could see a reduction in oil prices nationally.
But, you know, long term, I think prices just go up in general.
I think this inflation, everything that's happening in Russia, obviously the Europeans are struggling massively on the back of surging gas prices.
All this does is create more economic uncertainty.
Economic uncertainty, at the end of the day, is good for safe haven assets and I think ultimately good for gold.
Look, you know it better than me, Dr. Paul, but in my lifetime, certainly, looking at the state of the global economy, looking at the decisions being made geopolitically, I haven't seen a better climate for gold, right?
We talk about our global reserve currency.
We talk about the Saudis.
I think there's been a lot of political blunders.
China right now, obviously speaking with the Saudis about trading oil outside of U.S. dollars.
We have BRICS nations pushing to set up a global reserve currency to rival the dollar.
Wasteful Spending Dilemma 00:03:12
Obviously, I think that's things like that tend to happen at a glacial pace.
But for me, the trajectory that we are heading into as a nation is very, very concerning, and we're getting very close to the point of no return.
Like I said, this for me is a problem of leadership.
And I think if we can get a handle on that, we can change the trajectory.
But either way you look at it, we have a tough storm to weather.
And I think precious metals are about the only way to weather this storm.
Very good.
I'm going to close pretty soon, but I do want to bring up a subject that's in the news even yesterday, dealing with the federal budget.
It tends to be excessive, I would agree.
A little bit high.
But anyway, they passed an emergency bill for it's going to last a week.
By that time, it'll be a couple days before Christmas.
Then there'll be more arm twisting and they're going to try to pack it in.
It's just criminal what they do up there because it affects the American pocketbooks.
But last night they got this passed.
In the Senate, the House has already passed $858 billion.
Talk a minute about, a lot of people say, well, the spending is inflation.
Well, there's a relationship there, but we have to have a Fed to deal with that and turn it into inflation.
And that to me seems like the real dilemma.
And I'm sure you've given that some thought and pay attention to some of these deficits that don't seem to be going to go down anytime soon.
Yeah, listen, look, not all spending is bad, right?
But sadly, wasteful spending is absolutely inflationary.
And this is a point that I stress often.
The Federal Reserve have a job to do, but that job will be impossible if we keep running massive deficits.
I mean, it's unbelievable, right?
And the problem, like I said, is the nature of the spending.
It is very wasteful.
This is not a time to be building bridges to nowhere.
This is not a time to be paying down student debt.
This is a time to be hunkering down, pulling money out of the economy and getting through tough times.
And this, for me, is the big issue.
And like I said, it's the nature of that spending.
Sometimes debt spending can generate economic activity.
But my concern is that most of the spending being pushed forward by the Democrats looks like a desperate attempt to buy votes in anticipation of a 2024 election.
And for me, this isn't the time to be saddling the country with debt just to try and get another term.
It's irresponsible and it's never going to work.
Listen, there was a guy called Alan Meltzer, and Meltzer was a Federal Reserve scholar at Carnegie Mellon.
And talking about government spending, I think he summarized it well.
He said, look, never in history has a country that financed big budget deficits with large amounts of central bank money avoided incredibly high levels of inflation.
I think that tells people what they need to know.
There are no exceptions to this.
So it is very important to stop this wasteful spending.
Otherwise, inflation will be here.
Excuse me.
Inflation Warning 00:01:16
Go ahead.
I want to go ahead and close, but I want to emphasize the fact that Philip is the economist for Birch Gold, and he keeps up on this.
I want to give them a chance maybe to send out an address there if they want to follow him more closely on what he's doing, because he gets here periodically.
So far, we've had a lot of favorable comments about it to go over some of these details that he goes over a little bit differently than we do.
But Philip, why don't you go ahead and sign off and tell the viewers what they can do if they'd like to follow what you're writing and saying and doing a little more closely?
Yeah, so look, they can reach me personally.
I have a social media account on Getter.
It's at Philip Patrick on Geta.
And for some really good information for all of your listeners, they just have to text secure, S-E-C-U-R-E, to 989898.
Again, that's secure to 989898.
Philip, I want to thank you once again for being with us today.
And I want to thank our viewers for tuning in.
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