A Spooked Economy in October By Ron Paul | Published
10/12/10
Last week we received worse than expected
unemployment numbers, challenging recent claims that the
recession has come and gone. Also, as the economy continues
to suffer the after effects of the Federal Reserve-created
bubbles of the last decade, there is renewed interest in
gold. Fears that the Federal Reserve will pump even more
money into the system had caused the price of gold to reach
new highs. Also contributing to enthusiasm for gold is continued
instability in the banking industry, symbolized this week
by fraud allegations that have caused many banks to halt
foreclosure proceedings, thus further destabilizing the
housing market. Yes, October has a reputation for being
a scary month economically and this month is shaping up
to be frightening, as well.
The Fed has been wreaking havoc and devaluing
our monetary unit steadily since 1913, and greatly accelerating
it since the collapse of the Bretton Woods agreement in
the 1970s. This severing of the dollar’s last tenuous
link with gold allowed the Fed to create as much new money
as it pleased, and it has taken full advantage of this opportunity.
In 1971, Gross Domestic Product (GDP) was
$1.29 trillion. Today it is $14.6 trillion, nominally. But
adjusted for all the inflating the Fed has been doing, it
is only $2.73 trillion, which constitutes only a 1% real
increase per year! So with all this extra money going around,
we may appear nominally wealthier, but the reality is, we
have barely moved at all. This is unfortunate especially
for the prudent, conscientious savers, whose nest eggs are
constantly being devalued. Unless of course, they have saved
in something out of the Fed's reach, like gold. While the
economy has basically been in a holding pattern against
the leeching of wealth by the Fed for 39 years, gold has
seen an inflation adjusted increase in value of over 5%
per year, if measured in 1971 dollars. This is due to the
Fed’s ability to make dollars plentiful. And yet,
this is the only tactic the Fed can come up with to rescue
an economy already devastated by "quantitative easing",
as they call it.
The turmoil in the housing market demonstrates
how disastrous it is to flood the economy with fiat money.
Latest events with foreclosures are good examples of mistakes
made in the market, in this case, by the banks, in the rush
to soak up manipulated currency. This is why the truly free
market depends on sound, honest money, free from false signals
of artificially low interest rates.
The government finds ways to spend money
even faster than the Fed can create it, bringing our national
debt well past the point of the taxpayers ever being able
to pay it off. Other nations who, in the past, have eagerly
bought up any amount of debt we produced are now starting
to resist. We are reaching a crucial point at which the
dollar will no longer function, and in the absence of a
functioning dollar, restoring sound money will be the only
alternative.
The truly scary notion is that those in
power might allow our system to collapse so chaotically
to the detriment of so many people rather than simply obey
the Constitution.