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Ron Paul's Freedom Report
A publication of the Foundation for Rational Economics and Education
Volume 4, No. 9 DECEMBER 2000
"In many ways the impasse in this election politically demonstrates the stalemate that is
developing in the economy. Both will eventually cause deep division and hardship."
Rep. Ron Paul - November 13, 2000
[ MONDAY, NOV. 13, 2000]
Economic Problems Ahead
Dr. Paul addresses the House:
The financial markets are now nervously watching the impasse reached in the presidential election. Confidence is an important factor in the way markets work, and certainly the confusion in the presidential election does not convey confidence to investors or to the rest of the world.
Many commentators have already claimed the most recent drop in the market is a consequence of the uncertainty about the outcome of the election. Although it would be a mistake to totally dismiss the influence of election uncertainty as a factor in the economy, it must be made clear that the markets and the economy are driven by something much more basic. After all, the markets have been off significantly for the past several months, and that drop was not related in any way to the presidential election.
Mises, the great 20th Century economist, predicted decades before the fall of the Soviet system that socialism was unworkable and would collapse upon itself. Although he did not live to see it, he would not have been surprised to witness the events of 1989 with the collapse of the entire Communist-Soviet system. Likewise, the interventionist-welfare system endorsed by the West, including the United States, is unworkable. Even without the current problems in the presidential election, signs of an impasse within our system were evident. Inevitably, a system that decides almost everything through pure democracy will sharply alienate two groups - the producers and the recipients of the goods redistributed by popularly elected congresses.
Our system not only is unfairly designed to take care of those who don't work, it also rewards the powerful and influential who can gain control of the government apparatus. Control over government contracts, the military industrial complex, and the use of our military to protect financial interests overseas is worth great sums of money to the special interests in power. Even though it is argued that there are huge budget surpluses in Washington, instead of budget compromise, a stalemate results. Each side wants an even greater share of the loot being distributed by politicians. Even with the windfall revenues, no serious suggestion is made in Washington for cuts in spending.
Instead of moving toward a market economy and less dependency on the federal government in the midst of the "prosperity," we continue to go in the other direction by internationalizing the interventionist-welfare system. Planning by government has gone international as the political power is delivered to organizations like the United Nations, the World Trade Organization, the International Monetary Fund, and the World Bank. In the early stages of interventionism and government planning, especially when a great deal of wealth is available for redistribution, this seems to enhance prosperity. It prolongs the financial bubble on which the economy is dependent. The monetary system, both our domestic system as well the international fiat system, plays a key role in the artificial prosperity based on inflated currencies as well as debt and speculation.
The espoused goal of the economic planners has been economic fairness through redistribution of wealth, politically correct social consciousness, and an all-intrusive government that becomes responsible for personal safety, health, and education while personal responsibility is diminished. The goal of liberty has long been forgotten. Effort has been concentrated on gaining power through control of wealth through a scheme that pretends to treat everybody fairly.
An impasse was destined to come, and signs are already present in our system of welfarism. This election in many ways politically demonstrates this economic reality. The political stalemate reflects the stalemate that is developing in the economy. Both will eventually cause deep division and hardship. And the real problem - preserving of the free market and private-property rights - if ignored, will only make things worse because the only solution that will be offered in Washington will be more government intervention, increased spending, increased monetary inflation, more debt, greater military activity throughout the world, and priming the economic pump with more expenditures for weapons we don't need.
We have already seen signs of economic troubles ahead. Although the Fed plans for only a slight slowdown and a so-called "soft landing," the correction from the monetary mischief of the last ten years has already been determined. Although the dollar currently remains strong because other currencies are so weak, there is a limit on how long we can create new dollars without them being devalued. A weaker dollar will surely come in our not-too-distant future. Our huge current-account deficit and trade imbalance warn us of that day.
Government statistics continue to tell us that price inflation is not a problem, and when an inflation statistic comes out that it doesn't like, it drops out food and energy and claims that the number is totally benign. Ask any housewife and she will tell you that the cost of living is going up steadily and much more rapidly than the government will admit.
We in the Congress should be prepared for lower revenues in the future, since the revenues received in the last couple of years were artificially created by a stock market that had skyrocketed due to credit expansion by the Federal Reserve. These capital-gains tax revenues will soon disappear.
The savings rate of the American people is now negative. Without savings, true capital investment cannot be maintained. Creation of credit out of thin air by the Fed was the original problem, so it surely can't be the solution.
In the midst of our great imaginary budgetary surpluses, there has been no effort to cut spending. Once the economy tends to slow and more problems are apparent, expenditures are going to soar, not only because of future problems, but because of the new programs recently initiated.
A huge financial bubble has been created by the government sponsored enerprises such as Fannie Mae and Freddie Mac. The $33 billion of shareholder equities in these two organizations has been leveraged into $1.07 trillion worth of assets - a bubble waiting to be pricked.
The Congress has reacted irresponsibly to all these events by increasing spending, increasing tax revenues, doing nothing to reduce regulations, and being totally apathetic toward the dollar and monetary policy. We in the Congress have a moral and constitutional obligation to protect the value of the dollar and to understand why it is so important to the economy that a central bank not be given the unbelievable power of inflating a currency at will and pretending that it knows how to fine-tune an economy through this counterfeit system of money.
Rising interest rates in the high-yield bond market are giving us an indication that a serious problem is just around the bend. Commercial debt was but $50 billion in 1994 and is now ten times higher at $551 billion. The money supply is now growing at greater than a 10% rate and the derivatives market, although difficult to calculate, probably exceeds $75 trillion. We also have consumer debt, which is at record highs and has not yet shown signs of slowing. The Dow Jones Industrial Average stocks are now five times book value, the highest in over a hundred years.
There will come a day when most people come to realize the fraud associated with Social Security and the inability for it to continue as currently managed. Rising oil and natural gas prices, it is argued, are not inflationary, yet they are playing havoc with the pocketbooks of most Americans.
The economies of Asia, and in particular Japan, will not offer any assistance in dealing with the approaching storm in this country. Our foreign policy, which continues to obligate our support around the world, shows no signs of changing and will contribute to the crisis and possibly our bankruptcy.
What must we do? We should develop more sensible priorities. We must restore confidence in freedom and recognize how free markets can solve our problems. We must have more respect for the Rule of Law and demand that Congress, the Courts, and the President live within the Rule of Law and stop arbitrarily flouting the Constitution. If the Constitution is to be changed, it should be changed slowly and deliberately as was permitted, but never by fiat.
We must eventually reconsider the notion of the original constitutional Republic as designed by our Founders. The monolithic centralized state was not the design, nor is it supported by the Constitution. We were meant to have loose-knit individual states, with the states themselves managing their own affairs.
The political impasse we now see with the election process is surely related to the economic and budgetary impasse that plagues Washington. Since interventionism (the planned welfare state) is unworkable and will fail, the surprising developments in this presidential election will accelerate its demise. The two are definitely related.
[WEDNESDAY, NOVEMBER 15, 2000]
Our Foolish War
Dr. Paul statement before the House:
The West has been at war with the Muslim world for over a thousand years. In this century, prior to World War II the British led the charge. Since World War II, it has been the United States. Although the British remain close allies of ours in intimidating the Muslim world, it is the military strength of the United States that assumes the burden of responsibility for the policy. It is justified by claiming a right and need to protect "our" oil.
For over a thousand years, the West has dominated the Middle East. During these thousands of years, resentment has continued and for obvious reasons is now being directed toward America. No one should be surprised when our ships become vulnerable and are actually blown up in the Middle East.
If the U.S. understood the history of this region, it would see the total folly of anchoring a war vessel in an enemy port. This misunderstanding of history and lack of respect for religious beliefs of the area, in combination with our foreign policy of aggression and empire building, led to arrogant foreign military interventions, not only in the Middle East, but around the world as well.
It is clear that we are not in the Middle East for reasons of national security. Instead, we are there to protect powerful commercial interests and oil supplies for the West, which serve as an excuse to keep the military industrial complex alive.
To put this in proper perspective, consider how Americans, or especially Texans, would feel if the Gulf of Mexico were patrolled and protected by warships of a foreign power - say the Russians. What would we then think if the foreign power that patrolled the Gulf built air bases in Texas and Florida with the argument that this was necessary to protect "their" oil and with our own government's complicity? This would anger many Americans, and this anger would be directed to both the foreign occupiers of our territorial waters and our own government that permitted it. This is exactly what has been happening in the Persian Gulf region. For religious, historic, and sovereignty reasons, the Muslim people harbor great resentment toward us.
As a consequence of the "Cole" episode, our Navy has recognized the great danger we face in this region, and this has forced us to avoid sending any more naval vessels through the Suez Canal. This ongoing conflict cannot end peacefully as long as we pursue this policy of folly.
The "Cole" disaster was needless and preventable. The loss of this vessel and the senseless death of 17 Americans were a consequence of a policy that has led to a lack of military readiness for our country while increasing the danger to all Americans - in particular to our servicemen in that region.
It's positively amazing that, with a military budget of $3000 billion, we do not have the ability to protect ourselves against a rubber raft that can destroy a $1 billion vessel. Our sentries on duty had rifles without bullets and were prohibited from firing on any enemy targets. This policy is absurd, if not insane. It is obvious that our navy lacks the military intelligence to warn and prevent such an event. It is incapable of even investigating the incident, since the FBI was required to try to figure out what happened. This further intrusion has only served to increase the resentment of the people of Yemen toward all Americans.
More humiliation for the Untied States occurred when it was obvious that we couldn't even tow our own ship back to this country, and instead, had to hire a ship owned by Norway to handle the job.
The big question after this event was whether or not this was a "terrorist attack," and a great deal of emphasis was placed on deciding whether or not it was. That seems to be such a silly question because we should recognize that as far as the Muslim world is concerned, they are at war with us, and whether it's an act of war, a terrorist attack, or sabotage seems to be irrelevant. My guess is that very little can come from the investigation and prosecution of the guilty party, since the two that did it were killed. But the Yemenis will not ever cooperate with our CIA and FBI agents, many of whom have already been forced to retreat and return to the States. Our insistence on "invading" Yemen will only make our precarious situation in the Middle East worse.
Our policy in the Middle East can't possibly be successful. It's obvious that, inevitably, there will be a conflict between our support for the moderate Arabs - which antagonizes the Islamic fundamentalists of this region - and our special treatment for Israel. It is clear that the powerful financial interests of this country want to use our military force to protect their commercial and oil interests in this region, while there will always be powerful political support for the State of Israel. The two sides will never be reconciled by our attempt to balance our support by giving help to both sides. This is exactly the opposite of being neutral and friends with both sides. The one reason why this confrontation is going to continue is that 75% of known oil reserves are now owned by Muslims around the world.
That our current foreign policy does nothing more than fan the flames of hatred on both sides is clearly evident as we witness the daily fighting between the Palestinians and the Israelis. The growing influence of the radical Islamic fundamentalists will allow them one day to overthrow the secular moderate puppet regimes that our government supports.
As the world becomes less stable due to currency, trade and other economic reasons, this region will become even more volatile. We should expect higher oil prices. Hatred toward America will continue to escalate, and United States security will continue to diminish due to the threat of terrorist attack. All the anti-ballistic missiles in the world will not be able to protect against attacks such as the "Cole" suffered, or from the nuclear or biological weapons that can be brought into this country in a suitcase.
The greatest enemy to our national security is our own bad policy. Our policy has continued to permit our military technology, developed by our taxpayers, to get into hands of our so-called allies as well as our potential enemies like China.
It is now clearly apparent that the embargo against Iraq has collapsed. The West is more interested in getting Iraqi oil than in preventing it from being sold. The Russians, the French, and others now have defied the ban on air flight in and out of Baghdad.
Twenty years ago the U. S. encouraged the Iraqi-Iranian War by literally subsidizing both sides. Ironically, our current policy has driven the Iraqis and Iranians to once again seek conciliation with each other, which quite possibly could lead to a dangerous and powerful coalition. The Iranian Foreign Minister, Kamal Kharraazi, just recently visited Baghdad to talk with the Iraqi Foreign Minister, Mohammaed Saeed, in an effort to normalize ties and further work out arrangements for exchanging prisoners between the two countries. This news went essentially unnoticed but may well have significant regional impact in the war for control of the oil and in the continued efforts of the Muslims to rid themselves, once and for all, of foreign dominance.
The turmoil in the Middle East is now spilling over into Indonesia, a country made up of 17,000 islands and very vulnerable to political instability, especially since its currency and financial crises of a few years ago. It is the world's fourth largest nation and has the largest Muslim population of any. Hatred toward the West, especially of America, due to our Middle East policy, has led to Christian persecution in Indonesia. The embassy is now closed and our Ambassador, Robert Gelbard, has been recalled after his life was threatened.
Our many failures in the past 50 years should prompt us to reassess our entire foreign policy of intervention. The notion that since we are the only super power left, we have an obligation to tell everybody else how to live should come to an end. Our failures in Korea, Vietnam, Somalia, and the Middle East, and our failure yet to come in Bosnia and Kosovo, should alert all Americans to this great danger. But no, we instead continue to expand our intervention by further involving ourselves in yet another sovereign nation. This time it's Colombia. By sending more weapons into the region, we continue to stir up this 30-year conflict. And just recently this conflict spilled over into Venezuela, a major force in this region due to its oil reserves. The Foreign Minister of Venezuela recently warned that "any ship or boat which enters the Gulf of Venezuela, of whatever nationality it may be, will be expelled."
Our intervention in many of these regions, and especially in South America, has been carried out in the name of the drug war, but the truth is it's serving the interests of the companies who own the oil rights in this region, as well as those who produce the weapons that get sent into these regions.
For decades we have been sending observers into many countries around the world to supervise their elections and make sure that they understand how democracy works. Astoundingly, Castro has recently offered to send observers to Florida and other places in the United States to supervise our elections. The point being that when our house is in order and we have a model society, then we can talk about how others should live. Besides, when we become a model nation, we will be emulated by others and it will not require any force or intimidation on our part to get other countries to follow our lead.
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