Long time Congressman Ron Paul, the gold-loving, QE-hating canary in the financial coal mine

Dr Ron_Paul - USA Congressman

Cape Town financial advisor David Melvill keeps a close eye on gold. Earlier today he distributed a link to a video on the US gold site Kitco that is so good we had it transcribed. Texan Ron Paul (78) a long serving Republican and three times Presidential candidate is famous for his conservative economic views. At a time when market analysts are starting to believe Quantitative Easing (money creation) is the free lunch they’ve always dreamed about, Ron Paul is a rare voice of reason. He is acting as a canary in the financial coal mine. Watch the interview below (or read the transcript) and see whether you agree he’s got it a lot more right than the new, politically connected money printing head of the US Federal Reserve.  – AH 

To watch the Kitco video click here

DANIELA CAMBONE (Kitco):  My next guest ran for the US Presidency.  I think that’s enough for an introduction.  Dr Paul thanks for being with us again.

RON PAUL:   It’s nice to be with you.

DANIELA CAMBONE:   Dr Paul I know, and I’m sure the audience knows, that you’re one of the harshest critics of the Fed.  I think that’s been established, but what do you make of Janet Yellen coming in as the next Chair.

RON PAUL: Well, it’s easy to be a critic if you don’t even believe they should exist.  Generally, not a lot will change.  If anything, it will be slightly worse because she’s a very aggressive inflator.  She really believes in Quantitative Easing, and that’s the only thing they know, and she’s just going to be more aggressive about it.  I think she wants to try to revive the Phillips Curve believing that if we can just get some inflation, we can get some of these unemployment rates down again but that’s old-fashioned thinking.

I think she’s very dangerous.  I think she’ll be dangerous to the dollar and she will not revive the economy.

I think we’ve learned that already for the past four to five years.  She will continue to do the same policy – it’s the overall policy, so the individual Chair (man or Chairwoman, now) is secondary to the whole system.  That’s why I talk about the whole monetary system.  You can’t expect a whole lot of changes with her.

DANIELA CAMBONE:   So you use the word ‘dangerous’ and I guess that’s my next question.  Obviously, it’s clear that QE will be prolonged now.  What effects will that have on the US dollar?

RON PAUL: Eventually it will destroy confidence in the dollar, and I would say the confidence has already eroded because without the Fed buying mortgage debts and treasury bills, where would interest rates be?  Where would the economy be?  They are therefore temporarily holding the markets in check by making some people richer on Wall Street and helping out the bankers, but they haven’t done anything for the economy.  It’s dangerous because people get lulled to sleep; the bubble keeps getting bigger, the distortions, and the mal-investments.  Everybody looks at only the CPI, but of course, the CPI is not an accurate measurement of even prices, so they miss looking at many other important things.  The accumulation of debt and the misdirected investments, the mal-investment…there’s so much of that and it’s gotten worse in the last five years.  It hasn’t solved it.  We have not had a correction and are determined not to allow the market to correct the errors of the monetary officials.

DANIELA CAMBONE:   Let me ask you, Dr Paul, what would have been your solution to QE?  Is there an alternative?

RON PAUL:   We should never have started it.  We should have allowed the liquidation of all debt and let the bankruptcies occur, pick up the good pieces, and people would go back to growth again and it would have been over in about a year.  They should follow what we did in 1920 and 1921, and had a one-year depression – things came back again.  Once you start on this, you are locked into it and people are psychologically attached to ‘oh, things are looking better.  There’s going to be money out there’ and it gives a positive feeling for the stock market, but all you have to do is hand ‘maybe next month we’re going to buy 80 million dollars and the market might go down a couple of hundred points’.  It is so fragile.  No, they should have never started it and they should just quit doing it.

DANIELA CAMBONE:  So we’re at the Metals & Minerals Conference here in San Francisco.  Most of the attendees here are interested in commodities – primarily gold.  What do you make of the state of gold right now?

Defying logic - America creates $85bn a month yet the gold price keeps sliding.  Ron Paul believes not for much longer.
Defying logic – America creates $85bn a month yet the gold price keeps sliding.

RON PAUL:  Well, people are frustrated right now because it had been so much higher and it’s down.  It may well have seen the bottom as far as I’m concerned.  I think if anybody has a need to hold more of their own gold, it probably is a very good time to buy it.  I think all of us would do it just because it’s normal, so you always look at the price of gold, and you feel better when the price is up.  However, you really should be concerned.  Do you have enough for insurance?  That’s the way I look at it.  I’m more for making sure that I’m prepared for some really bad times.  Do I think I have enough ounces to take care of my needs and my family’s needs?  Then you say, ‘well, I have to increase my holdings by 10 or 20 percent’.  Well, when it goes $1800 down to $1200, I say that’s a pretty good time to start doing that.  I think it will soon be going back up because they cannot print this kind of money and think that it will never be discounted by the dollar price of gold, and I think we’re fast approaching that time when it will turn around.

DANIELA CAMBONE:   Well, I guess that’s the segue to my next question.  We usually speak to Dr Ron Paul as the politician – or former politician – but let’s try to tap into your mind-frame as an investor.  So, if I were to give you ten thousand dollars, how would you divide that ideally as an investor?

RON PAUL:  Well, ten thousand dollars is enough for me to think about it because I like things that I can see, touch, and use.  That means my insurance is in precious metals and if I have other sums…I always thought property was a very good thing, too.  I’ve had rental properties where I see income and over appear to time.  Even properties are like gold: they can go up, then you have recessions and prices of things go down and are distorted, but if you buy property and have some income – whether they go up or down – probably doesn’t matter that much.  Houses and things right now, because of the circumstances actually, rentals have gone up very well.  So I do like real estate, I like precious metals for the safety and security, and that’s generally where I’ve been.  It’s easier for me to say how I wouldn’t spend my ten thousand dollars or my 100 thousand dollars.  I wouldn’t be in the stock market.

DANIELA CAMBONE:   I was going to ask you that.  What would you avoid today?

RON PAUL:  I’d avoid it and I guess I wouldn’t buy Government bonds either, no matter whether they have confidence in the dollar still and confidence in our currency.  Our currency is weak but it hasn’t tumbled in the last year, but I wouldn’t want to hold my extra money in dollars or in Government debt.  That’s just looking for trouble.

DANIELA CAMBONE:   What’s the best investment advice you’ve ever received?

RON PAUL:    Not to overplay the speculation…not speculation, but anticipating, like today if I had the money to buy some gold and I say ‘next week it’s going to be a lot lower’, then I’ll buy it’, but next week it might be a lot higher.  It’s not to pretend I can predict those short-term swings, so I look more at what I need to do in my price average.  I’ll buy something this week and something next week, but I think this whole idea that the traders can do this…  People are capable of doing this if they’re in the market.  They can buy, sell, and trade all the time, but for me, I just don’t pretend that I can do that so if I think it’s a good investment…  I did this when I got interested in gold, because I became fascinated with gold in 1971 and the price was a little lower back then.  I was convinced in the 60’s that the Brenton Woods would break down.  Legally, we weren’t allowed to buy gold, but I could buy some Mexican coins so I just started buying when I had extra cash and that’s taken care of things pretty well for me.  We did this all the time in those 30-something years, up and down, lose 50 percent at times, but if you’re holding your coins you don’t worry about it.

DANIELA CAMBONE:   Is there something from your political platform that you would like to see carry forward?  What would it be?

RON PAUL:  Legalise freedom – just across the board.  That’s a big issue, but that’s an educational thing of teaching a lot of people what the role of government ought to be, so there’s no one thing.  You see, the monetary policy is very important.  The Fed is very important, but the most important reason is that it facilitates big Government.  Big Government serves the big, powerful, and special interests whether it’s in foreign policy, domestic policy, corporate welfare, and bailing out the wrong people, so it’s all-important.  However, the big issue is, are we a freer society today than we were 100 years ago?  I say we are a lot less free today.  It’s going to become a lot worse unless we have a lot more people wake up and decide that first you defend your liberty.  The prosperity will come automatically, after that.

DANIELA CAMBONE:  Dr Paul, thank you so much for your time today and Happy Thanksgiving.

RON PAUL:  You’re welcome, thank you.

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