Recently, Ron Paul took to the internet air waves to give his report and viewpoint on the state of the U.S. and world economies. It is fair to say that he is not optimistic and he shared several reasons why. Dr. Paul also pointed out a number of signs to look for that could very well point to an economic drop greater than that of 2008.
“The problems we face today come from the attitude that there is a free lunch. Yet rarely those who seek a free lunch bother to ask who ends up paying for it.”
Dr. Paul calls the idea that both the rich and poor are seeking out a free lunch, “welfarism.” He feels that the majority of Americans feel they will benefit from a redistribution of wealth; something Dr. Paul calls a “scam.” Even though it may seem moral to support redistribution, this type of action comes at the expense of the “creators of wealth.” He argues that if all the incentive to create wealth is taken away, then there will be nothing to redistribute.
He specifically names economist Paul Krugman as a supporter of welfarism and redistribution. Dr. Paul believes that these backers secretly believe the plan has failed but they now only support the idea out of an “intellectual need and gratification that their views must never be questioned or abandoned because it could be seen as an admission of mistaken social and economic theory.” Dr. Paul thinks that this “intellectual stubbornness to prove they are right has driven [the U.S.] economy and most of the world’s to a point that hasn’t been seen since the 1930’s Great Depression.”
Dr. Paul is also not a big fan of the Federal Reserve. He thinks it is silly for people to believe that these money managers have the ability to predict the future of the economy and that they are “all-knowing” and should be entrusted to determine what interest rates should be. Dr. Paul believes in a free market economy, where interest rates are set by the market, not in a boardroom.
“This one policy of manipulating interest rates to lower-than-market level has caused great harm to the economy and the full effects of pretending our money managers have the wisdom to know what the proper rates should be, especially since 2008, has not yet been felt. The consequences will not be minor, surprises will be many.”
“The world has never faced the gross misallocation of capital that exists today. It may be fun while it lasts, but it always ends in a crash.”
He argues that in a free market economy there is never a need for deliberate economic slowdowns (like QE), because there would never be bubbles. Ron Paul feels the only reason the current “flawed” U.S. economic system has lasted so long is because of how rich America is. “It takes a long time to squander that great wealth.”
Ron Paul points out the many signs that the coming correction will be greater than the 2008 crash.
- There is a big push to replace the U.S. dollar as the world’s reserve currency. The Chinese yuan now has a legitimate chance CROSSLINK of at least joining the dollar at this level.
- The size of the world debt is “unbelievably huge”.
- There are very clear signs that the bull market in bonds, which started in 1981, has come to an end.
Dr. Paul suggests that investors keep an eye on the following indicators to predict when the correction is near.
- Keep an eye on the price of gold. An increase in gold price means that investors are preparing for a drop in the market.
- Watch for a spike of interest rates, especially on the 10-year T-bill.
- A sharp correction in the stock market.
- A sharp fall in bond prices; commonly associated with “panic selling”.
- The Federal Reserve suggests another QE.
Things may not necessarily be as dire as Dr. Paul warns, but there is certainly a growing consensus among economic experts that some sort of correction is not only near, but necessary. This is the reason many financial advisors suggest that investors have physical gold make up about 10-20 percent of their portfolio. Gold can be a hedge against inflation, drops in the stock market, and a drop in the value of the U.S. dollar. All things Ron Paul believes are right around the corner.