What happens when foreign banks wake up to the reality of the Dollar?
*Texas Straight Talk, by Presidential Candidate Ron Paul, August 20, 2007:
"As markets went on a rollercoaster ride last week, our economy is
coming close to a day of reckoning for loose credit policies being
followed by the Federal Reserve Bank. Simply, foreign banks we have
been relying on to buy our debt are waking up to the reality of much
higher default rates than predicted, and many mortgage backed
securities have been reduced to 'junk' ratings. Wall Street fears the
possibility of tightening credit and the tightening of America’s belts.
Why, they say, 'if Americans spend only what they can afford, think of
the ripple effects throughout the economy!' This is the cry, as
the call comes for the fed to cut rates and bail out companies in
trouble.
More inflation is, however, never the answer to inflation.
The truth is that business involves risk, and businesses that
miscalculate risk should be liquidated, so their assets can be
reallocated to businesses that correctly judge risk and make profits.
Instead, the Fed has injected $64 billion into the jittery markets,
effectively amounting to a bailout that keeps these malinvestments
afloat, but eventually they will become the undoing of our economy.
In addition to the negative reactions in financial markets, many
Americans have taken on too much personal debt owing to exotic mortgage
products and artificially low interest rates. Unfortunately, these
families are now in the position of losing their homes in unprecedented
numbers as the teaser rates expire and the real bills are coming due.
The real answers are, and always have been, found in the principles of
the free market. Let the market set the interest rates. If we had been
functioning under a true and transparent free market system, we would
not be in the mess we are in today. Government, like the American
household, needs to live within its means to get back on stable fiscal
ground.
We’ve been headed in the wrong direction since 1971. This week marks
the 36th anniversary of Nixon’s decision to close the gold window,
which convinced me to seek public office to call attention to the
runaway money train that would come in the aftermath of that decision.
The temptation to print and spend money with impunity, like the
temptation to max out lines of credit, is too strong to for government
to resist. While Nixon brokered exclusivity deals with OPEC to prop up
demand for the tidal wave of green pieces of paper the Fed pumped into
the markets, the world is tiring of marching to the beat of our drum in
order to secure their energy needs. The house of cards Nixon built is
now on the verge of collapsing on our heads, and on our children’s
heads.
As the dollar weakens, it becomes ever clearer that we need a return to
sound, commodity-based money for a secure future. Money based on real
value, not empty promises and secretive backroom machinations, is the
way to get out of the current calamity without causing even bigger
problems."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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