I think even though 30 years have passed that the US Tea Party Congressman first delivered his speech, At the Brink, its message is relevant now than ever in the light of recent events in global economy and politics. I am referring to alarming news that happened last second week of September. They include China’s decision to trade oil in Yuan, QE3, coercing Iran, death of US ambassador in Libya, and Japan’s declaration of nationalization of a traditional Chinese territory.
Specifically, At the Brink pertains to the collapse of the US dollar and to the threat of impending war. We witnessed the fulfillment of the second part of this prediction in the Middle East, but the first part of it is still in the making as the US dollar continues to struggle.
Dr. Paul delivered this speech on September 22, 1982 at the US House of Congress. It is found on pages 133 to 139 of the book, Pillars of Prosperity. In this speech, the Congressman expounded his foreseen economic danger. I just want to touch the subjects on the certainty of default, the detrimental economic policies, and the necessary economic solution.
The Certainty of Default
Ron Paul opened his 1982 speech with the discrepancy between the original goal for the formation of the IMF and its present practice of becoming a “social welfare agency” lending funds for nations immersed in debts. He specifically identified Mexico, Argentina, Eastern bloc Communist nations, and Third World nations that with their huge debts, it is unrealistic to expect payment from them. Dr. Paul disliked such “welfare program” for its serious consequence on US economy due to huge funding coming from the US for its implementation.
He then proceeded to describe the attitude among financial authorities in downplaying the international banking crisis. Default is considered impossible. Dr. Paul predicted otherwise that default is inevitable. It is just a matter of time.
The time the US Congressman wrote this speech, he described the insolvency of SSS, $11 trillion US liabilities, and $1.1 trillion national debt. Compared that data to the present, one will still wonder why Ron Paul’s prediction about the certainty of default is not yet taking place. I am not an expert in reading financial data, but checking usdebtclock.org, I notice that US national debt now is more than $16 trillion and the total unfunded liabilities is more than $120 trillion.
Such attitude of denial persists even until now. The best recent example is John T. Harvey’s Forbes’ article written last September 10. John T. Harvey, with the backing of the messages of financial experts, was confident about the impossibility for US to default. He is bold in his claim that “there is 0% chance that the US will be forced to default on the debt.” Even though without sufficient grounding both in monetary and economic matters, my personal impression in reading the article is that the writer is either deliberately lying and misleading the public or sincerely mistaken in his analysis due to his economic perspective.
The Congressman mentioned two methods of default. In the fashion of 1929 deflation, the first method is by declaring bankruptcy and liquidating debt. However, Dr. Paul is also certain that politicians and bankers will not allow this method of default.
The other method is the 1923 German style deflation and that is paying “the debt with the rapidly depreciating newly created dollars” (p. 135). This method is actually “the policy of currency destruction through the inflationary process” (ibid.). Dr. Paul further describes this second method: “When the dollar is worthless, or approaching worthlessness, real debt disappears … As new money appears out of thin air, real assets of the savers and the debt denominated dollars evaporate into thin air” (ibid.).
I think the US government preferred the latter method. For Dr. Paul, choosing the second method is an indication that the US government is failing to learn the lessons of history and is bound to repeat the mistake that caused untold sufferings for many nations in the past.
Detrimental Economic Policies
Detrimental economic policies need to be stopped. That’s the message emphasized by the Congressman 30 years ago. His message never changed, but still the government failed to listen. Inflation, excessive taxation, central planning, protectionism, and economic isolationism must be stopped if we want to see genuine and lasting economic reforms. These are bad economic policies that reduce people’s standard of living. However, the loss of personal liberty is the greater threat resulting from such kind of economic policies. Dr. Paul raised such threat to personal liberty by asking a series of questions:
“How is it that the people cry out for less taxes and they get more? How is it that the people cry out for balanced budgets and they get greater deficits? How is it that the people cry out for sound money and they get more inflation and higher interest rates? They cry out for peace and they get war” (p. 138).
One concrete solution offered by Dr. Paul is for the US to stop subsidizing both its political allies and enemies. He was referring both to the “free gifts” offered to strengthen the defense of Germany and Japan and the subsidy given to China to build a steel plant at the expense of American taxpayers. These actions have been justified for the sake of national interest. Dr. Paul could not see the wisdom of such actions. He saw it as absurd and continuing to do so is an act of “economic suicide.”
Dr. Paul has been calling for the active participation of an informed public to provide a base for legislators to stop inflation and the destruction of the US dollar. He warned the American public about the danger of failure to respond. He has been calling:
“A bold step is required…The opportunity for positive change is available to us in this decade, and if we fail to respond in a positive way, it could be years or decades before the damage can be undone and a free society restored. It is literally up to us” (p. 139).