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Borrowing, spending and counterfeiting

By Dr. Ron Paul

Few Americans understand how the Federal Reserve System enables Congress to spend far beyond its means, even though this cycle of spending and printing money affects all of us.

Simply put, the more money our federal treasury prints, the less every dollar is worth. Our nation’s pure paper-money system, which has been in place since the last vestiges of the gold standard were eliminated in the early 1970s, has reduced the value of Americans’ savings by 80 percent.

Understanding inflation’s full impact upon our economic well-being requires looking beyond the government’s Consumer Price Index, which substantially underreports price inflation. Monetary inflation is true inflation, which manifests itself in the high cost of homes, cars, energy and medical care. It’s obvious – a dollar buys far less today than ever.

Economist Mark Thornton of the Ludwig von Mises Institute articulates a sobering case against the long-term health of the U.S. dollar. In a speech at the Mises Institute’s 2005 conference on “Austrian Economics and Financial Markets,” Thornton identifies several facts and trends that do not offer good news for Americans who are counting on dollar-denominated assets to fund their retirements.

First, Thornton points out that the federal debt continues to grow exponentially and shows no signs of abating.

Americans were shocked at the notion of a $1 trillion federal debt in 1980. However, just 25 years later, the nation’s total debt is approaching $8 trillion.

There is zero political will in Washington to curb spending, as evidenced by the shameful $286 billion transportation bill recently passed by Congress. The Bush administration and current Congress have increased spending at rates unseen since the New Deal and Great Society eras. Single-year deficits now exceed $500 billion.

Will it take an economic depression before the American public finally holds the political class accountable for its reckless borrowing, spending and counterfeiting?

Second, federal entitlement programs like Social Security and Medicare will not be “fixed” by politicians unwilling to make hard choices and admit mistakes.

Demographic trends will result in tax increases and greater deficit spending to maintain benefits as millions of Americans grow older and more dependent on the federal government.

Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available – printing more dollars to pay the bills. The Federal Reserve can be expected to go along with the maneuver.

Third, Thornton rightly predicts that future administrations are unlikely to challenge a foreign-policy orthodoxy that views America as the world’s savior.

Our nation is hemorrhaging billions of dollars each month in Iraq and we waste billions more every year through foreign aid and meddling in the affairs of other nations. A foreign policy based on nation-building and imposing democracy abroad directly violates the admonitions of America’s founders. Besides, it’s not economically sustainable.

A permanent military presence in Iraq and the wider Middle East will cost enormous amounts of money. In Korea alone, U.S. taxpayers have spent the equivalent of nearly $1 trillion in today’s dollars during the past 55 years.

Finally, Thornton warns that America faces a re-ordering of the entire world economy.

China, Japan and Asia have been willing to buy plenty of U.S. bonds in recent decades. In doing so, they have propped up our nation’s spending habits. But they cannot be expected to continue this trend forever.

Foreign central banks are increasingly reluctant to buy U.S. bonds because our leaders do not have the discipline to maintain a stable currency. When the rest of the world finally abandons the dollar as the global reserve currency, both Congress and American consumers will find borrowing money a more expensive proposition.

All of these factors make it likely that the U.S. dollar will continue to decline in value – perhaps extremely so – in the coming decade.

The greatest threat facing our nation today is not terrorism, foreign economic competition or illegal immigration. It’s the disastrous fiscal policies of our own government, marked by shameless deficit spending by Congress and the Federal Reserve’s currency devaluation.

This one-two punch – Congress spending more than it can tax or borrow and the Fed printing money to make up the difference – threatens to impoverish us by further destroying the value of our dollars.

– Rep. Ron Paul, R-Texas, is the leading spokesman in Washington for limited constitutional government, low taxes, free markets and a return to sound monetary policies. This article originally appeared Aug. 22 on Texas Straight Talk, an online weekly column.

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