Ron Paul: ‘The financial meltdown the economists of the Austrian School predicted has arrived’

A message from Ron Paul, who is on the ballot for President in Louisiana and Montana in November:

Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market’s attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over – not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments – investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”

Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?

Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day – and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end… It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects – the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul

24 thoughts on “Ron Paul: ‘The financial meltdown the economists of the Austrian School predicted has arrived’

  1. Trent Hill

    Hah. I think that might be a stretch paulie. Things related strictly to his third-party drafting should be posted here, but if we post everything related to Ron Paul here–it’ll be swamped and pretty confusing, you know?

  2. paulie cannoli Post author

    Well, we’re posting other presidential candidates’ statements on the bailout.

    I’m not proposing to give him disproportionate coverage. In fact, I plan to give more coverage to those candidates who are on more state ballots. But I see no problem with occasional stories.

  3. Trent Hill


    Not a criticism–I honestly hadnt thought of the fact that he WAS a third-party candidate,haha. Ironic,no?

  4. pdsa

    From the Even a Broken Clock is Correct Twice a Day Department:

    I offer a Paul End Of The Millenium Doom and Gloom Prognotication from 1998, in which he predicted the collapse of the financial bubble, which would be exacerbated by the Y2K bug.

    The worldwide financial bubble is like nothing ever witnessed before and it is collapsing. The Y2K problem will compound our problems, not to mention the instability of the U.S. presidency.

    It is time to consider the fundamentals underlying our financial and economic system. The welfare state is unsustainable as are our worldwide commitments to bail out everyone and to intervene in every fight, even those that have been ongoing for hundreds if not thousands of years.

    A limited government, designed to protect liberty and provide for a national defense is one that could be easily managed with minimal taxes, but it would also require that we follow the advice of the founders who explicitly admonished us not to “emit bills of credit,” that is paper money, and to use only silver and gold as legal tender.

    We need to lay plans for our future because we are rapidly approaching a time of crisis and chaos. We surely do not want to leave the solution to FEMA and presidential executive orders.

    Ron Paul, Congressional Record: September 9, 1998, GPO DOCID:cr09se98-137

    Lead us out of the wilderness, Oh Prophet Paul… He must have been smoking the same stuff Gary North was.

  5. AnthonyD


    this is why we can all thank heaven that RP endorsed the christofascist Baldwin and dumped his conspiracy theory rants into the lap of the Constitution Party instead of the LP.

  6. paulie cannoli Post author

    If you are going to successfully penetrate the dark side, you must learn not to flinch at the description. Otherwise, you will never get past their defenses.

  7. TheOriginalAndy

    Trent, why did you quit the Constitution Party?

    By the way, I’m a registered Republican right now as well, at least I think I am. I filled out a voter registration form to switch my party affiliation from Libertarian Party to Republican Party so I could vote for Ron Paul in the primary. I made damn sure that I sent my voter registration a couple of weeks before the cut off to vote in the primaries, but then when I recieved my absentee ballot (I was out of town) the election office sent me an absentee ballot for the Libertarian Party primaries. This really irritated me but there wasn’t enough time left to do anything about it, so I did a write in vote for Ron Paul in the Libertarian Party primary.. I’m not sure if that Republican Party voter registration was ever processed, but assuming that it was I intend to switch my voter registration back to Libertarian Party. Even if I am a registered Republican now, I’m still a dues paying member of the Libertarian Party.

  8. Trent Hill


    A host of reasons that i’d rather not publicize too widely. I am still friends with many CPers and respect a large minority of that organization still. Let us just say that I had significant differences with the party platform, the majority of the party leadership, and their method for running candidates. I also became more libertarian oriented throughout Ron Paul’s campaign and I saw the inherant advantages of having an “R” or “D” beside your name. I’m still a supporter of third parties and will still be a staunch advocate of fair ballot access laws (or none)–but I’ll not likely ever rejoin a third party. I do support MANY of the candidates though.

  9. TheOriginalAndy

    Trent, I always that that you had a libertarian inside you that was just waiting to come out.:)

    I see the advantages of having an “R” or “D” next to one’s name, but having an “R” or “D” next to one’s name has some disadvantages as well. I think that “third parties” serve an important function.

    Why not do both, as in be involved with the Republicans and with a third party at the same time?

  10. Trent Hill

    “Trent, I always that that you had a libertarian inside you that was just waiting to come out.:) ”

    Iv been at least mostly libertartian since before the beginning of Ron Paul’s campaign. But now I have become more so. My ideology is mostly unchanged (mostly), but i have a more solid grounding in monetary issues, economic issues, War, and libertarian history.

  11. paulie cannoli Post author

    Why not do both, as in be involved with the Republicans and with a third party at the same time?

    I’ll probably rejoin the Democrats later this year or next year for similar reasons. I’m still a life member of the LP and a BTP member, though.

  12. pdsa

    This site is one of the best for political discussions on the web. If I would have dumped that excerpt of a Paul Congressional Records speech almost any other place on the web, it would have set off a firestorm.

    I don’t like The Fed, but I do not doubt its constitutionality; its efficacy is extremely questionable though.

    I have doubts about almost all conspiracy too, because they posit as axiom, a level of competence from the product of group thought which cannot be corroborated with fact. The only conspiracy within neoconservatism is their attempt to run away, as a group, from accepting responsibility for the hell upon earth their imbecility has caused. They are massive failures, incapable of effectuating what many accuse them of.

    Here’s another example of a conspiracy theory promoted by Ron Paul :

    Teddy Roosevelt, during the Progressive era, 1902, appointed Oliver Wendell Holmes, Chief Justice of the Supreme Court, a time during which the ground work was laid for the modern welfare state later promoted by Teddy’s cousin FDR. And it was not too many years after the appointment of Oliver Wendell Holmes to the Supreme Court that these progressive ideas led to the establishment of the income tax, the IRS, and an equally threatening organization, the Federal Reserve.

    Ron Paul, Congressional Record: November 5, 1997 (House), GPO DOCID:cr05no97-42, Page H10029

    Teddy Roosevelt, O.W. Holmes, and FDR were all part of a hidden International Bankers’ agenda to take America down, and they’ve been planning this coup for over 100 years now, beginning with the creation of Federal Income Tax.

    You gotta believe…

  13. G.E.

    You don’t doubt the Fed’s constitutionality?

    The power to determine legal tender rests with the states, and they are limited to choosing gold and/or silver.

    The Fed is unquestionably unconstitutional.

  14. Spence

    “You gotta believe…”

    That you’re smoking something pretty strong?

    Where does he ever mention the intent to “CONSPIRE” anywhere in there?

    And by the way, a lot of people were deceived by the alarmist horn of the Y2k craze – a lot of elderly, not tech-savvy, people if you’re interested to know. =]

Leave a Reply

Your email address will not be published. Required fields are marked *