beforeitsnews.com
By Mike Patton
Over the past few years, many experts
have been warning of a crisis heading our way. More specifically, the
concerns have centered on the inevitable collapse of the U.S. dollar.
One of these individuals is former Congressman Ron Paul, who has stated
that he believes the U.S. financial system is on the road to disaster.
In this article, I’ll share some of his views and discuss what could
happen if such a crisis materialized.
Currency Crisis
According to Congressman Paul, a U.S.
currency crisis is inevitable. At one point in the 1980s, while riding
on Marine One with President Reagan, the President said, “No great
nation that has abandoned the gold standard has ever remained a great
nation.” A few decades ago, former Fed Chairman, Alan Greenspan stated,
“In the absence of the gold standard there is no way to protect savings
from confiscation through inflation.” Without a gold standard, there is
nothing to limit government spending. In short, as long as the
government is able to overspend, the national debt will be the norm
rather than the exception.
Since the gold standard was abandoned, what
is backing our currency? Confidence! Without a hard asset backing up
the dollar, it is supported only by the “full faith and credit of the
federal government.” If the world lost confidence in the greenback, its
value would plummet and life as we know it would be severely and forever
altered. How will we know when the next crisis is about to emerge?
The first sign of a currency crisis,
according to Paul, will be a precipitous decline in the value of the
dollar. A collapse in our currency would result in a spike in inflation.
It would also be accompanied by an increase in U.S. interest rates.
Paul’s prediction, although rather dire, is for the collapse of the
entire U.S. financial system. If this occurs, the systemic risk would be
massive. If the U.S. financial system actually did collapse, it would
take the entire global financial system with it. Why? Because there is
over $18 trillion in U.S. debt outstanding, with China and Japan being
the largest holders. A U.S. collapse would devastate the entire globe.
Let’s turn our attention to the national debt, an issue which weighs
heavily on the minds of millions of Americans.
U.S. National Debt
When the government spends more than it
collects, the result is additional debt. From the signing of the
Declaration of Independence in 1776 until 2008, the U.S. accumulated
slightly over $10 trillion in federal debt. In the past seven years, the
debt has nearly doubled to more than $18 trillion. By the year 2019, it
is projected to exceed $20.3 trillion. When interest rates rise, the
impact will be felt by the federal government as well as everyday
Americans. First, it will increase the government’s cost of borrowing,
which will cause the debt to rise even faster. It’s entirely possible
that even a modest rise in interest rates could cause the debt to spiral
out of control. This is because Washington is heavily dependent on
borrowing to operate. Next, it will be much more difficult to expand or
even maintain the welfare state. This fact alone will lead to mass riots
as individuals who are dependent on a government check will take to the
streets in protest. Also, the U.S. would have a more difficult time
funding its presence (i.e. military bases) around the world. This would
lead to a less stable socio-political environment and an uptick in
radical behavior. Plus, a shortage in government revenue could result in
a rather large tax increase and the eventual demise of the middle
class. Finally, and as we’ve already seen, the
federal government may decide to target 401ks and IRAs as a source of
additional revenue. This could take the form of a tax or fee of some
sort. Mr. Paul also mentioned the possibility of a tax on regular
savings and other assets. If the government finds itself in a tight
situation, as we’ve witnessed in the recent past, the potential
intrusion could be severe.
Social Unrest
This discussion wouldn’t be complete
without mentioning social unrest. As we’ve already seen, the match is
lit and it wouldn’t take much for anarchy to manifest. In essence, there
appears to be a significant amount of pent-up frustration among the
electorate. For example, who expected the reaction in Ferguson, New
York, or Baltimore? And this may only be the tip of the iceberg. A
temporary government shutdown is also a distinct possibility. To this
author, public protests seem to be on the rise and the bar of what’s
reasonable appears to be quite low. Hence, I suspect this is only the
beginning of more civil unrest in America.
The Clock is Ticking
Is the problem too advanced to solve?
Can a crisis be avoided? These are valid questions. I believe we can
still fix this, but as Paul stated, “Real monetary reform will only come
after a major currency crisis hits.” Why? Is he just being pessimistic?
No, I don’t believe so. What he is saying is that politics will get in
the way and prevent a solution until it reaches a crisis point.
This is a view I have held for quite a while. Until Congress is forced
to find a solution, it’ll be business as usual. The former Congressman
also said he believes the majority of those in government do not fully
understand economics.
Is the U.S. Losing its Stature?
In the post WWII era, the U.S. dollar
has been the global reserve currency. Prior to that, the British Pound
filled this role. Recently, China has increased its trading with
Germany, India, and others, excluding the dollar as the reserve
currency. It seems the world is slowly transitioning away from the
dollar. If this continues, the U.S. could lose its position as the
world’s reserve currency. This would have numerous ramifications. A
discussion on that is beyond the scope of this article. Mr. Paul also
stated that 10 countries have already signed a document to begin phasing
out the dollar as the basis of trade. Even the IMF has proposed a new
world reserve currency system. The days of the U.S. dollar as the
world’s reserve currency may well be numbered.
Some argue that the U.S. economy is on
the mends and the stock market is near record highs. Therefore, things
can’t be all that bad. While there is truth in this, according to Paul,
stocks have risen due to Fed policy and political leaders. He also
stated that printing money has never solved this type of problem….ever!
He cited Germany, Russia, Argentina, Brazil, Chile, Japan, China,
Ukraine, Italy, Ireland, Portugal, and Spain as examples of countries
that had similar problems to the U.S. and yet none of them was able to
use the printing press to escape their problem.
Will the U.S. follow the path suggested by former Congressman, Ron Paul?
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