Currency Wars: A Race to the Bottom of the Inflationary Barrel

10/18/2010 - http://www.RonPaul.com

Inflation fears are heating up this week as Fed Chairman Ben Bernanke gave a speech in Boston on Friday, causing further frantic flight into gold by those fearful of the coming "quantitative easing" the Fed is set to deliver in November. Others who view gold as a short term investment engaged in immediate profit-taking after Bernanke's speech.

Gold is more correctly viewed as insurance against bad monetary policy decisions that erode the value of savings. Those bad decisions keep coming at an ever faster clip these days and we hear more and more talk of currency wars especially between the dollar, the Chinese yuan, the Japanese yen, the Australian dollar, and the Euro. As the economies of the world continue to stagnate or contract, monetary policy decisions become more relevant to people who once thought this topic arcane. We have several examples this week of major fumbles on the part of the US Central Bank:

· The Federal Reserve continues to insist that inflation is too low, even while the monetary base remains at record levels, and food and gas prices continue to climb.

· As the Fed continues to drive down the value of the dollar, the government accuses China of deliberately devaluing its currency, and the House has passed legislation aimed at punishing China for this alleged devaluation.

· Low returns on US bonds are driving investors into higher-performing foreign bonds. Some of these countries are responding by reinstituting capital controls to guard against hot money and the carry trade.

· The spat with China and reemergence of capital controls have led some to fear that we are in the first stages of an all-out currency war.

· The instability in the international monetary system, the decreasing value of the dollar, and the large amounts of new US debt could lead the IMF and countries such as China, Japan, Russia, India, and Brazil to abandon the dollar and adopt a new multinational currency.

While the big players in these currency games sort everything out, the people hurt the most are the savers, the workers, and those on fixed incomes as their money buys less and less. Make no mistake -- the Fed and the Treasury Department are playing games with our money, especially in how they report statistics like unemployment and inflation. These games erode our standard of living and hide just how much damage their inflationary policies are doing.

Official core inflation for the US is only 1.14%, but that excludes such crucial day-to-day goods such as food and energy. Real inflation certainly is higher, maybe much higher. John Williams of Shadow Government Statistics calculates true inflation at a whopping 8.48%! But manipulated inflation statistics give the government cover when they again deny seniors a cost of living increase in their social security checks. They also serve to convince the public that further expansion of the money supply will boost the economy without causing any real pain, which has essentially been the core argument of Greenspan-Bernanke fed policy for the last 20 years.

Of course, the United States is not alone in its disastrous monetary policy decisions. These pressures are inherent in any fiat monetary system where money is created at will, for the benefit of the special interests. As all these currencies race to the bottom of the inflationary barrel, the only security to be had will be in honest money like gold as the system falls apart. My hope is that we can return to the wisdom of the Constitution and get back to sound, commodity-backed money before our dollar suffers a wholesale collapse.

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• ron paul
• inflation
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• fiat money
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[VMATT500C]

`GO RON, GO. The Fed. (spit) , wants the USA to Crash and Burn. That's why, they are doing it.

[campaign4liberty]

Ron Paul 2012

LibertyPoet

website

[sfjeff1089]

Could someone please explain to me how gold is going to make us more competitive in the world markets?

The ideal economic system is one which mixes government establishment of economic structure with free enterprise. When you lay down the rules for fair competition, then supply and demand can optimize. Without rules in place, free markets are more about large transfers of wealth than about producing anything.

But Gold should not be confused with rules allowing fair competition.

[sarasmiles05]

We should all be willing to pay the price of putting these guys in a luxury prison facility. I'm in. Audit the fed and get rid of them.

[Mbaxtron]

Look at those american who now have evolved into hippo like creatures. How much meat they consume per person in comparison to the chinese people. How are you going to blame the chinese yuen being artificially low when their workers wages are just a tenth of the american workers. That makes the american goods too costly and the chinese goods damn cheap. Use your common sense!!

[somekindonut]

Hey if the fed wants to abandon gold std and make it illegal again, buys it up and then reinstate it at a higher price making it more valuable, would the dollar have more worth? I vote for the audit as well

[somekindonut]

Hey if the fed wants to abandon gold std and make it illegal again, buys it up and then reinstate it at a higher price making it more valuable, would the dollar have more worth?

[jtube740]

@mjl1621 Well to do what Ron Paul wants to do we first have to audit Fort Knox. I really doubt the gold is there. If it is, Id be ok with Rons plan. If not I personally dont see another solution than doing what Lincoln did.

[natalierosen]

I am REALLY trying to understand the financial arena and have such a hard time. I wish I had the same talent I do for writing about things political but things financial driving the entire political system I just do not get. I am a liberal Democrat BUT I do think Ron is on to something (NOT Rand but RON). I like him and I think he knows what he is talking about. I love his ideas on foreign entanglements and his libertarian philosophy as to the social issues BUT I simply do not know finance

[JBBlitz]

@feeneyr1 no its people like ron paul that do.

[feeneyr1]

@JBBlitz you're way off the mark- its people like you that make politics a lost cause