Ron Paul predicts 15-year depression

According to an article by Phil Davis in Financial Times yesterday, U.S. Congressman Ron Paul believes the U.S. economy could be heading into a 15-year depression:

“The US government just won’t allow the correction the economy needs.” He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. “No one remembers that one. They’ll remember this one, because it will last 15 years.”

A key cause, Paul contends, will be reliance on what he calls unstable “fiat currencies” rather than the gold standard.

At his web site, Paul defines “fiat money” as “money that can be inflated or increased at the push of a button at the say-so of a powerful person or organization.” He contends that nowadays “most dollars are just blimps [should this be sic? maybe not!] on a computer screen and it’s extremely easy for the Federal Reserve to create money out of thin air whenever they want to.”

Paul tells Davis that he advocates the Austrian School of economics:

“People don’t like the Austrians because they are against big government, against armies and against the welfare state. To accept Austrian economics, you have to accept limitations of credit expansion and that is what has kept the government and financial firms in business for so long.”

Some explanations of the Austrian School can be found at the Wikipedia entry and at the Ludwig von Mises Institute web site.

Judgin from the Wikipedia entry, the Austrian School puts its faith in market mechanisms:

It emphasizes the spontaneous organizing power of the price mechanism, holds that the complexity of subjective human choices makes mathematical modelling of the evolving market extremely difficult (or impossible) and therefore advocates a laissez faire approach to the economy.

Here are some other Ron Paul quotes from Davis’s article:

“People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates.”

“If you are in Treasuries, you will need to be watchful and nimble to time your escape.”

“Europe and the US will both have to fundamentally change their money systems.”

“The last place you want to be is in the stock market,” he says. “It may not bottom out for 10 years – just look at Japan.”

“The breakdown of Bretton Woods was my motivation for running for Congress. I have been talking about the dangers ever since and warning that the control by central banks over the money supply would create an enormous bubble.”

“Gold is natural money and has been for 6,000 years.”

A couple of years ago, my dad and I watched a fascinating interview with Ron Paul on The News Hour on PBS. The comment of my dad, who is very liberal politically and disagrees with Paul on many points, was, “Well, it’s hard not to like him.”

AB — 23 March 2009

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