Ron Paul Ads Warn of Financial Crisis

"Dear Dad, SHUT UP!, Sincerely, Your loving Son"

"“His father has a penchant for saying things that could come back and haunt him.”

Sure.  Here is an example of a Ron Paul prediction.

 "Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing." - Ron Paul, 2003

But then who could have predicted the housing bubble and the financial crisis?  Surely no "mainstream economists" saw it coming.  And similarly, today, no mainstream economists see the bubble that we are in.

@Krista Gifford Nice! That was 2003?

@mathew laba @Krista Gifford Yes, back in 2002 and 2003, Ron Paul repeatedly predicted the housing bubble - and that was obviously before it was even close to the peak.  He didn't just diagnose it as it happened - he predicted it because he understood how the policies that were being pursued would play out.  Of course, back in 2005, 2006 and 2007, people could have claimed that his predictions were all wrong - just as they do today about his diagnosis of a bubble today.  It's just a matter of time.  The effects of artificially low interest rates and QE are very predictable.  First, prices run up (stock market and real estate) and then they collapse as the market tries to put things right.  This will cause a massive deflation and the Fed will do what they always do - which is to create trillions in new currency.  This will cause inflation - but I think that this time, the world might realize that this cycle cannot continue forever.

Why this article? Why now?

The WSJ's attempt to 'visit the sins of the father' upon the child, to reduce Rand's favorability ratings before the debates. And an attempt to undo any momentum from Rand's latest filibuster.

Let's HOPE he is wrong!

Warning Will Robinson!!  Clang, clang, clang.  Dive, Dive. . .

The good news is a few people in a few major banks could fix the exchange rate for several years and make billions. Why is this good news? It provides more evidence that the world economy has been "on the fix" for several decades. The guys who got caught forgot to pay off the big boys. The is no logical reason why the international corporations and the few who control them would want to crash the market and cause rioting that would destroy "their" infrastructure. 

All things considered, the populations in the civilized nations have profited from the International corporate hegemony  and we should all pray for the hegemony leaders. 

When it happens, despite the what the Fed and Central Bankers might be saying today, what we all will realize is the obvious, credit ain't money.  Say what you want about Ron Paul and gold--but gold is money and at the top of the pyramid.

If you want to see what's happened since 2008, just look at the Fed's balance sheet pre and post--stranger than fiction.  However, that's simply the nature of politics, central banks, and finance.  We'll just start over and do it again.  Economic history suggests no alternative.

A book worth reading on this subject is Perry Mehrling's "The New Lombard Street."

This is a case of an accurate diagnosis, a very likely prognosis, but a quack cure.

Rand Paul may be a doctor, but he spouts economic nonsense. His focus on debt levels as a percent of GDP being dangerously high ignores the asset side of the balance sheet which needless to say is considerable.  Rand Paul may be able to tell us something about the cure for the common cold but to stand up and warn Americans that doomsday is coming is not only irresponsible for a public figure, it is simply equivalent to the BIG LIE.  While there is no doubt another downturn is in our future, the fact remains that the current performance of the global economy, while generally less robust than historically, is nevertheless substantive.  I would suggest to Rand Paul that there has never been a time in the post WWII period when there are supply induced declines in commodity prices and the global economy falters.  In short, Rand Paul or his agents comments on the state of the economy should be completely ignored because his comments are ignorant and meant to be unsettling.  

@Stan Feldman 

I’m not sure what you mean by asset side unless you mean my house and savings and that belonging to every other U.S. citizen in addition to U.S. businesses. If so, this poses an enormous moral dilemma. By what right are government officials going into debt against our privately created wealth? As far as Rand Paul’s (and Ron Paul’s) economics, the recent tome, This Time is Different, by mainstream academic economists, Reinhart and Rogoff, buttresses the Pauls’ concern over debt with data from over 60 nations across eight centuries: “If there is one common theme to the vast range of crises … it is that excessive debt accumulation … poses greater systemic risks than it seems during a boom... Most of these booms end badly [page xxv].”

@Stan Feldman 

That's a pithy little comment that pretty much sums up a "cursory" view of something that warrants a university library of reading and then, still, one won't have a solid grasp of the matter at hand.

To make the statement that Ron Paul "should be completely ignored", I'm guessing you teach International Finance and The Fed at the university level.  That obviously being the case, thanks for the insight. Blinders are always helpful to the myopic and benighted.

@Stan Feldman 

The asset side?  The only assets the government owns are parks, military weapons, buildings and worthless bonds.  Will they sell all of those and to whom?  As Stephen says will they confiscate personal assets to pay government debt?

@Stan Feldman Let's see. I was taught Assets equal Liabilities plus Stock Holder Equity. I know of lot's of debt...unfunded at that...what r these assets you speak of? Are we going to start selling national parks?

"But the nationally broadcast ads are a high-profile reminder of how far his views are from those of mainstream economists, most of whom are projecting slow but steady growth for the U.S."

What do those forecasts have to do with a prediction of a collapse of the bubbles in the debt and equity markets? Or are those "mainstream" economists the ones also supporting ZIRP and QE and assuming only positive effects from them?

The gold bugs use their "the dollar will be worthless" statements citing the decline of the dollar so that it is now worth about a dime compared to the 1960s dollar. Well, that's what you call compound interest....in this case a compounded decline of 2-4% a year. The dollar will continue to decline but it will not become "worthless" per Germany's experience in the 1930s. Be diversified, but don't put all your eggs in the gold basket. Good luck, and good investing. 

@Wade Johnson You also need to distinguish between those who have a principled stance on an end to fiat currencies and a return to a true (pre-WW1) gold standard, vs. the gold & silver dealers who have a vested interest in selling metal in both good times (get on board before the prices go higher!) and in bad (buy the dips!)...

Devaluation of the dollar during a crisis.

Devalued against what may I ask.

Will the US$ fall againt the Euro and the Yen while both The Euro zone and Japan are using massive QE to fight deflation? I don't think so.

Devalued against commodity based currencies during a commodity glut?

I don't think so.

Devalued against real estate property while over leveraged property holders during a crisis can't keep up with their debts. I don't think so.

Devalued against A Chinese currency which is linked to the U.S. $ while the Chinese nation is sinking in debts and is try to recover with more debts.authorities are trying to tackle massive debts

@Tarek El Dewy The US dollar of 1913 has lost 96% of its purchasing power, most of that loss coming after Nixon closed the gold window in 1971.

@John Pound @Tarek El Dewy

True. But real incomes adjusted for inflation is what matters even more so for most  folks.

And since 1913 the US nation is far better off despite a 96% devalued currency.

@Tarek El Dewy @John Pound 

Despite the destruction of the US dollar, living standards are better today primarily due to productivity improvements that dramatically lowered the cost of living and improved quality.

Now, think how much wealthier we'd all be if the pre-WW1 gold standard was still in place, which would have restrained the growth of the federal government to pre-WW1 levels (i.e. 3-4% of GDP)....

I have heard the same, "the sky is falling, buy gold" claptrap for fifty years. Unfortunately, because I do like Dr. Ron Paul, I bought the Stansberry book. It has the same drivel and not one bit of usable investment advice for those who would like to at least diversify from overpriced stocks and bonds. Stupid me, don't waste your money.  

@Wade Johnson You aren't stupid. Well worth the time. Thanks for the comment.

Might not be a complication if the prediction runs true before the primary season is over. For rates being so low, there really is not much momentum in the economy and it is not like the Federal Reserve has much left in the tank.

@RICHARD TANKSLEY If I could borrow money, invest the money and make some money I would do it. Every time I try to start a biz the rules and regs bury me...then I get creamed paying taxes. Forget about it, until the music changes I'm gonna sit the dance out. And ya know what? I can make 6% owning AT&T and I don't have to do anything. I go home at night, I eat dinner and then watch TV with my family.

@Barrie Harrop How's business now that Australia's government has rejected all that catastrophic AGW claptrap Barrie?

Ron Paul is like a bowl of granola, both flakey and nutty, but like a blind pig he might have found an acorn here.

When will this senile old fool be gone?

Boy, if you think Ron Paul is crazy on the topic of money you really don't understand money. Here's one of my most recent blogs on the subject that drives home the point.

@Dan Calandro Thanks for the refresher course in Money & Banking.

an old fool who needs to retire

Sounds like a empty talk, seems to forgotten about his role here.

@Barrie Harrop Barrie - you worry about wallaby-land and we'll worry about the US...

Jean-Marie Le Pen redux.

Ron Paul may not be too far off.

One huge bubble, if you can call it that, is corporate leverage, and it poses a threat to the banking system. As recent articles in this Journal have pointed out, with so many years of low interest rates and so much new base money put out by the Fed, much of the corporate sector has become overleveraged. Most obvious among the overleverage creators have been the many equity buybacks and mergers and acquisitions, practically all financed with debt.

In the 2000s it was the housing and household sector that become overleveraged and led to the 2008 crisis. In the last five or six years the same has happened only this time in the corporate sector.

When rates start moving up it is likely that many companies will have trouble, which in turn will make waves for the banking sector. I think we have the makings of a possible crisis and if not that, then at least a bursting bubble that will bring the current recovery, such as it is, to an end. But if it does lead to a crisis, keep in mind that today the too-big-to-fails that had to be bailed out in 2008 are from two to two-and-one-half larger than they were back then.

@XAVIER L SIMON  if you really knew you wouldn't be wasting your time on these forums.

@Anthony Swenson @Barrie Harrop yes i made enough money 45 years ago to waste my time on these forums--happy.

@Barrie Harrop @Anthony Swenson LOL, in the whirly-gig business?

@Barrie Harrop Yet here you are Barrie!

@Barrie Harrop @XAVIER L SIMON Let's have a nice conversation. I'm always interested in what Xavier has to say.

@mathew laba @Barrie Harrop @XAVIER L SIMON I second Mathew's comment.  If there is such a thing, Xavier is like a "Distinguished Fellow" on these boards and he always adds facts & quality analysis humbly & eloquently.

Also... he's right. The current bubble inflating is cheap money, inflated by the fed for far too long. It is going to burst at some point and even if Ron Paul *is* crazy, at that time it wouldn't hurt to have your portfolio hedged with some Gold.