Britannia Radio

*Financial Times
March 22, 2009*

*Ron Paul: Believer in small government predicts 15-year depression*

*By Phil Davis*

Pension trustees and insurance company portfolio managers look away now.
Your increased commitment to government bond holdings in recent times is
about to blow up spectacularly.

At least, that is the view of Ron Paul, the US congressman who ran against
John McCain in last year’s Republican Party presidential nomination.

His is a minority view. Yields on government bonds worldwide have been
falling fast over the past few months and in the UK, the commencement of
“quantitative easing” this month sent bond prices soaring.
But the credibility of both western governments and their currencies is
waning, and has been ever since the gold standard was abandoned in 1971,
says Mr Paul. And that means even “safe” investments are far from safe, he
claims.

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

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

Unfortunately, cashing out will not protect the value of investments, he
insists, because “fiat” currencies will all decline over the coming years as
measures to try to haul the world economy out of recession fail. “The
current stimulus measures are making things a lot worse,” says Mr Paul.

“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.”

At some stage – Mr Paul estimates it will be between one and four years –
the dollar will implode. “The dollar as a reserve standard is done,” he
says. He sees little hope for other currencies where central banks have also
created too much liquidity dating right back to the early 1970s.

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

And don’t even mention shares to Mr Paul: “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.”

Of course, everyone has a view on the credit crisis, its causes and putative
solutions. What differentiates Mr Paul is that he has been warning of the
dangers to the world economy for nearly 40 years. “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.”

A deep recession had only been avoided up until now because of the efforts
of successive governments to reflate the economy. But there are no more
policy levers left, says Mr Paul. “This is the big one.”

Unsurprisingly, Mr Paul has been viewed as a crank in Washington, dismissed
as a doomsayer and a party-pooper. His bill early this year to abolish the
Federal Reserve was largely ignored. And his adherence to the Austrian
School of economics, which predicted that fiat currencies would destabilise
the world economy, has won him few friends.

“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.”

However, his views are, for the first time, being taken seriously in
Washington. Like another politician who recently aimed for high office, Al
Gore, Mr Paul’s uncomfortable truths are starting to be deliberated at
elevated political levels. “Before last summer, in meetings nobody really
knew I was there. Now they often defer to me on economic matters. But you
won’t catch any of them admitting that publicly – not yet at least.”

He believes that markets will fall much further and inflation rise much
higher before his fellow politicians recognise that the system has failed.
“We are likely to see an inflation depression,” Mr Paul says.

“In the 1970s, we had stagflation, but not depression. Inflation depression
is what you see in Zimbabwe.”

Even Nouriel Roubini, the renegade economist whose once “extreme” views are
now mainstream, fights shy of this analysis. The investment options arising
from the analysis are no more palatable. In fact, according to Mr Paul,
there is only one: gold.

Such an unproductive asset (unless you are a jeweller) appears unattractive
even with the gold price having risen three-fold during the Bush
administration. But Mr Paul argues that the current price of about
$900/ounce could look cheap in a few years.

“It is not so much that gold will go up but that fiat currencies will go
down,” he says. He even advocates a return to the gold standard, which he
says is not as difficult as it sounds to achieve.

Mr Paul, it should be noted, first invested in gold nearly 40 years ago when
it was worth $35/ounce and holds a part of his wealth in the metal. But he
is not alone: gold exchange traded commodities have seen record inflows in
the past six months, most wealth managers now recommend a core holding and
central banks are loath to sell their quotas. Indeed, Russia has even
announced it is buying gold.

Nevertheless, most large institutions, including pension funds, have little
or no gold holdings. Mr Paul argues this is a mistake and decries the widely
held view that gold is an anachronism.

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

“You just can’t repeal those laws. A scrap of paper, which the government
can just add a nought to, will not do.” He does not, though, expect the
mainstream investment industry and its advisers to rush to the bullion
vaults.

*REMEMBER TO MAIL YOUR TEA BAG ON APRIL 1st.*

*mail to:*

**

*1600 Pennsylvania Ave.**     *

*Washington, D.C. 20500**.*

**

There is a growing protest to demand that Congress, the President and his
cabinet LISTEN to us, the American Citizens.  What is being done in Wash.
D.C. is NOT the way to handle the economic free fall. They are legislating
us into BANKRUPTSY.

So, here's the plan.. * On April 1, 2009, all Americans are asked to send a
TEABAG to Washington.*   You do not have to enclose a note or any other
information unless you so desire, just a TEABAG.   Many cities are
organizing protests.  If you simply search, "New American Tea Party",
several sites will come up. * ** *

**

It would be best if you take the tea leaves out of the bag so the tea bag
lies flat in the envelope, enabling it to go through the sorting machine
without jamming.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

*"Treason is not just a Republican thang"…**CV*

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