Cao’s Note: As my regular readers know, I support and respect Ron Paul’s position on issues. He is RIGHT ON with the Constitution and the Federalist Papers as they were originally written. I wish more in Congress took their oath to defend the Constitution seriously.

HON. RON PAUL OF TEXAS
BEFORE THE US HOUSE OF REPRESENTATIVES

November 20, 2004

Where To From Here?

The election of 2004 is now history. It’s time to ponder our next four years. Will our country become freer, richer, safer, and more peaceful, or will we continue to suffer from lost civil liberties, a stagnant economy, terrorist threats, and an expanding war in the Middle East and central Asia? Surely the significance of the election was reflected in its intensity and divisiveness.

More people voted for President Bush than any other presidential candidate in our history. And because of the turnout, more people voted against an incumbent president than ever before. However, President Bush was reelected by the narrowest popular vote margin of any incumbent president since Woodrow Wilson in 1916. The numbers are important and measurable; the long-term results are less predictable. The president and many others have said these results give the President a “mandate.” Exactly what that means and what it may lead to is of great importance to us all. Remember, the nation reelected a president in 1972 with a much bigger mandate who never got a chance to use his political capital.

The bitter campaign and the intensity with which both sides engaged each other implies that a great divide existed between two competing candidates with sharply different philosophies. There were plenty of perceived differences– obviously– or a heated emotional contest wouldn’t have materialized.

The biggest difference involved their views on moral and family values. It was evident that the views regarding gay marriage and abortion held by Senator Kerry did not sit well with a majority of American voters, who were then motivated to let their views be known through their support for President Bush. This contributed to the “mandate” the President received more than any other issue. But it begs the question: If the mandate given was motivated by views held on moral values, does the President get carte blanche on all the other programs that are much less conservative? It appears the President and his neo-con advisors assume the answer is yes.

Ironically, the reason the family and moral values issue played such a big role in the election is that on other big issues little difference existed between the two candidates.

Interesting enough, both candidates graduated from Yale and both were members of the controversial and highly secretive Skull and Bones Society. This fact elicited no interest with the media in the campaign.

• Both candidates supported the Iraq War and the continuation of it.
• Both supported the Patriot Act and its controversial attack on personal privacy.
• Both supported the UN and the internationalism of UNESCO, IMF, World Bank, and the WTO.
• Both candidates agreed that a president can initiate war without a declaration by Congress.
• Both supported foreign interventionism in general, foreign aid, and pursuing American interests by maintaining a worldwide American empire.
• Both supported our current monetary system, which permits the Federal Reserve to accommodate deficit spending by Congress through the dangerous process of debt monetization.
• Both supported expanding entitlements, including programs like the National Endowment for the Arts, medical benefits, and federal housing programs.
• Both candidates supported deficit financing.
• Both candidates supported increased spending in almost all categories.

Though President Bush was more favorably inclined to tax cuts, this in reality has limited value if spending continues to grow. All spending must be paid for by a tax, even if it’s the inflation “tax,” whereby printing press money pays the bills and the “tax” is paid through higher prices– especially by the poor and the middle class.

The immediate market reaction to the reelection of President Bush was interesting. The stock market rose significantly, led by certain segments thought to benefit from a friendly Republican administration such as pharmaceuticals, HMO’s, and the weapons industry. The Wall Street Journal summed up the election with a headline the following day: “Winner is Big Business.” The stock market rally following the election likely will be short-lived, however, as the fundamentals underlying the bear market that started in 2000 are still in place.

More important was the reaction of the international exchange markets immediately following the election. The dollar took a dive and gold rose. This indicated that holders of the trillions of dollars slushing around the world interpreted the results to mean that even with conservatives in charge, unbridled spending will not decrease and will actually grow. They also expect the current account deficit and our national debt to increase. This means the economic consequence of continuing our risky fiscal and monetary policy is something Congress should be a lot more concerned about.

One Merrill Lynch money manager responded to the election by saying, “Bush getting reelected means a bigger deficit, a weaker dollar, and higher gold prices.” Another broker added, “Four more years of Bush is a gift to the gold markets– more war, more deficits, more division.”

During the Bush administration gold surged 70%, as the dollar lost 30% of its value. A weakened currency is never beneficial, although it’s argued that it helps our exporters. People who work to earn and save dollars should never have the value of those dollars undermined and diminished by capricious manipulation of the money supply by our government officials.

The value of the dollar is a much more important issue than most realize in Washington. Our current account deficit of 6% of GDP, and our total foreign indebtedness of over $3 trillion, pose a threat to our standard of living. Unfortunately, when the crisis hits our leaders will have little ability to stem the tide of price inflation and higher interest rates that will usher in a dangerous period of economic weakness. Our dependency on foreign borrowing to finance our spendthrift habits is not sustainable. We borrow $1.8 billion a day! The solution involves changing our policy with regards to foreign commitments, foreign wars, empire overseas, and the ever-growing entitlement system here at home. This change is highly unlikely without significant turmoil, and it certainly is not on the administration’s agenda for the next four years. That’s why the world is now betting against the dollar.

When the shift in sentiment comes regarding the U.S. dollar, dollars will come back home. They will be used to buy American assets, especially real property. In the late 1970s it annoyed many Americans when Japan, which was then in the driver’s seat of the world economy, started “buying up America.” This time a lot more dollars will be repatriated.

It’s important to note that total future obligations of the United States government are estimated at well over $70 trillion. These obligations obviously cannot be met. This indebtedness equates to an average household share of the national debt of $474,000!

One cannot expect the needed changes to occur soon, considering that these options were not even considered or discussed in the campaign. But just because they weren’t part of the campaign, and there was no disagreement between the two candidates on the major issues, doesn’t distract from their significance nor disqualify these issues from being crucial in the years to come. My guess is that in the next four years little legislation will be offered dealing with family and moral issues. Foreign policy and domestic spending, along with the ballooning deficit, will be thrust into the forefront and will demand attention. The inability of our Congress and leaders to change direction, and their determination to pursue policies that require huge expenditures, will force a financial crisis upon us as the dollar is further challenged as the reserve currency of the world on international exchange markets.

There will be little resistance to spending and deficits because it will be claimed they are necessary to “fight terrorism.” The irony is that Patriot Act-type regulations were all proposed before 9-11, and are now becoming a costly burden to American businesses. I’m getting more calls every day from constituents who are being harassed by government bureaucrats for “infractions” of all kinds totally unrelated to national security. This immeasurable cost from the stepped-up activity of government bureaucrats will further burden our economy as it slips toward recession– and do little to enhance homeland security.

The only thing that allows our borrowing from foreigners to continue is the confidence they place in our economic system, our military might, and the dollar itself. This is all about to change. Confidence in us, with the continuous expansion of our military presence overseas and with a fiscal crisis starring us in the face, is already starting to erode. Besides, paper money– and that’s all the U.S. dollar is– always fails when trust is lost. That’s a fact of history, not someone’s opinion. Be assured trust in paper money never lasts forever.

The problem the country faces is that social issues garnered intense interest and motivated many to vote both for and against the candidates, yet these issues are only a tiny fraction of the issues dealt with at the national level. And since the election has passed, the odds of new legislation dealing with social issues are slim. Getting a new Supreme Court that will overthrow Roe vs. Wade is a long shot despite the promises. Remember, we already have a Supreme Court where seven of the nine members were appointed by Republican presidents with little to show for it.

Though the recent election reflected the good instincts of many Americans concerned about moral values, abortion, and marriage, let’s hope and pray this endorsement will not be used to justify more pre-emptive/unnecessary wars, expand welfare, ignore deficits, endorse the current monetary system, expand the domestic police state, and promote the American empire worldwide.

We’re more likely to see entitlements and domestic spending continue to increase. There are zero plans for reigning in the Department of Education, government medical care, farm subsidies, or federal housing programs. Don’t expect the National Endowment for the Arts to be challenged. One can be assured its budget will expand as it has for the last four years, with much of the tax money spent on “arts” ironically being used to attack family values.

Deficits never were much of a concern for Democrats, and the current Republican leadership has firmly accepted the supply-sider argument that “deficits don’t matter,” as Vice President Cheney declared according to Former Secretary of the Treasury Paul O’Neill.

Expenditures for foreign adventurism, as advocated by the neo-cons who direct our foreign policy, have received a shot in the arm with the recent election. Plans have been in the workings for expanding our presence throughout the Middle East and central Asia. Iran is the agreed-on next target for those who orchestrated the Iraq invasion and occupation.

A casual attitude has emerged regarding civil liberties. The post 9-11 atmosphere has made it politically correct to sacrifice some of our personal liberties in the name of security, as evidenced by the Patriot Act.

No serious thoughts are expressed in Washington about the constitutional principle of local government. The notion of a loose-knit republican form of government is no longer a consideration. The consensus is that the federal government has responsibility for solving all of our problems, and even amending the Constitution to gain proper authority is no longer thought necessary.

President Eisenhower, not exactly a champion of a strict interpretation of the Constitution, made some interesting comments years ago when approached about more welfare benefits for the needy: “If all that Americans want is security, they can go to prison. They’ll have enough to eat, a bed and a roof over their heads. But if an American wants to preserve his dignity and his equality as a human being, he must not bow his neck to any dictatorial government.” Our country sure could use a little bit more of this sentiment, as Congress rushes to pass new laws relating to the fear of another terrorist attack.

There are even more reasons to believe the current government status quo is unsustainable. As a nation dependent on the willingness of foreigners to loan us the money to finance our extravagance, we now are consuming 80% of the world’s savings. Though the Fed does its part in supplying funds by purchasing Treasury debt, foreign central banks and investors have loaned us nearly twice what the Fed has, to the tune of $1.3 trillion. The daily borrowing needed to support our spending habits cannot last. It can be argued that even the financing of the Iraq war cannot be accomplished without the willingness of countries like China and Japan to loan us the necessary funds. Any shift, even minor, in this sentiment will send chills through the world financial markets. It will not go unnoticed, and every American consumer will be affected.

The debt, both domestic and foreign, is difficult to comprehend. Our national debt is $7.4 trillion, and this limit will be raised in the lame duck session. This plus our U.S. foreign debt breaks all records, and is a threat to sustained economic growth. The amazing thing is that deficits and increases in the debt limit no longer have a stigma attached to them. Some demagoguery takes place, but the limit is easily raised. With stronger partisan control over Congress, the president will have even less difficulty in raising the limit as necessary. It is now acceptable policy to spend excessively without worrying about debt limits. It may be a sign of the times, but the laws of economics cannot be repealed and eventually a price will be paid for this extravagance.

Few in Washington comprehend the nature of the crisis. But liberal Lawrence Summers, Clinton’s Secretary of the Treasury and now president of Harvard, perceptively warns of the danger that is fast approaching. He talks of, “A kind of global balance of financial terror” that we should be concerned about. He goes on to say: “there is surely something off about the world’s greatest power being the world’s greatest debtor. In order to finance prevailing levels of consumption and investment, must the United States be as dependent as it is on the discretionary acts of what are inevitably political entities in other countries?” An economist from the American Enterprise Institute also expressed concern by saying that foreign central banks “now have considerable ability to disrupt U.S. financial markets by simply deciding to refrain from buying further U.S. government paper.”

We must remember the Soviet system was not destroyed from without by military confrontation; it succumbed to the laws of economics that dictated communism a failure, and it was unable to finance its empire. Deficit-financed welfarism, corporatism, Keynesianism, inflationism, and Empire, American style, are no more economically sound than the more authoritarian approach of the Soviets. If one is concerned with the Red/Blue division in this country and the strong feelings that exist already, an economic crisis will make the conflict much more intense.

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