“Who would have predicted that the world would keep taking our money?” Ron Paul asked rhetorically. Certainly not Paul.
In a long interview last March, Paul noted that trust and confidence in U.S. Treasury securities was extremely low back in the 1979-1982 period. Then the problem was inflation, not the federal deficits, although red ink started bleeding badly in the double-dip recession that characterized the era.
Over the next ten years, the United States would experience an economic renaissance. It would also be transformed from the world's largest creditor to its largest debtor.
Global investors—led by Japan and Saudi Arabia followed later by China—began a three-decade love affair with Treasury bonds that is only starting to sour—and barely so—in the last year or two. Paul, for one, won't be surprised if China, like the others, shifts its buying power towards other foreign and domestic investments.
To tame double-digit inflation at the end of the 1970s, Fed chairman Paul Volcker tightened the money supply and raised interest rates to levels never seen before or since in the U.S. Many citizens in those days complained about a runaway Fed acting as an unaccountable law unto itself.
Today, many Americans are registering the same complaints of our central bank, albeit for diametrically opposite reasons—namely that the Fed single-handedly is financing runaway budget deficits. According to several reports, central banks around the globe are even entering their domestic equity markets to purchase stocks.
That kind of interference in the private sector frightens many. “The bubble is much bigger today and it’s a worldwide phenomenon,” Paul remarked. “Who is buying 30-year Treasurys?”
A good question, indeed. Insurance companies typically favor long-term bonds, to match liabilities against assets. However, one suspects they might be tilting their portfolios towards long-term corporate bonds with more generous yields than the puny coupons offered by the Treasury Department.
When one meets Ron Paul, two characteristics are immediately evident. The first is that he is a gentleman. The second is that he is a skilled politician, however unorthodox he may be.
One doesn’t get elected to Congress 15 times without political skills and genuine warmth for others. What differentiates Paul from virtually all other long-term members of Congress, including his son, is his refusal to let political expedience silence him. Perhaps only his fellow Fed basher and ideological opposite, Vermont’s socialist Sen. Bernie Saunders, has as little concern with polls and focus groups.
Paul’s wife warned him about running for Congress. “You’re likely to get elected,” the former congressman’s says his wife declared.
In the 1990s, Paul thought “there was a chance the Republican party might get serious about cutting spending.” Did he get frustrated? No. “I went in with low expectations.” He adds he hopes he “nudged” the GOP in that direction but both parties have a gravitational predilection to spend money when in office.
A one-time candidate for president on the Libertarian party ticket, Paul questioned if his views on many issues were as far out of the mainstream as the national media portrayed them to be. Thanks to redistricting, “my district kept changing from” rural areas to the oil patch to coastal regions and Paul kept getting re-elected.
Unquestionably, it is in the foreign policy arena where Paul has clashed repeatedly with his fellow Republicans, but he has steadfastly refused to back down. If his views are heresy with some GOP hawks, he doesn’t think they diverge far from many ordinary Americans.
“Americans want peace,” he said. “[President] Obama was a peace candidate in 2008 and 2012 even though he expanded” several wars.
Paul has no fear when it comes to challenging the status quo in Washington. Many in the nation’s capital viewed government secret whistle-blowers like Daniel Ellsberg and Bradley Manning as “despicable” traitors. Without Ellsberg, Americans never would have learned that the Vietnam war “was based on lies.”
Asked about the increasingly shrill, partisan tone in Washington, Dr. Paul is quick to offer a prognosis. “We’re bankrupt,” he said. Compromise was a lot easier when we were wealthy.
Republicans and Democrats both know it and yet they continue to practice Keynesian economics. Take the malfunctioning F-35 fighter jet plagued by endless cost overruns. In 2009, Harvard professor Martin Feldstein, former chief economic advisor to President Reagan, urged readers of the Wall Street Journal to embrace it as an alternative to the Democrats' controversial stimulus program.
“The Pentagon doesn’t want it but it is being built” in more than 40 states, Paul noted.
When we talked in early March, the Dow Jones Industrial Average had just reached a new record. Paul was not impressed and added that, when measured in terms of gold instead of dollars, the equity market was nowhere near a record. He couldn’t help but observe that another record was set the same day: The number of homeless people in New York City had just topped 50,000.
I also asked Paul what the medical profession thought of libertarian luminary Milton Friedman's doctoral that the medical profession drop licensing requirements since they represented a restraint of trade. This struck me as lunacy as I mentioned in an earlier blog. Paul acknowledged it was highly controversial and quite unpopular in the medical community. But he added that when he was obstetrician he never thought of his license as a marketing tool, just a minimal requirement. After all, he started his career as a military flight surgeon.