Talks with Treasury Secretary Henry Paulson on the Dollar July 13, 2008 3:30am by Barry Ritholtz Ron Paul Financial Services Hearing – July 10, 2008 ~~~ Spread the wealth. twitter facebook linkedin What's been said: Discussions found on the web: VennData commented on Jul 13 In his response to Rep. Paul Treasury Secretary Paulson said “What I believe in Congressmen, is markets.” The problem is that if financial firms are too big to fail, the government must step in or chaos ensues. It is clear what the problem is: that FNM, Bear Stern’s and a few other firms are not just too big to fail, they are too big. Large financial firms are an unnecessary risk to the free market ecology and should be broken up. The only reason these firms “must” get large is to compete with other large firms. Without any large firms, this need vanishes. Bringing in PE does not solve “too big to fail” either, but only exacerbates the concentration of power in a low tax shell (carried interest.) If anything, as financial firms increase in size their tax rates should go up – like progressive taxation – to discourage useless, dangerous financial empire building. Furthermore, the regulatory system can shrink if we don’t need to worry about a firm ever being too big to fail. Mark E Hoffer commented on Jul 13 I find it hard to believe that allowing those various Representatives a mere 5 minutes to ask Questions is of, any, constructive, value for their Constituents.. also, this book: “In Restraint of Trade” by Butler Shaffer should shed light on the paradigm we are finding ourselves in: “The author chooses this period because it was a time when the entire relationship between American business and the federal government underwent dramatic upheaval. It was in this time that business forged a consensus about the scope and intensity of competition behavior that they would tolerate. This began to exhibit a disposition favoring collectivist authority over one another via government-backed enforcement agencies. Free and unrestrained competition required more of them than they were willing to tolerate. It required constant innovation, a fight against falling prices, a continued effort to seek out new markets, and the willingness to subject their bottom line to consumer preferences for lower prices and better products. They saw the vibrancy of free enterprise as a threat to their firms and well being, so they used anti-business sentiment in politics to hamper the market in ways that would benefit them.” http://blog.mises.org/archives/008273.asp Jack Cantor commented on Jul 13 Firstly, I’m sorry but Barney Frank is a jerk. I find it shocking that he is the chairman of the House Finance Services Committee. Where is his financial or economic background to adequately assume this position? Second, Henry Paulson is a rambling jerk–no wonder the other jerk shut him up, they both cancel each other out. Why don’t they just tell the American public the truth? 90% of America isn’t listening anyway–if they were Ron Paul would be the Republican nominee. Lastly, if you want to know the truth, google the “Amero.” It’s coming, stop thinking it’s a conspiracy theory and start planning on how you can take advantage of the devaluation of dollar and the exchange–trust me, it’s coming!!! dugafish commented on Jul 13 Anybody who has lived in a third world country for any significant period of time understands what is currently taking place here: taxation through devaluation of the US dollar. Ron Paul understands the primary issue with politicians-that they would rather increase taxes surreptitiously (so as be reelected and to not have the overt accountability of having voted for tax increases) rather than overtly, and the monetization of debt through the the printing of fiat currency is the methodology through which this hidden and unaccountable taxation takes place. That is why fiat currencies dont work-its not because in theory they cant work-tjhey can-but rather its because of HUMAN NATURE-the innate desire to always seek something for nothing. That is why we need an anchor for the value of the dollar such as gold-becuase it IMPOSES an objective measurement on the value of the dollar and one which cant be manipulated by politicians. Its all about overcoming the basic insticnts of HUMAN NATURE. Of course, as Larry Kudlow states, we can have growth with a floating currency exchange rate system as long as we maikntain steady and low rates of inflation here in America. BUT, the problem is that our inflation rates are now and have been fr some time, not steady or low anymore. Somebody please tell that to Michael Metz, who must be a profound numskull. Even Kudlow favors some type of anchor to gold for the US Dollar–thats impressive. I sense big changes must be underway in the structure of the world currency and monetary regimes-wont happen tomorrow but we are moving inexorably towards some cataclysmic event that will precipitate the change. BobC commented on Jul 13 Regarding the Amero, you need to offer something more than “Google this” as a basis for your argument. Google telekinesis. You’ll get plenty of hits (1,790,000 is what I got) But that doesn’t make it real. Steve Barry commented on Jul 13 Dugafish is 100% right…fiat currency is a great theory. It is very convenient to use paper money instead of gold coins…very convenient to not have to acquire gold in order to grow the money supply. But in the hands of human beings, it has ALWAYS in history resulted in disaster. Fiat currency doesn’t ruin currencies…central bankers do. Bruce commented on Jul 13 Balanced budget amendment to the constitution…… Otherwise lesser men, in power, will continue to fail… Bruce in Tennessee Paul Jones commented on Jul 13 Unfortunately in our pseudo-democratic system, Ron Paul and those of like mind simply don’t have the numbers. That doesn’t bode well for democracy. Todd commented on Jul 13 It’s interesting that Ron Paul was the only GOP candidate who was honest enough to talk truth to power, the GOP base and the American people during the debates. As a result, he was seen as a fringe candidate not to be taken seriously. Sean Hannity did his best to instill that impression after GOP debates. The GOP base gave Paul about what, 8% of the vote? This goes to show the deep level of denial that exists in the Republican Party vis-a-vis the economic difficulties we face. Perfect case in point: Paulsen says in this video that the USA has the best economic prospects long run of any country in the world. John McCain should make a bold move and name Ron Paul a chief economic advisor to his campaign and to his Presidency if he would win in November. That would at the very minimum display a seriousness about dealing with our problems. But, John McCain still thinks there’s such a thing as a free lunch, as does the base of the Republican party. austincompany commented on Jul 13 Besides Ron Paul, the former US Comptroller, David Walker, also tells the truth about what the future holds for America. But no one wants to listen or believe. We are a spoiled nation of whiners and economic ignorance – and this will not change. All an individual can do is protect themselves and their families. bdg123 commented on Jul 13 I’m sort of optimistic based on the fear and loathing here. Although in no way am I optimistic about assets or the immediate term outlook. Barney Frank is an unusual character as is Ron Paul. I like both of them. I like anyone who is edgy when it comes to Congess. Frank is no financial genius but why is that so important. Anyone with common sense could run the finance committee. Sonny Bono could have run the finance committee. It might have been more representative of the soveriegn if he had. And, it might have looked a little like Helter Skelter but who cares? It would have been honest and something we could all relate to. It’s less about what they know and more about making sure Congress acts as the will of the majority and not as elitists telling us what is best for us as has happened for so long. Paulson was part of ‘that’ elite crew. Whether he knowingly participated, ie lobbying scumbags and financial schemes perpetrated on the sovereign, or whether he was just unlucky to there at a point in history is unknown. I think we can divine the will of the people and what the finance committee should be doing. Right now they are playing badminton. Not surprising. That’s the only sport most understand. It’s quite obvious they simply don’t yet realize what is going on because they have decided to put off legislation until some point in the future. There is zero sense of urgency. When the sh&t really starts hitting the fan, badminton will turn into a full contact sport. SteveC commented on Jul 13 Those that advocate anchoring the dollar to gold.. do you have any idea what the repercussions of that move would be? That would be like taking a crack cocaine addict and making him go cold turkey, after 25+ years of addiction. Severe withdrawal symptoms. The country would likely go into depression. I can’t imagine any politician wanting to be responsible for that. Darin Hurst commented on Jul 13 I agree with Ron Paul’s assessment. Inflation is over 10%, the government has obfuscated the real economy, the Federal Reserve system needs to be removed, and the printing presses are out of control. Democracy is only guaranteed by social mobility, and that is now in limbo. Like Japan of the 1990’s, we now have an entire generation of college graduates who will always only be marginally employed. The Boomers are bankrupt. Our standard of living is about ready to decline. The next thing that is going to happen is deflation, so buckle up, it is going to be a nasty next two years. Mark E Hoffer commented on Jul 13 SteveC, If you’re under the impression the Rep. Paul is advocating such a change, I’m sorry that you haven’t been able to read past the MSM HeadlineNews. His position, if I may state it, is that of Free Markets. Including, that of, Currency. It is the Monopoly, of such, granted to the Federal Reserve, that he is objecting to. While he does recommend, the Constitutional basis for our Currency, Gold & Silver, his position is much more akin to that of ‘Free Banking’/ competitive Currencies. “We believe with Ludwig von Mises, Henry Hazlitt, and F.A. Hayek that central banking distorts economic decisionmaking and misleads entrepreneurs into making unsound investments. Hayek won the Nobel Prize for showing how central banks’ interference with interest rates sets the stage for economic downturns. And the central bank’s ability to create money out of thin air transfers wealth from the most vulnerable to those with political pull, since it is the latter who receive the new money before the price increases it brings in its wake have yet occurred. For economic and moral reasons, therefore, we join the great twentieth-century economists in opposing the Federal Reserve System, which has reduced the value of the dollar by 95 percent since it began in 1913.” http://www.campaignforliberty.com/mission/ Grodge commented on Jul 13 This IS democracy. The inefficiencies in the market are part and parcel of self-government. We elect fools and the pendulum swings one way; we figure it out and change course. Yes, it hurts sometimes, but the system is self-correcting. Smart people have made money shorting the dollar and investing in heavy metals– that IS a free market. Sure it hurts those of us whose paychecks are denominated in US dollars, but nobody said life– even in a representative democracy– was fair. Gold standard is a pipe dream. It ain’t gonna happen so please shut up about it. Gold would increase to about $5,000 per oz at the current level of US dollars in circulation. Our fiat currency is a reflection of our public policies and our public policies are a reflection of our elected officials and our elected officials are chosen by us. This is a constantly (de-) evolving system with all the beautiful peaks and valleys of human existence. As the video shows, Paulson is a tool. The masses may rise up and eventually discover that we have sold our nation and our hard-earned currency down the river to a craven lot of self-serving idiots. But until that happens… be responsible, protect your assets. Andy Tabbo commented on Jul 13 Ron Paul is one of the few clear thinkers that exist in Washington, D.C. The fact that he raised so much cash running for President reveals a growing strain of people that realize there’s something really, really wrong out there. The question I ask myself constantly is: are our problems so inexorable that they cannot be solved? Should my family just pack it in and move before it’s too late? Seriously, is this anyway to run the largest economy in the world? If you were to start from scratch, is this the way you would structure the American economy? Essentially, the U.S. government has spent a vast amount of money subsidizing the suburbanization of America via absurdly cheap mortgages, tax breaks on interest, etc, etc. The result? We have created the least efficient living conditions we could have possibility created. McMansions far, far away from the work centers. What a great idea! Build more home space than you need so that you can spend a lot of money Air conditioning and heating that huge home. You then was time and gasoline commuting long distances to and from your American dream. What a disaster. Someone needs to come up with some sort of disruptive technological innovation pretty damn quickly, otherwise the suburbs/American dream is going to become the slums/wastelands/HooverBushvilles. – AT Joe Klein’s conscience commented on Jul 13 While I don’t agree with a lot of Ron Paul’s politics, it is interesting that a man trained as an OB/GYN(I believe) is able to talk about monetary policy like that and stick it to someone like Paulson. Then again, Paulson knows nothing else but living in a bubble(Not the stock market kind!!). David commented on Jul 13 Funny how man looks to external causes for his current plight, when the truth is within……greed, corruption, envy and so on. We have seen the enemy, and he is us. I agree with an earlier poster……constitutional ammendment in support of a balanced budget for the federal government. Find a way to cut the legs out from underneath all the lobbyists in DC and term limits Too bad all these will require the politicians who feed off this stuff to vote themselves out of power……quite a perplexing problem. Gary commented on Jul 13 Gee, Paulson says we’re going through a tough period. I guess he’s one of the whiners Phil Gramm is whining about. John Thompson commented on Jul 13 At least if the automakers and 1/2 the banks go under, there will be talk of converting to a solar hydrogen economy. (yeah right!) It’s there. We just have to let the ruling class bankrupt themselves with their own greed. Oh, if this were only this simple . . . randy commented on Jul 13 what say thee, barry? i read through all these comments hoping to find one of yours. clearly since you posted this video you think there’s something important about it, but what exactly is its importance? in your opinion? i like ron paul a whole lot, though i know he’s a medical doctor and not an economist. given the situation this country is in right now, financially, the bozos Ron Paul is speaking with are hardly more qualified to speak about this topic. rj commented on Jul 13 “We elect fools and the pendulum swings one way; we figure it out and change course. Yes, it hurts sometimes, but the system is self-correcting.” No it isn’t. Americans have a 15% approval rate of Congress and then when elections come around 95% of the incumbents running are re-elected. Phil commented on Jul 13 regarding the masses…as the wise preacher once said, I spend 90% of my time witnessing to those in the hospital. Most never open their ears to the truth until crises comes. Well, be of good cheer, it’s almost a full blown crises. Ron Paul for Treasury Secretary. Vic commented on Jul 13 Ron Paul is the only person in Congress who knows anything about economics. If we had 435 more people like him in Congress we wouldn’t be in this goddamn mess Lola commented on Jul 14 I was at the mall today. The experience was a nice reminder that the average American is more interested in wearing trendy clothes, fuddling on their cellphone, eating fast food at the food court, and buying flatscreen TV’s as a substitute to paying off a mortgage. These masses are the same ones that make up the bulk of the 0-85th% percentile on all those standardized tests we’ve taken since elementary school. What makes any of you think they are suddenly going to wake up one day and figure out how the banking and monetary system works? Give me a break. They are more interested in the free t-shirt that comes with that “cool” 25% APR credit card. So long as forms of welfare exist and employment stays above 70-80%, there will be no revolution. Here we are knee-deep in a recession and Walmart is full of the underclass speeding away in their pickup trucks and SUVs. You’d think they’d at least be smart enough to know that slamming on the accelerator uses more of that $4 gas … We are all trying to co-exist. And since time memoriam, the smart have always figured out how to control the dumb. If you are smart: own your home — you can always live on rice and beans; spend as little money as possible on a safe and reliable vehicle with the best possible fuel efficiency; take advantage of every legal tax break available; have an estate plan with living trusts and advanced directives; don’t blow your hard earned cash on trendy crap you have been manipulated into buying; and, don’t waste your time getting angry about human nature or politics. There will always be idiots, thieves, and freeloaders. Life is too short to pretend 6 billion people will live in some egalitarian world village trading perfectly valued gold coins. Let’s start with the basics and some more realistic short term goals … ssm commented on Jul 14 When Paulson says that ‘we are for a strong dollar’ and then talks about foreign currencies, like China’s, he is admitting that what he wants is for the dollar to strengthen through the devaluing of foreign currencies. In other words, if their currency is falling in value faster than ours then our currency is actually strengthening. There’s an idiot born every second. If the EU were to devalue their currency rapidly, Paulson, Bernanke, and a huge chorus of ‘analysts’ on Wall Street would be singing great praises to the newly strengthened dollar. And it would be pure crap. If China devalues it’s currency, the same chorus would sing, and the price of all the trinkets at WalMart would go down, but the price of energy would continue it’s death march upward. The dollar needs to be strengthened, and you do that with US monetary policy, not by asking the other guys to join in on the orgy of printing of fiat money as we have done. Notsofastfriend commented on Jul 14 God I love Ron Paul. He truly gives me hope that somewhere, somehow, someone will wake up the masses before it’s too late. Corruption, greed and dishonest men run this country and they’ll run it into the ground. tm commented on Jul 14 Barry, THANK YOU for posting this. Paulson… “I don’t see a major industrial nation that got better long term fundamentals then we do.” 9 Trillion in debt… 30-40 trillion in coming just social obligations (not counting military, roads, education, etc) I do not see how we can pay for it. Dr. Paul, thank you. Richard commented on Jul 14 If Ron Pauls philosophy on interest rates became accepted, and implemented, by the FOMC then prepare for one hell of a recession. Might as well bring back Paul Volcker to let the rates float with the market demands. Don’t worry about prices they all would then come down because the unemployment rate would be 12 percent. Mark W commented on Jul 14 Ron Paul again (unfortunately) proves to be one of the few vocal members of Washington Zoo that understands some of the underlying monetary issues and cares enough to call out those ‘in power’ . That he was totally marganilzed by the media, and to a large extant, the public, only shows our ignorance as a country. Representative governments aren’t in the business of taking corrective measures that hurt its voting constituents. What kid volunteers to take yucky cough medicine. Same logic applies here. No one wants to fix the knock in the engine till it blows up. I just don’t think we’re really ready for how potentially unsettling our future really can be. Alasa I think its already to late to fix some of the forces already in motion. Sinomania! commented on Jul 14 As a former Treasurey employee (1st Clinton administration) I can tell you, the Department of the Treasury belongs and serves Wall Street first. Paulson may be a hack but he is right in the sense that while our financial picture appears dire the USA is still the only game in town. The new Carnegie Endowment report that says China will be number within a generation is probably correct and that only means that the great “rebalancing” of global capital will continue. It doesn’t mean the USA is going into a massive deflation or hyper inflation. The dollar will be one of several important currencies. It may not dominant the world but it is in not going away! bdg123 commented on Jul 14 It’s nice to see the Treasury employees are as clueless as their leader. 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