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Congressman Ron Paul Talks About Gold, Oil & the Economy (Great Interview from 2006)

This is the third time I have had the honor of interviewing U.S. Congressman Ron Paul. If Thomas Jefferson were alive today, I believe Ron Paul might be the only lawmaker that most revered Founding Father would endorse as one who has followed the Constitution that those brave revolutionaries gave us. In fact, one former U.S. Congressman told me Ron Paul was the only lawmaker left in Washington that paid attention to the Constitution. And like the Founding Fathers of our Republic, Congressman Paul believes that as a lawmaker he is a servant of the people rather than an elitist seeking to be served. And so, Dr. Paul has made it a practice of running his office so frugally that he ends up giving some of the money he is entitled to back to the taxpayers.

Ron Paul is also a medical doctor. He served his country in Vietnam as a flight surgeon. Then he became an obstetrician during which time he delivered some 4,000 human infants into the world. The point is, Dr. Paul had a successful career before running for public office. He doesn't need Washington for personal reasons or selfaggrandizement. But in my view, Washington and America need Dr. Paul and others like him who will serve the People by following the Constitution.

In a prior interview, Congressman Paul told me that he decided to run for Congress after studying Austrian economics. He knew then that if the freedoms, liberties, and prosperities enjoyed by our great country were to endure, we would have to return to a system of honest money - in other words, a monetary system that was based on gold and/or silver as indeed our Constitution mandates. Ron Paul is one very unique political figure that I am extremely honored to learn to know. I think most of our readers agree with most, if not all, of Dr. Paul's views on political economy, but even if you don't, the purity of motives for his service is reason enough to respect him. I hope you enjoy the following conversation, which I had with Dr. Paul on Friday, March 10, when he spoke to me via phone from his home in Texas.

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TAYLOR: Dr. Paul, I want to thank you again for allocating your precious time to talk to our subscribers. Many of my subscribers follow you in part through our weekly newsletter, and of course on television when you appear. Many of my subscribers deeply admire you because you stand for the principles outlined in our Constitution, even when doing so may not be politically correct. But you also make sense. After seeing you on TV, my 82­year-old mother, who only had 10 years of education but who is as honest and sensible as anyone alive, said that you were "the only one that made any sense." On the other side of the education spectrum is former Congressman Robert Bauman, J.D., who paid you a tremendous compliment a few years ago at an offshore conference in Mexico. When I told him that I had recently spoken to you, he replied, "Ron Paul is the only one left." When I asked him what he meant by that comment, he said, "He is the only one in Washington who follows the Constitution." Richard Russell told me he thinks Senator Byrd should also be considered in that select group. I think Richard said that because of Senator Byrd's firm stand for the explicit requirement in the Constitution that Congress should declare war before our President sends troops into battle. I am thankful to Senator Byrd for his position on that issue, but I'm not aware of Senator Byrd's ever discussing another explicit mandate of the Constitution - namely, that our currency was supposed to be comprised of gold and silver. Are there any other lawmakers in Washington besides you who take that stand?

CONGRESSMAN PAUL: I've casually tried to find that out, and the general reaction I get is not hostility but total amb ivalence or ignorance of the issue. They just don't think it is important. Some are sympathetic but not interested enough to do anything about it.

TAYLOR: I believe most people simply don't understand or care about the issue of fiat money. Could you summarize the economic problems that paper money leads to, and perhaps give some examples of problems that have surfaced over the past decade or so?

CONGRESSMAN PAUL: I think they don't see any harm because they haven't really studied history. If you have studied history, you will know it is harmful. There is no historical example where paper money has lasted for a long period of time. It works for a while until the trust in that money is totally undermined, and then it ends up in an economic calamity, for the most part, in runaway inflation or other serious dislocations.

We have essentially had worldwide fiat currency since 1971. We have not had runaway inflation, but we have had serious problems with inflation - serious erosion of the value of the dollar - which undermines some very innocent people, say, like your mother who may be frugal and save her money and put it in CDs and not speculate. Because of the distortions, she ends up getting interest rates that are very low. At the same time, the value of her savings goes down instead of up. So, there are a lot of people who are hurt with this system.

But the biggest flaw in the way people think today of inflation is that they buy into the argument that inflation is rising prices alone, rather than looking at what the Fed is doing. When the Fed creates new money, they undermine the value of the money, and that is inflation. Sometimes that causes stock prices to go up like the NASDAQ bubble that emerged from inflation. Or sometimes it might be a housing bubble, and other times it may flow into bonds and sometimes into commodities, and other times into the CPI.

Sometimes price increases are hidden from us by government statistics, or the prices are held in check to a degree by increases in productivity. But there is still a great deal of harm done because artificially low interest rates cause businesspeople and savers to do things differently than if there was a market economy and a normal savings rate. Under normal market conditions, you get more favorable economic balance. When interest rates are distorted, that contributes to malinvestment and over investment and excessive debt accumulation that ends up in economic downturns that very often can be quite severe.

TAYLOR: I believe the economic downturns, at least under Greenspan's tenure at the Fed, were sort of delayed or curtailed by even more promiscuous money creation. Would you agree with that?

CONGRESSMAN PAUL: Yes. He gets the credit for keeping it together. He was able to bounce back and forth. He created one bubble and we lived off that a bit, and it collapses and then he creates a new bubble. We had a couple of recessions that were not overly severe, and the establishment now gives him a lot of credit. History will show that he has created a great deal of harm to us and to our currency. But right now it seems as though we have lucked out in many ways because he, in technical fashion, was able to prolong the inflationary boom. But a time will come when that correction will have to come, and I happen to believe the correction will be more severe because he was able to keep it together. But it is rather ironic that the marketplace today - the establishment - rewards a person like Greenspan. His book deal is running around $9 million. It will take a little time and study and historic analysis to put the blame where it is deserved.

TAYLOR: Hopefully, people will properly ferret out the blame and put it where it is deserved. I'm amazed at the level of reverence Mr. Greenspan was paid by most of your colleagues down there in Washington. They treated him almost like he was God.

CONGRESSMAN PAUL: Your point is well taken. It's interesting that the blame for the Great Depression was misplaced. They blamed the gold standard. We all remember that wonderful article that Greenspan wrote in the Objectivist, "Gold & Economic Freedom." He was right on that. He blamed the Great Depression on the lack of a gold standard or the abuse of the gold standard. He said all the right things. Of course, he has rejected those ideas in his later years when he was able to join the establishment.

TAYLOR: Is there any way he could have joined the establishment and become Federal Reserve chairman if he had taken any other position?

CONGRESSMAN PAUL: No, he couldn't have, because he had been working for a short time to undermine or get rid of the Fed. It is remarkable that he took those early stances and he was still acceptable to the establishment. As late as 1981, when we had our Gold Commission Hearings, he testified in favor of gold. Times were rough then, because gold was very high and interest rates were very high. People were worried about the dollar. Volcker's policy, which was to tighten up things, pulled the dollar out of its nosedive. Greenspan testified in favor of gold-backed bonds at that time. That is probably the last time I have ever heard him say anything favorable about gold.

TAYLOR: Aside from economic difficulties, do you see threats to our Constitution that result from fiat money? Do you see any threats to our personal liberty? Could you give some examples?

CONGRESSMAN PAUL: I think they are connected, because fiat money allows governments to spend without restraint and to run up deficits. As long as the government can print money to buy up these Treasury bills, the politicians are overly tempted to be irresponsible. They have no restraints placed on them. That encourages the welfare spending, which basically is almost always unconstitutional. It also encourages the building up of the world empire, because you can buy military weapons and impose yourself on other countries around the world.

The fact that they have gotten off the gold standard and rejected the admonition that only gold and silver could be legal tender means that the Constitution was circumvented on the money issue. That was evidence of a diminished respect for the Constitution. That has expanded quite a lot since then, because even with the issue of war, we finance war with illegal money, and so now we can go to war without Congress declaring it. Congressmen have been negligent on the money issue and on the war issue. And of course, Congress participates in this unconstitutional approach to regulating and running the economy and getting into the welfare business. So I think it is all connected and is a real lack of respect for the rule of law.

I tell my people back home who might be sympathetic toward the Department of Education that it's "fine and dandy if this country wants the federal government to run education, but then just change the Constitution. But if you do these things without changing the law - changing the Constitution - it means there is nothing left of the Constitution." And of course I don't think there is much left when you see what happens under the Patriot Act and some of the other bills that are being passed. Our personal liberties are not being protected. Government is supposed to be there to protect us. And here we see the government undermining our liberties, rather than doing what they are supposed to do.

TAYLOR: The Constitution so clearly states that gold and silver are to be our legal tender. How could the courts refuse to enforce this very obvious law established by Congress?

CONGRESSMAN PAUL: It is awfully disturbing and it isn't something that happened recently. The gold clause was ruled unconstitutional after Roosevelt got in and confiscated the gold. The government confiscated the gold and then reneged on its responsibility to pay in gold. We complain a lot now, but can you image when those things happed in the 1930s how outraged people were? But then it became acceptable. Fortunately, there have been some reversals , like in 1976 when it became legal to own gold again. So if we keep working on it, we can have victories, but they are few and far between.

TAYLOR: So probably you would be hard pressed to find other members of Congress who would see a connection between honest money and liberty. Is it that they simply don't understand the connection?

CONGRESSMAN PAUL: They don't understand. They have not thought much about it. I do my best to call attention to it, but I think we'll almost have to have a monetary crisis before they will think about it. But back to your point that who gets the blame is pretty important. If Alan Greenspan doesn't get blamed - if inflation of the money supply doesn't get blamed - we will just invite more problems and more authoritarianism, and that won't be good.

TAYLOR: I think you and I both believe that the promiscuous money creation by the Fed will ultimately lead to the destruction of the dollar and our monetary system. When that happens, or as it approaches, do you think the Fed might once again confiscate our gold in order to disguise the problem? In other words, might they blame the messenger (gold), rather than the real reason for gold's rise vis -àvis paper money? Secondly, if you think there is a chance that the authorities might make owning gold illegal once again, do you think it would be equally likely that they would confiscate silver?

CONGRESSMAN PAUL: I think it's possible for both gold and silver; and I know many people who are worried about it. I remember asking panelists on the Gold Commission for assurances that the federal government would never again resort to confiscating gold, and nobody would commit to it. It may seem a bit far-fetched today, but we should remember that governments always assert emergency "powers" during economic crises, as our own government demonstrated in the 1930s. Few Americans understand the true causes of the Depression even today, and still believe FDR's government programs magically cured the economy. So we should understand that public anger in the event of another economic depression may well be misdirected, and gold could be made a scapegoat.

TAYLOR: In your first chance to question the new Fed chairman, you asked him about the decision not to report the broad-based measure of money known as M-3. Chairman Bernanke seemed to suggest the biggest reason it was discontinued was because of the cost to the Fed and to the banks that compile data. That seemed like quite a stretch to me, but do you have any idea how much money it costs to compile that statistic?

CONGRESSMAN PAUL: I have no idea, but I think that is a red herring. I didn't use that word, but I told him so. Of course, he indicated his concern about the cost to the banking system. But you know even banks create new money with the fractional reserve system. And the Fed can print all the money they want to pay their own bills , and they are not even on budget. I think it goes back to what Mises said. He said governments will do whatever they can to distract our attention from the fact that the central bank is the culprit, rather than admit the end result, which is the rise in prices. They don't want us to know what is happening to the money supply. He (Bernanke) said look at M-2. You don't have to look at M-3. But M-2 is growing at only about half the rate of M-3. I don't think it is a perfect indicator, but I think it helps us when we are trying to figure out what they are doing to our money.

TAYLOR: Doug Noland, an Austrian thinker who works for the Prudent Bear Fund, has pointed out that there have been some changes in our monetary structure that perhaps make M-3 less important than it once was in measuring money. Is it possible that the Fed might be justified in not reporting M-3, or should they be looking at a better measure of money? Or do you think they simply don't want us to know how much money they are printing, and the connection between their creation of money and rising prices?

CONGRESSMAN PAUL: I think that is the main reason. I would not argue with the case that it is not a perfect index. We could look for something better, but there is no justification for denying information. Let us decide whether it is worth anything or not. In another way, you could argue that regardless of what they do and say and argue and lie about, the markets eventually are able to discount everything they did. Sometimes it's a little slower and sometimes the markets are misled. But eventually-they tried very hard to hold the gold price in check whether it was at $35 per ounce or $250 per ounce - eventually they are not able to do it. The markets are very powerful. And I think even without M-3, it's a little more difficult for us. It's better to have the information, but eventually the markets will figure it out.

TAYLOR: Doug Noland looks at a whole series of things that he thinks is more helpful than M-3 alone. One of the items I have begun looking at, thanks to an analyst named Charlie Clough at Merrill Lynch during the Asian crisis , was something called Global U.S. dollar liquidity. That seems to very closely mirror the global economic activity including inflation and deflation.

CONGRESSMAN PAUL: I agree with that. I respect what Noland does and I read his material. I think that is very important. But I think people do keep watching M-3. I wrote a letter to the Fed and I asked Bernanke why M-3 does not correspond with total bank credit. I think that is some of what Doug talks about. One of the Fed staff people wrote back to me with a rather lengthy explanation. These others numbers can be very helpful.

TAYLOR: I am of the belief that the great stock market bubble of the 1990s was caused by the enormous creation of money and credit earlier that same decade, and that when the equity market crashed, a recession was avoided by the monetary creation of a new bubble, this time in housing. Do you agree that the equity market's rise and fall as well as the extreme overvaluations in our housing markets was caused by excessive money and credit and do you believe we are in any danger of a collapse of the housing market?

CONGRESSMAN PAUL: I think there is over-investment and a lot of distortion, and there will be corrections. I think the correction has already started. I have never looked at the housing bubble - and I would not pretend to be the expert - but my sense is that the housing bubble has not been and will never be as dangerous as the NASDAQ bubble, mainly because I see a house as a real asset. People use that as protection. I know that prices go up too much and they have to be corrected, but you still have a house. But with the NASDAQ bubble, you had ZERO worth with many of those stocks. A house never goes to zero, but that doesn't mean I'm trying to reassure people not to be concerned about it (housing bubble). These people who put zero down payment and zero interest and so forth - yes, there is going to be a wringing out of that, but hopefully it won't be quite as devastating as the NASDAQ bubble was. But in a way you could argue that it could go to zero if you can't afford to keep your house. For you it would go to zero. The house still has value. But for the individual that bought who shouldn't have been buying, I think it's a very serious problem.

TAYLOR: Mal investment caused by excessive credit?

CONGRESSMAN PAUL: I think that is where it comes from. And that is what I keep trying to emphasize.

TAYLOR: What would a major decline in the housing sector do to the U.S. economy?

CONGRESSMAN PAUL: You would think it would cut back on a lot of jobs and a lot of industries that are involved in housing.

TAYLOR: I know that in certain parts of the country, housing overvaluation is much more of a problem than in other parts of the country. For example, in your district in Texas, overvaluation may not be nearly as much of a problem as in places like San Diego or Florida or here in New York City. But let's say we had a very substantial mortgage default problem over a large portion of the U.S. Do you think that Congress would pass and that President Bush would sign a major spending bill to try to bail out debtors and the banks?

CONGRESSMAN PAUL: FANNIE MAE and FREDDIE MAC have a line of credit from the Treasury, and they would use it if they had to. And I'm sure other mortgage companies would qualify. Congress would do whatever they feel they have to do. If there were a "housing hurricane," it would be just like a real hurricane. You spend whatever people demand you spend and worry about it later.

But the other way I think they are going to prop up mortgages is by having foreign central banks soak up our dollars. This is how they are keeping this bubble going now. I believe the central banks have many agreements. They own twice as much debt as the Fed does, so they are there to monetize our debt.

TAYLOR: So it's a global effort to keep the housing market and the U.S. economy afloat?

CONGRESSMAN PAUL: Yes. I think they are working together. They think they are all benefiting from buying Treasuries. And also, on Y2-K, the Fed wanted to make sure there was no shortage of currency, so they incurred enough debt that they could print currency against by buying a lot of FANNIE MAE and FREDDIE MAC. They held those for a while. They had that line on the Fed chart each week that said they didn't own any. I think that is a signal to the foreigners that if they (FANNIE MAE and FREDDIE MAC mortgages) ever get into trouble, the Fed will be very willing to participate in propping them up. That could be done without any legislation at all. If the market got real soft, the Fed could just buy that. I think if you ever start seeing the Fed start to accumulate those non-governmental securities (like FANNIE MAE and FREDDIE MAC), I think that means they are getting worried about it (housing debt market).

TAYLOR: Very interesting. In a way, the whole system seems to breed irresponsible behavior. If the government is going to bail you out, why not buy a house with no down payment, and then buy a bigger house and take on more debt? Doesn't this bailout philosophy breed an irresponsible mindset and borrowing behavior, since assurances of a bailout make people feel safer in taking on more risk?

CONGRESSMAN PAUL: Not only do they feel it's safe to do this , but Congress actually passes laws that tell the banks and credit unions to do it. Under law, they are obligated to lend irresponsibly. If all of a sudden they didn't make any loans in a certain area of town because the people there couldn't afford it, they get in trouble because they are mandated by law to lend to those areas. So that again is forcing irresponsibility. Then when problems come, what do we do? We bail them out again. My whole contention is that there should be a limit to bailouts. How long can we do this ? Ultimately, all of the pressure is put on the dollar.

TAYLOR: So the dollar will suffer from all this money creation for bailouts, right?

CONGRESSMAN PAUL: Yes. But housing is just one area. Look at the pension funds. Look at the obligations, for example, of all pilots' pension funds, plus Social Security and everything else on the Federal Government. But the Federal Government has nothing other than the authority to tax and print money.

TAYLOR: Richard Maybury has said he has never seen or heard of any housing collapse, and I believe he also said he has never heard of a country at war overseas ever experiencing a depression. He has invited his readers to let him know of any such incidents if they could. If Mr. Maybury is right, perhaps President Bush is on the right track when he wages war in various countries, if for no other reason than to keep our economy humming along. Might our military intrusions not be acting as kind of a bailout for the housing industry and the American economy in general? Aside from the sacrifice of American lives in battle, might the policies of President Bush and the neo-conservatives make good economic sense?

CONGRESSMAN PAUL: I think the military serves as a distraction. You don't become wealthier by building bombs rather than houses. You could argue that people are employed. Unemployment went down in Word War II, but the people didn't necessarily feel wealthier. Not only did they have a shortage of spending funds, they also had rationing going on. Employment was fine. People had to build tanks and build airplanes. People were drafted and millions of people were serving. But they were not doing anything to enhance the economy. I would argue the case that maybe the classical symptoms of a depression with people unemployed aren't there, but economic benefit cannot happen except for people who make war profits. The companies that build the airplanes did well, but the country, as a whole, cannot become wealthier by consuming their wealth and their energy by putting it into weapons and killing. There is no way a country can get wealthier in that manner.

TAYLOR: In a paper he wrote, titled, "Deflation, Making Sure It Doesn't Happen Here," Ben Bernanke suggested that policy makers these days had all manner of equipment at their disposal that policy makers in the 1930s did not have for overcoming that deflationary depression. He euphemistically suggested that money could be delivered to the populace by helicopters if need be to keep the consumer spending. On another occasion, I believe he suggested the policy makers could transfuse or create money out of thin air by having the Fed buy real estate or gold mines. Most people on Wall Street think that is just fine, as long as the party is prolonged. I'm assuming you think otherwise. Could you explain to our readers what kind of trouble these unending inflationary policies might cause?

CONGRESSMAN PAUL: It's a total illusion to think that the printing of money can solve our problems , because what you can't measure is the confidence factor. That is what will be lost. Eventually, the printing of the money may appear to be a positive factor for a time, because it results in lower interest rates. People are reassured, because most of the time they don't realize that rates are coming down, simply because the Fed is printing more money. Lower interest rates stimulate the economy , because they encourage people to buy more houses and all these different things by taking on more debt.

But as soon as confidence is eroded, the very same policy causes anxiety. People then become concerned and worried and frightened, and they do less of what he (Fed chairman) is trying to get them to do. So trying to claim that printing unlimited amounts of money is a panacea is nonsense.

TAYLOR: Yesterday we learned that the U.S. trade deficit has widened to another record level. When I was an MBA student back in the 1970s, I was taught that there was no need for a gold standard and fixed-rate currencies because if the currencies were free to float with each other, they would adjust to the underlying trade realities. So, if the U.S. were running a trade deficit, its currency would fall relative to other currencies, thus leading to reduced imports and increased exports. And the opposite would be true too. If we ran a surplus, our currency would get stronger, thus leading to more imports and fewer exports. We are now having a huge, chronic, and growing trade deficit. What happened to this flexible foreign exchange rate theory? Why is the U.S. trade deficit never in balance? Why is growing worse each year?

CONGRESSMAN PAUL: It's probably because of the special nature of the dollar - that is , it is considered the world's reserve currency. That means that the world is interpreting the paper dollar essentially as if it were gold. They are willing to take it and hold it. They think they are holding gold. In essence, though, they are holding our paper and so it's an illusion. But I think the current account deficit can continue for a lot longer, as long as that trust holds up. But the matter of trust could change suddenly. It could change next month. We could have some economic or political event that would change attitudes quickly. Then the adjustment will have to come. But for now, they are quite content to take our dollars, and the current account deficit doesn't seem to bother them. The fact that these currencies do adjust on a minute-to-minute adjustment is really a free market benefit to what they are doing. If you had rigid, tight rates, this would not work. So in a way it is ironic that the marketplace sort of takes care of some of these problems by making adjustments, but I don't think they can defy this (current account adjustment) forever because if they could, it would mean that none of us would ever have to work again. All we would have to do is let the government print the money to take care of us. Common sense tells us there is a limit. No one knows where that limit is and when it is going to hit.

TAYLOR: I believe you are a free market advocate as much as anyone in Congress. Yet, for a change, you voted with a large majority of others in Congress who opposed the ownership of several U.S. port facilities foreign interests from Dubai. . As a strong advocate of free trade, can you explain why you objected to this flow of foreign capital into the U.S.?

CONGRESSMAN PAUL: I don't think we actually had a vote on that. I did take a public position that I was opposed to it, but in many ways reluctantly, because I knew there was some downside to it. My main objection to it was that there was a government involved in acquiring our port facilities. The other argument I had was that the President doesn't have the authority to make a deal with a foreign government, like President Bush did. For the most part, Congress has deferred to the President for almost everything. But with the President now going down in the polls, the Congress is saying, "You can't do this without us."

In a free market, neither the President nor the Congress should be telling the ports what to do. If it's the port of Houston or Galveston or whatever, they should be totally responsible for that. So I almost saw this as a mandate to say these ports would not be dictated to by either the President or the Congress. I never had a very comfortable position about this because the issue wasn't even on my wavelength. But I do fear that this is going to be settled with some type of compromise - if Congress were to pass a law that no foreign ownership were permitted in this country, it would be the beginning of a major trade war. I anticipate a trade war to come, because that is generally what comes out of inflationary conditions in a fiat currency. This is the sentiment. I think Congress is always ready to fight trade wars, which I don't endorse.

TAYLOR: So then, do you think this port issue could lead to a trade war?

CONGRESSMAN PAUL: I think it could happen, but I think it has probably been neutralized here with a compromise. If this problem were extended to all of the OPEC countries, it could become a serious issue. But I think we are more likely to get a resistance from the radical Muslim world. One day they may reject the dollar and even establish a gold standard. But I think this Dubai issue will get settled. But events like this can pop up - this one popped up fairly quickly. But something like this can prompt a vicious trade war and it won't make anyone happy.

TAYLOR: In the 1970s, as inflation rose in the U.S., foreigners began to sell their dollar holdings. To defend the dollar, Volcker cut back the money supply growth very sharply. In fact, I believe there was a short time when it actually contracted. Interest rates rose to the moon. My first mortgage here in Queens, New York, in 1982 was at 17.5%.

Now Mr. Bernanke is known as a student of the Great Depression, and he is promising us we will never have to suffer through something like that again. But what do you think would happen to the U.S. geopolitical dominance if foreigners no longer want our currency and prefer to park ever-increasing amounts of their wealth in euros or yen or renminbi or gold? Do you see the possibility of Mr. Bernanke's hand being forced to tighten money and credit simply to defend the dollar and thus enable the U.S. to retain its currency as the world's reserve currency? And if you think that is a possibility, how would our economy cope with substantially higher interest rates when we now have much more debt, relative to income, than we had in 1980?

CONGRESSMAN PAUL: Yes, that is when he will really be in a dilemma, because I think conditions may return to something similar to that. It may even be worse. He is going to have this desire to inflate, because he thinks inflating the currency is always the solution. But I can see him in a situation in which he will really, really have to tighten up, and we could have worse conditions than in the 1970s when we had stagflation, a weak economy , and high inflation rates.

TAYLOR: Well, we certainly have much more debt now than in the 1970s. We have a trade deficit now while we had a surplus then. Foreigners own a lot more of us than they did then. It seems to me that we could be in a more precarious position going forward than we were in the 1970s.

On a related topic, Fed Chairman Greenspan suggested he was not worried about our manufacturing base leaving our country. Are you concerned about the disappearance of our manufacturing base, and if so, what should America do about it?

CONGRESSMAN PAUL: Yes, I am. I think it is a very bad sign. I don't think there is any easy solution. I think it is caused by a lot of different factors such as high wages and inflation in this country. The fact that we have a reserve currency that leads to foreigners taking our dollars makes it a better deal for us to buy from overseas. Our tax structure will frequently encourage companies to set up business overseas. So there are a lot of things we have done that will not be changed easily - the change in the regulatory system, the tax system, the monetary system - at the same time recognizing that it is a benefit to our consumers to buy cheap things overseas. To deal with all that at one time is almo st impossible. Yes, I think it is a very serious problem, but I don't see the solution coming here in the near future.

TAYLOR: You have been known as the "taxpayer's best friend in Congress." Once you said that our government wouldn't really need to tax us at all because money could simply be printed (that is , debt could be created) out of thin air to pay for all government expenditures. Could you comment on what a tax-free inflationary fiat currency system might do to us? I think of Larry Kudlow, who I picture as a neo-con and a supply-side economist. He would always reduce taxes but he doesn't have any concern about printing more and more money to fund government activities, and he is very much in favor of aggressive military action overseas.

CONGRESSMAN PAUL: No, they (neo-conservatives) don't worry about printing money or about deficits either. I don't think we need an income tax. I think taxes should be a lot lower. But the only way that would work is if we had a lot less spending. We could do like they did in the early years. We could have an income tax to fund a much smaller military. We would really be a bastion of freedom and prosperity if we developed a system like that with very low taxes, and not be the military policeman of the world. I can't imagine anything being better for us than that. Anything we can do to lower taxes and let people spend their own money, the better.

TAYLOR: "Policeman of the world" - that causes me to want to ask you what you think would happen if we left Iraq. The common view is that we would see a huge amount of chaos in that country. . . .

CONGRESSMAN PAUL: Well, chaos is what is happening while we are there.

TAYLOR: What do you anticipate happening with regard to tax legislation in the near term in Congress? Will capital gains taxes be rolled back? Will we see rising personal and corporate rates? What about this thing called the Alternative Minimum Tax that seems to be pushing more and more Americans further and further down the income scale? Do we have any hope for tax relief in the near future?

CONGRESSMAN PAUL: I don't think there will be any additional tax cuts passed. But the capital gains rate reductions and the increased Alternative Minimum Tax exemptions will expire unless Congress acts. I think those tax benefits are not going to be removed. At least I hope they wont. I'm not on the inside track on all that, but I'm sort of hoping they don't do this foolish thing about raising taxes right now. I just wish I could talk them into cutting some spending.

TAYLOR: If we get a Democratic Congress next year, could things change a bit on that score?

CONGRESSMAN PAUL: If the Democrats are capable of taking back Congress, the President may use a veto against increased taxes, although he has not used any veto so far. Probably the main thing on the agenda for the Democrats would be an impeachment. I think this would be pure politics and a payback for the Clinton impeachment, but I think it would be very high on their agenda if they just won the House.

TAYLOR: After I spoke at a gold show in New York, I expressed my views that because of the enormous amount of debt that has built up in the system over the years, there are powerful deflationary undertows at work in our economy. After my talk, a money manager came up to me and remarked that she thought the idea of either deflation or inflation in the future was a very real problem. In fact, it was the issue she thought was more important than any other for her as a person who manages other people's money. Correct me if I am wrong, but I believe your view is that deflation is a very remote possibility any time soon, given the unending capability of creating money out of thin air. Is that your view?

CONGRESSMAN PAUL: I operate on the assumption that they are going to be able to continue to print money, and because we don't have a dollar backed by gold, there will be no sense of holding just dollars. So I anticipate they may be able to print. And there is a mechanis m more in place today than during the Depression. You can send a check to a Social Security beneficiary or anyone else. They didn't have that in place before, so it could be almost like a currency inflation. So Congress is capable of printing and spending what ever they think is necessary, and they won't hesitate to do it.

Of course the question on deflation is whether they can do anything about a cascading debt and the system deflating in that way. I'm sure there will be plenty of that, but I have to assume the government will do what Bernanke wants to do, and that is to simply pass out the cash.

TAYLOR: But again, if the foreigners say they are not going to send us the $2 billion per day or so that we need to live on because we don't save, interest rates could spike up, and with the huge amount of debt, it would present some challenges to Mr. Bernanke, I think.

CONGRESSMAN PAUL: Yes, that would mean if they don't want our dollar, it would go down in value, you'd have inflation, and you would have to have higher interest rates. So I would think it would be inflationary if they don't want our dollars.

TAYLOR: Unless he was forced to tighten money to defend the dollar, and unless he realized defending the dollar was a lost cause, would hyperinflation then be a real possibility?

CONGRESSMAN PAUL: Well, eventually I believe they will lose control.

TAYLOR: Well, I believe that too, and yet, this inflationary boom must eventually come to an end. As Ludwig von Mises once wrote, "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

CONGRESSMAN PAUL: That's where we are right now.

TAYLOR: You know, Congressman Paul, I often examine myself and wonder what world I am living in. When I watch CNBC, there is never any concern about these issues. Last week, there was a debate between Dennis Gartman, a well-known Wall Street commentator, and John Embry, a well-known Canadian analyst who thinks gold is heading to the stratosphere. But Gartman saw no problem with endless amounts of money and debt creation. And I wonder, since we are all working with the same data, how we can see the world so differently. I think it boils down to whether you subscribe to Keynesian and monetarist economic theory or if you lean more toward an Austrian view of things.

CONGRESSMAN PAUL: The big question is , "Where is common sense?" I seem to get further with talking to grade-schoolers and high-schoolers than I do with talking to anyone in Washington.

TAYLOR: My 82-year-old mom thinks you are the only politician who makes any sense. On the other hand, we have all these Ph.D. economists who have been indoctrinated in Keynesian and monetarist economics. Perhaps our education system is providing more mis-education than education these days.

I'd like to switch topics again. Being from Texas, you most likely have a view on the energy markets, so I would like to ask you a series of questions, in no small part for the benefit of our energy letter subscribers. First of all, do you anticipate a continued rise in energy prices over the longer term?

CONGRESSMAN PAUL: I think the price of energy is going to go up, just because we have inflation and inflation expectations. But I think, geopolitically, it's going to go up because of our foreign policy. In fact, the other day we had State Department people before the International Relations Committee and they were agitating for a much firmer militant approach toward Iran. And I said, "Why don't you look at the policy of Iraq? That is a total failure. Why are you proposing to do the same thing in Iran? You took oil from $30 to $60 by going into Iraq. It didn't increase production. Production went down. If you pursue this in Iran, I predict you will double oil again. It will probably go from $60 to $120." So, I think what we are doing over there, although it is done behind the scenes in the name of protecting our oil, is , in fact, disrupting the supplies of oil and making it much more dangerous to get oil out of that region.

TAYLOR: What was the response to your statement?

CONGRESSMAN PAUL: Oh, they ignored it. But the guy who was sitting next to me said, "Oh I guess I'll go out and buy some oil futures." So I expect oil prices to go up. And then there is all the talk about "peak oil." I don't worry about peak oil as much as I do about geopolitics and inflation. If we had sound money, and if we were not provoking wars and oil supplies, and if peak oil all of a sudden not only arrived but the supply was decreasing much faster than we ever dreamed of, I wouldn't even worry about it, because I have such confidence that the price mechanism in the free market helps us decide what to do. If we had a truly free market and gasoline prices go to $5 per gallon, all of a sudden ethanol may be the answer. The last thing we want is the government to be doing this. If we let the markets handle this , we should never worry. We don't need to worry so much about a limited supply as much as how we mess things up after that with inflation and regulation and radical environmentalism and geopolitical intervention. That is where the real problems are.

TAYLOR: Certainly with energy prices rising, there are some renewable sources of energy that are starting to look attractive. But again, to the extent these higher prices are caused by government intervention and wars and geopolitical manipulation, it really distorts the markets.

Do you anticipate that nuclear energy will provide some solutions to higher energy prices? China and India are building nuclear plants, and they have a large number of new plants planned for the future. Do you favor this form of energy?

CONGRESSMAN PAUL: I think it will come. I think it is a good answer. I have a nuclear power plant in my district. It is another answer when energy prices go too high. I think we are going to win on that issue, although we have lost for a good many years, and there have not been any new nuclear power plants. When push comes to shove, I think the American people are going to say, "I want my house heated and lit up with electricity." So I think we are finally going to reject some of these arguments against nuclear power, because they are not very convincing."

TAYLOR: I don't know you very well, but I think I know you well enough to believe you have no desire to ever become President of the United States.

CONGRESSMAN PAUL: That's for sure.

TAYLOR: Even so, many people who know you and revere your work would love to see that. But if you were President, what policies would you seek to implement to make America a freer, safer, fairer, and more prosperous place for its citizens?

CONGRESSMAN PAUL: It's the respect for liberty that is the problem. We don't have enough respect or understanding or confidence in liberty. That is the real problem. To cut back on government, you have to have the people understand the issue of liberty. So, my biggest goal has been in the area of education, as well as this little political effort I am involved in. But oh, I guess I would get rid of the Federal Reserve, get rid of the IRS, bring our troops home, and cut down to only about 20% of what we are spending on the military - those things would bring about a tremendous boom in this country, but it is just not going to happen.

TAYLOR: That would require quite an adjustment. A lot of people rely on government for employment and transfer payments, etc. There would be a lot of people mad as hell if that were to happen.

CONGRESSMAN PAUL: But we should get ready for it because if we have a dollar collapse, there will be a revamping of government. When that happens, do we want the same people who brought us this chaos to be the same people to rebuild it? And what I'm hoping is that people will believe in sound money and limited government, the rule of law, and the Constitution. If they have an influence on building the government, we can expect to have a much more peaceful nation and a much more prosperous nation.

TAYLOR: I mentioned to an Austrian-leaning group who trade ideas about economics by e-mail that I was planning to interview you, and I invited them to raise some questions I might ask you. One person who responded recalled your activity at a conference in November 1983 titled, "The Gold Standard: An Austrian Perspective." The person who passed this on to me noted that there were some 400 people who attended the conference. He wondered how many people would be sufficiently conversant with sound money issues today to hold such a conclave.

In any event, my friend noted that your segment was captioned: "The Political and Economic Agenda for a Real Gold Standard." I understand that you set out to suggest a possible political strategy that would "make it possible to liberate [economic] forces and restore the monetary role for gold."

Clearly, not much ever came of this effort to move toward honest money that might avert what many of us believe will ultimately be a collapse of our Western monetary system. My friend notes this was a "disgraceful lost opportunity, particularly given that we held all the high ground after the extraordinary gift of the bloodless collapse of the Soviet Union."

He concludes, "As a result, we shall have our own collapse, and no power on earth can stop it. The question for Rep. Paul that I would like to ask is "What thinking is he doing now relative to a strategy for post-collapse regeneration, now that avoidance cannot be overcome? How do we end up with an Erhardt-type regeneration and avoid a Bush-type repression? It seems to me this is the only relevant consideration today for someone in public life who actually understands what is happening.

"Secondarily, how can we in the shadows best help?"

Assuming you believe our own collapse is now a foregone conclusion, could you answer these two questions? I would also like to add that other subscribers wondered if there are other representatives we might work with and support, who understand the problems we face.

CONGRESSMAN PAUL: I think everyone can help. I don't think way back then they anticipated that all of a sudden Congress would have a siege of wisdom and do the right thing. I have always assumed that things would always get worse before they get better. But I think compared to the early 1980s that we are much better off. There are many more people writing about this , investing accordingly, writing newsletters, speaking on radio talk shows, and [communicating] on the Internet. And that to me is so important that we grow in numbers. I have to agree with him that we are going to have some very serious chaotic times. But that doesn't mean we can't win. Besides, we know that if we don't make the effort and present our case, we can't possibly win. I am very, very concerned, but at the same time, optimistic enough to believe that a little bit of effort put into this can be beneficial.

TAYLOR: You put an awful lot of effort into this cause, Congressman Paul. I understand Aaron Russo, a filmmaker and past Libertarian candidate for President, has made a film. A friend of mine in California previewed the film and he tells me that you are featured prominently in it. Have you seen the film, and if so, could you tell our readers briefly what it is about?

CONGRESSMAN PAUL: I have not seen the film. I don't know who else was involved and interviewed. Someone else asked me about this earlier today. All I can say is I hope it was a worthwhile project.

TAYLOR: Before we finish our discussion, I understand from reading Richard Maybury's excellent publication that there is a precious metals coin dealership that bears your name. If there is not some law or rule some place that makes it illegal for you to talk about it, could you tell us if this is your business and, if so, how our subscribers might avail themselves of this service?

CONGRESSMAN PAUL: I had a coin dealership with Bert Blumert. It still exists. I have no commercial benefits from it, but I still recommend it because I think he is very trustworthy. If I could remember that number correctly, I would say it.

TAYLOR: I can look it up. I know Richard Maybury has it in his letter. The number for Camino Coin is 800-982-7070.

CONGRESSMAN PAUL: Yes, Richard does put it in there. He has been a friend and he knows the business is run very reputably. I'm not allowed to be involved.

TAYLOR: Okay. For the benefit of our subscribers, here is the number for Ron Paul Coins as published in Richard Maybury's letter, "U.S. & World Early Warning Report." It is 1-800-982-7070.

I would like to ask you one last thing. If it legal and appropriate, can you tell our subscribers how they can support you and your reelection efforts? At least, I am assuming and hoping you will run for another term in Congress.

CONGRESSMAN PAUL: Yes, I am running. As a matter of fact, we had our primary election this week. I did have an opponent that ran against me on the issue that I don't support the President enough. We had no idea of what would come of that, but almost 80% of the people said they support me even though I didn't always support the President. I support the President, of course, when he cuts taxes, but I don't support his unbelievably reckless spending habits. And I have a Democrat opponent in the fall. If anyone is interested, I would be delighted to hear from him or her. It is very easy to get information on anything I do by calling 1-800-RonPaul.

TAYLOR: Thank you, again, Congressman Paul, for sharing your views with our readers. I know many of our readers follow what you do. I even had a Canadian analyst tell me after reading some of your essays that he was going to mail a check to your election campaign. I'm glad to play a small role in helping your efforts. I know you are a physician, so I know you revere education, but I think my mom has it right in many respects. She didn't have much formal education, but she has good common sense. So, I think if education is mis -education, it's worse than no education, and I think that is much of what we have these days. Certainly, a great deal of damage has been done longer term to the American economy and American liberty through Keynesian and monetarist disinformation and those policies the resulting policies that the mainstream adheres to. Thank you so much for your time.

CONGRESSMAN PAUL: Okay. Thank you. It was good to talk to you.

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