During the CNN Debate tonight, as in other debates, Ron Paul continued to assert that America is going bankrupt. Another issue he mentions often is monetary policy. Most voters have no idea how important these issues are to them because they understand monetary policy about as well as they understand our million page tax code. Just as the misunderstanding of that tax code can cost a citizen some money on tax day, a misunderstanding of monetary policy could cost us all of our money some day soon which is what Ron Paul means when he talks about America going bankrupt. Below is a reposting of the majority of an article I published earlier called “Ron Paul: A Man Among Boys” that several thousand people have found useful in understanding this issue. I decided to republish it today because of the debate.

This issue of monetary policy isn't discussed openly because it doesn't resonate with voters the way issues like “free health care” or “securing our borders”, “protecting us from terrorists”, “mortgage crisis”, or “national healthcare” do. How many Americans even realize that the U.S. dollar is worth less than a Canadian Dollar? Using the Canadian Dollar as the benchmark, how many people know that after the terrorist attacks on 9/11 the dollar was stronger than it was in 2000?How many people realize that in 2002, when the war in Iraq began, the value of our dollar began to decrease? It hasn't stopped its decline since, and is now reaching historical lows. As the data in the chart below indicates, it wasn't the attacks of 9/11 that destroyed our dollar, it was our response to them coupled with our monetary policy in general which make things like an “Economic Stimulus Package” seem like a good idea.

Historic Exchange Rates

How many Americans fail to see the connection? How many people in our country don't seem to understand why this matters? And most imporantly, how many presidential candidates are even discussing this issue?

Ron Paul's economic and monetary ideology are typically a punchline at best among political pundits with the level of sophistication along these lines:

“Ron Paul wants to go back to the gold standard. What's next? Reducing dependency on foreign oil by getting rid or our cars and riding horses?”

These pundits are also starting to claim that Ron Paul offers a lot of ideology, but no practical real world solutions to the problems facing America. These blanket statements influence common voters tremendously in a time when “practical real world solution” has become synonomous with “government entitlement program.”

These very real solutions RonPaul supports are hard to grasp for the typical American who has little understanding of economic theory, monetary policy, or interest of anything foreign outside of why Europeans insist on calling soccer “football.” They were probably watching football when the ABC debate was on a few weeks ago when Ron Paul was discussing gas prices remaining flat vs. gold but increasing drastically vs. the dollar. These same people are depending on Social Security for retirement and are scared to death that when they hear these political experts tell them that “Ron Paul wants to end Social Security.”

Below is my humble attempt at explaining this complicated issue in a way the person I just described can easily understand. Once understood, this person will also be able to see that the sky may indeed be falling, and that contrary to public opinion Ron Paul is the only candidate running on a platform that would SAVE Social Security until our country was healthy and prosperous enough that it was no longer needed (which very likely would not be during Paul's administration even if he were to become a two term president).

Monetary Policy and Consequences For Dummies (like me)

Let's assume that everyone in America could print their own money. Or to make it easier, they could just go online to their personal checking account, type in whatever dollar amount they wanted, and that would be how much money had in the bank. How much would a dollar then be worth? This is easy. It would be worth next to nothing because what $1 once bought, it would now take millions to purchase the same good or service because there would be so many dollars.

But let's change the scenario a little. Let's say that this creating of money out of thin air was introduced state by state in alphabetical order. In other words, only residents of Alabama could print money for the first month, then Alaskans could join in a month later, then Arizona residents and so forth. Who would benefit the most? The Alabamans would. By the time Wyoming got into the mix, it probably wouldn't even be worth the bother. In other words, the people who benefit under a system like this are the people who get to use the newly created money first.

Individuals in our country can't print their own money, but there is a private bank that can. It's called the Federal Reserve. And they do. And then they lend it to our government with interest. There are nearly 26 dollars in circulation now for every 1 dollar in circulation in 1959. And the rate of printing this money is increasing. In 2007 alone we printed more dollars than the total amount that existed in 1963. While the number of dollars has increased 26 fold, the population hasn't even doubled over that same period.

Of course this works out fine for the government. They get to spend the money first. And it works out well for the special interest contractors who receive the money. They are like Alaskans in our example. The people are Wyoming.

To bring this down to simpler terms which also illustrates the long term consequences of this issue, when many families receive a new credit card in the mail, they feel as if they have “free money.” So they spend it. And then get another credit card. Then they max out that card too. And so it goes until they can no longer meet the minimum payments or get a new card. When the creditors come calling, there are three ways they can pay off the debt.

One is to raise income. But that is very difficult for an individual to do.

Another is to borrow money from grandma.

The third is to cut spending on things that the kids really loved and that may have seemed “necessary” when the “free money” was rolling in, but suddenly doesn't seem as much so when the family is facing losing its car or home.

If they can't get more money, get it from grandma, or cut enough spending to pay the debt, they are forced to go bankrupt and then lose everything that really was important to them.

What is the connection here?

The government has a never ending stream of “free money” printed by the Federal Reserve. As you hopefully now understand, this “free money” hurts the individual citizen by devaluing his dollar.

Eventually this debt has to be repaid. How can this happen?

Unlike the individual citizen, the government can raise its income rather easily. This is accomplished by raising taxes.

The second is to borrow from Granny. The name of the Federal Government's most benevolent Grandmother is China. Although Granny may claim she expects the money back, China actually does–with interest. What happens when Granny cuts us offand wants her money back? Well, the individual's granny doesn't have a Nuclear Option to help her collect like our Government's Granny does.

The third is to cut spending on things we just can't afford. No matter how much the “kids” may like things like supporting foreign countries, propping up dictators to make us “safe from terrorists”, testing children annually to make sure they aren't left behind, providing Federal grants to send people to college, or the idea of free health care; if we don't give those things up we won't even be able to afford the things we really need–like a way to defend ourselves should Granny China decides to use a nuclear option, of either sort, to collect what she's owed.

Ron Paul is the only candidate to offer a solution to this problem.

The first step is to stop activating all of those new credit cards. This is why he would end the Federal Reserve (or at least make its actions more transparent by having their now secret meeting televised) and offers radical ideas like making sure our dollar is actually worth something.

The second is to cut out spending no matter how unpopular it is or how much the kids may cry about it.

None of this may seem like a major issue right now. In fact, it doesn't seem bad at all. We are living the high life. The “leading” GOP candidates are like the dads who earn 60,000 (fiat pre-tax) dollars who live in the suburbs, live in a house with an interest only adjustable rate mortgage, and “own” two import SUV's while mom stays at home because it's “best for the kids.” There is nothing that they can't afford for their family as long as the credit cards keep rolling in. They just smile and nod and keep promising more. This doesn't seem like a big deal either. They are living the high life. At least until the cards are all maxed; the collection agencies start calling; their credit score goes down; the interest rate gets adjusted upward; they can't afford the mortgage; the bank forecloses; and mom leaves with the kids to go live with grandma and grandpa in the house they paid off in 7 years because they didn't believe in being a mooch, borrowing money, or being in debt. Can you say “mortgage crisis”?

Ron Paul is that wise old grandpappy who kept getting laughed at and called an old-timer who didn't understand how the modern world worked when herepeatedly toldhis daughter her family needed to learn to live below its means. The best way to prevent foreclosure is foresight.

Ron Paul's foresight would not only help us get lower gas prices by restoring the dollar's value,it would help us stave off bankruptcy or a nuclear attack by China. When you grow up and understand this issue, it kinda makes the “major issues” like national healthcare and terrorism seem about as significant as that pimple you had on prom night doesn't it?

Update: Today when the Fed lowered rates (printed more money) for the second time in barely a week, the dollar's value fell a half a percent. In ONE day. And the Price of Gold “increased” $15 dollars. In other words, it took $15 more dollars to buy the same amount of gold today than it did yesterday–not because gold is worth more, but because your dollar is worth less. Comforting, huh?

Your fellow American,

John Armstrong

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strongarmedjohn@yahoo.com