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How Ron Paul Would Fix the Economy

WASHINGTON (TheStreet ) -- Congressman Ron Paul fears gold prices could hit $10,000 an ounce if the U.S. doesn't get its fiscal house in order.

Paul, a Texas Republican, has been in Congress for 35 years, has had two unsuccessful runs for the Republican nomination for president and is now embarking on a third attempt.

Paul's message has been consistent, abolish the Federal Reserve, stop printing money and go back on a gold standard. But only now, with the U.S. butting up against the debt ceiling having already racked up a $14.3 trillion deficit, are people starting to pay attention.

After a recent Republican debate, Paul had 11% of potential voters as the slogan "End the Fed," also the title of one of his recent books, catches on. I interviewed Paul on Capitol Hill to find out how the gold standard would fix the U.S. fiscal crisis.

The Street: I know you love the gold standard, but my question is how do you make that ideal a reality in a modern day society?

Paul: Well it's not so much that I will make it a reality or any one person will do it, it will become a reality when the current system fails and it's in the process of failing. The first process is for the financial bubble to burst, which it has, and then the response being massive monetary inflation, which will destroy the value of money, which we have done insidiously ever since we have had the Fed.

Ron Paul

At one time the ratio of dollars to gold was $20 to 1 ounce, now it's over $1,500. They'll lose control, people will panic out of the dollar, then you'll see gold at maybe $5,000 to $10,000, and then they'll say we have to do something and then that's when countries resort to something of real value to regain the trust. But now we're losing the trust and we're only waiting on that day, so when that happens there will be a restoration of sound money to some degree.

So with gold at $5,000-$10,000 does that mean the dollar is at zero or 10 compared to other currencies?

I think we're going to come to our senses before that, but in other countries they have. You know Germany, Zimbabwe, Mexico they've had to start all over again. I'm hoping that we come to our senses and we just say all right, we're going to quit spending, quit printing money and then restore confidence, but it's up for grabs because the bubble is bigger than ever before [and] the world is enduring a dollar standard.

Especially since 1971, all the currencies are linked; they use the dollar as a reserve, so it's not just us that has to deal with this. Right now, as a matter of fact, we're benefiting to a degree from that because the other currencies have used the dollars as if they were gold, and they're in trouble, say a country like Greece and others, they inflated on top of ours so they even resorted to using dollars, so that gives us a temporary reprieve.

Exactly how do we deal with that? How do we implement that? I know you have talked about gold certificates, but how do we do that worldwide and in our own country then?

Well we can't deal worldwide. The opposition, those who believe in government, are trying to do that worldwide probably not use gold but probably use fiat money, you know at the IMF, which I would find very annoying. But we can only deal with our own problems. They followed us when we had a sound dollar, and then they followed us when we made our dollar unsound, but if we can lead the way we could just say we would stop printing money.

How do we go back to some kind of gold standard? I know that one of the myths that you debunked back in the '80s was that there was not enough gold. Maybe back in the'80s there was enough gold, but there is definitely not enough gold right now.

The argument is the same. The other day I picked up a good silver dime, and I got to thinking that is one tenth of an ounce. That's worth about $4. I could still buy two loaves of bread with it.

Or one gallon of gas at this point.

Paul: So all of a sudden you have a lot of money, when it's sound money, but we have a precedent to follow but it's not as easy as it was. We were off the gold standard from 1861 to 1878, and they had a resumption act, and what they did was they promised no more greenbacks; we're not going to run any more deficits; we're not fighting any wars; we don't have a welfare state and people believed them so gold went from like $150 an ounce down to $20 an ounce. It was a nonevent; they went back to the gold standard.

Stock quotes in this article: UUP, UDN, GLD, SGOL, IAU 

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