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How Ron Paul Would Fix the Economy

So you think that all it would take would be for the government to actually say that?

No, nobody would believe them, but they have to do it. That's why it's tough, and this is also the reason that I'm opting out for not waiting for that day. I want competition with the Fed. I want to legalize the Constitution. I want to legalize the trading in gold and silver, no taxes, no sales taxes, no capital gains taxes. Private companies can mint their own coins, they just have to be not fraudulent, like our government is fraudulent. They don't back their currency with anything, but you would have to repeal the legal tender laws, and if the crisis doesn't come, then people ... can just go with the Federal Reserve, trust the Fed forever.

But if a young person thinks they have to put away money for their future or raising their kids, they might think, "hmm, maybe I oughta buy a gold bond" because if you put $10,000 away today to educate somebody in 10 years, you'll get your $10,000 back, but school might cost you 20k, so nobody is going to save in dollars, but they would save in a gold bond.

So is this something that we would see -- dollars in circulation and also gold and silver coins in circulation, and then the people are free to chose which they would rather do business in? Is that your hope that eventually more people would choose gold and silver that would take us out of this fiat currency?

Paul: Yeah, and I think they would.

You're leaving a lot of faith in the people, though?

Better than having faith in the government or the Fed, you can't trust them. But the Mexican government is doing this now. They have savings accounts in silver, but we do it internationally all the time not with gold but the various currencies, the banks, the corporations and international trade.

Every single second of the day they are varying the exchange rate between dollars and yen and euros and Swiss francs so in this computer age it's not a problem. You actually literally could do it if you wanted to buy something with a gold coin or silver coin there could be an adjustment.

So the idea isn't that every dollar in circulation is then backed by a certain coin that is somewhere in Fort Knox, for example ?

Not in a transition period. Later on it doesn't have to be the government. I actually believe in the free market thinking: the private companies could do it, but if you try to mimic what we had before, yes, reserves would have to be held in gold and that would limit -- see that's why they don't want it -- see conservatives and liberals don't like it because that would limit spending. Today they can spend endlessly and the debt can be bought by the Fed out of money created out of thin air. That is the key to the problem.

But even if we had half the amount of debt we have now, there literally isn't enough gold in the world. So we would have to have the gold price rise to $5,000 or sop $9 trillion out of the system .

That's probably what would happen.

What would that do to people? I mean that feels like that would be such a deep depression.

No, you have the depression when you have runaway inflation, and that's when you get money that doesn't buy anything. They're working on trying to get rid of the debt by more rapid depreciation of the currency, so if you can get that currency say 50% more depreciated here in the next couple of years, the debt would only be $7 trillion. That's what they're working on, that's what the problems is, that's when people get cheated and the people who pay for that are the average people who have to pay higher prices in the stores and they are already feeling this. They are getting the brunt of this much, much worse than having a limitation on the printing of money.

All we're saying is you can't commit fraud. If you did it, you'd be a counterfeiter, but if we participate here in Washington and let the Fed counterfeit the money to subsidize our wars and our welfare, we're considered good politicians, but that's coming to an end.

I just don't really see how a gold-backed dollar really makes sense in this day and age, especially when other countries aren't doing it?

Well, they would follow us most likely, but what you have to compare it to is how does printing money make any sense? That makes zero sense. Money has to originate in the market; it originates as an advancement of pure barter. Bartering started, and then you had to have the money developed because it was easier to have a third exchange instead of corn for cows or something like that; you priced it in an ounce of gold, that enhanced trade.

Then when you had the money with no definitions, it's like building a building with a yard stick that is changing its measurements every single day. You can't do it; that's why you can't do an economy on a fiat currency that varies its value every day, and of course the Fed rigging interest rates is a major problem too, so you want to free that up and have the market send the signals, not the Fed.

It just seems that were too far gone now. We can make changes, we can make adjustments, we can offer another legal tender in the country, but it just seems like we are just too far gone to go back to where we were 200 years ago.

A lot of people think that, but the alternative is so bad that we do have to make the effort. But history has shown that fiat currencies internally self-destruct, and they always go back to gold. Gold, if you pick up a coin minted 6,000 years ago, you'd still have your money. If you pick up a piece of paper printed a year ago, it might be worth half its value. So history is on my side of the argument.

What if we go to war? I know you are against foreign involvement in Iraq right now, but what if we do go to war? What if we have a natural disaster, and we need extra cash. What do we do if we are on a gold standard?

The cash has no value; it's just diluting the current value. It steals from people, and eventually what happens when you have the inflation you need ... people will always say we're short cash. The more you print, the less value you have. You can't get value. You can't create wealth out of printing presses.

It doesn't seem though that that would help Japan if they were on gold standard how would they have rebuilt after their earthquake, what would they have done if they were on a gold standard ?

Well, they did it before. We were on a gold standard in the year 1900. Galveston had the worst hurricane in the history of this country. We didn't have FEMA, we had the gold standard, no federal government bailout and we rebuilt the city of Galveston. By now they are having a terrible time with FEMA. FEMA is $18 billion in debt. It doesn't work to believe you can get wealth by just getting pieces of paper.

Now I know people speculate in currencies and obviously gold and silver as we saw in May when we had the big crash for silver and gold as well. With the advent of ETP and ETF products, does that worry you in terms of speculators being able to manipulate a legal tender?

Well if the people do, if they cheat and they are committing fraud they should go to jail.

So there should be regulation preventing them from trading and speculating in gold and silver?

No, just a law against fraud. You don't need all these regulations; they cause a lot of problems. But the people who are defrauding the people right now ought to go to prison too because of what they're doing to the money. They are stealing and robbing from the people, and people work hard and they earn a dollar, and the next day it's worth 90 cents. Somebody should be accountable in a moral way, but no, that's called good politics.

So does that mean that traders at the Nymex should go to jail for speculating on gold and silver?

No, no speculators are doing a good job trying to sort out the real value, but if you manipulate and defraud, that is different. If it's an ETF, and they bid it up, and they didn't put any money into gold or silver, that's fraud. But if it's legitimate, people are betting that the dollar value is going down; they're not so much betting on the price as they are on the value of the dollar going down. They provide a good market function.

--Written by Alix Steel in New York.



>To contact the writer of this article, click here: Alix Steel.

>To follow the writer on Twitter, go to http://twitter.com/adsteel.

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Stock quotes in this article: UUP, UDN, GLD, SGOL, IAU 
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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