Ron Paul sees the next financial crisis as the bursting of the dollar bubble.
I think Ron Paul is absolutely right to warn CNBC of our next financial crisis. But I’m not sure the dollar is the bubble.
Despite rising stock prices and a falling unemployment rate, the United States is on the brink of a catastrophic “financial crisis,” according to former U.S. presidential candidate Ron Paul. And the culprit could be the dollar.
“There’s a huge bubble with the dollar,” Paul said on Tuesday’s “Futures Now.” The Dollar index, which measures the dollar against a basket of other major currencies, is near 12-year highs as the Fed has retreated from its stimulative programs at just the same time that other central banks have introduced their easing measures. But rather than take the rally as a sign that investors see strength in the U.S. economy, the outspoken former congressman sees the dollar’s massive move higher as simply a byproduct of a world awash in easy money.
“It’s not so much that the dollar is a great currency. It’s the fact that nothing else is any better, said Paul. “The fundamentals are a disaster. The economy is in bad shape when you have more than half the people hardly making ends meet.”
Paul declined to offer a catalyst or even a timeframe for when the dollar “bubble” could pop, but did warn that it does happen, it will be quick and unexpected. “Most of the time, these things are unforeseen,” he said. “Did anybody warn us about 2007, 2008 in Lehman Brothers? Nobody warned us about that.”
According to Paul, the collapse of the dollar, and by extension, the stock market will likely come when the Fed begins to raise interest rates, something many expect it will do later this year. In his view, the Fed’s policies, and not real economic growth, have been the real reasons the dollar and U.S. equities have rallied. And the absence of those policies could lead to disaster.
I respect Paul, but I think there is a gargantuan debt bubble that is going to collapse, leaving the dollar more valuable. Maybe I’m wrong. I certainly agree with Paul that “It’s not so much that the dollar is a great currency. It’s the fact that nothing else is any better.” It deserves to collapse and someday it will. But the dollar is not the only thing that functions as “money” in our society. Leverage or debt is also a kind of wealth that will suddenly evaporate when people realize the economy is a house built on sand.
At that point, as people’s investments and loans disappear in bankruptcy, people will want all the dollars they can grab. Furthermore, as the recession halts business, the price of commodities will drop. After all, if the stock market collapses (and the housing market will too, at that point) that means we will experience the deflation that our ruling class fears so much.
It is absolutely true that the dollar will collapse some day. All fiat currencies go to zero eventually. But right now we have debt bombs that are even more unstable and will implode much sooner. When prices collapse, the value of the dollar will rise. For the time being.
No one can time the collapse with certainty, but I don’t believe the Federal Reserve ever plans to raise interest rates. They are just talking that way to make it sound as if they are being reasonable. Nevertheless, the collapse will come.