Ron Paul's Investment Prowess
want to buy anything where I wouldn’t want to put 10 per cent of
my net worth into it. If I don’t want to put that into it, then
it just isn’t much of an idea.
~ Warren Buffett,
Investor Digest (18 April 1990)
[Buffett told me,] "we just focus on a few outstanding companies.
We’re focus investors." … The essence of focus investing can
be stated quite simply: Choose a few stocks that are likely to produce
above-average returns over the long haul, concentrate the bulk of
your investments in those stocks, and have the fortitude to hold
steady during any short-term market gyrations. … Buffett believes
that the only investors who need wide diversification are those
who do not understand what they are doing.
~ Robert G.
Warren Buffett Portfolio: Mastering
the Power of the Focus Investment Strategy
Santayana is right: history repeats and repeats, and forget it at
your peril. All bubbles break, all investment frenzies pass away.
You absolutely must ignore the vested interests of the industry
and the inevitable cheerleaders who will assure you that this time
it’s a new high plateau or a permanently higher level of productivity,
even if that view comes from the Federal Reserve itself. No. Make
that, especially if it comes from there. The market is gloriously
inefficient and wanders far from fair price but eventually, after
breaking your heart and your patience (and, for professionals, those
of their clients too), it will go back to fair value. Your task
is to survive until that happens.
~ Jeremy Grantham,
Longest Quarterly Letter Ever, GMO
Quarterly Letter (February 2012)
Dr Ronald Ernest
("Ron") Paul, MD, is a graduate of Gettysburg College
and Duke University School of Medicine. Between 1963 and 1968 he
was a medical officer in the U.S. Air Force. From the 1960s until
the 1980s he practised as an obstetrician-gynaecologist, and during
those years delivered more than 4,000 babies. At a special election
in April 1976 (which was held in order to fill a vacant seat), Paul
was first elected to Congress. He narrowly lost at the regular election
in November 1976, but regained the seat in November 1978. In 1984
he stood unsuccessfully for election to the Senate, and in 1985
he left the House of Representatives and returned to his obstetrics
practice. He returned to Congress in 1997, and since then has been
the U.S. Representative for Texas’s 14th district. He
has announced that he will not stand for re-election in 2012. Dr
Paul is also a three-time candidate for President (as a Libertarian
in 1988 and as a Republican in 2008 and 2012). When his son, Rand,
was elected to the Senate for Kentucky in 2010, Ron became the first
U.S. Representative to sit concurrently with his son in the Senate.
Keith Poole of the University of Georgia, on a scale measuring American
politicians’ advocacy of government intervention in the economy
(as opposed, among other things, to positions on non-economic issues),
voting record has been more consistently anti-interventionist than
that of any other member of Congress since 1937. He bases his
political philosophy – and his votes in Congress – upon the conviction
that "the proper role for government is to provide national
defence, a court system for civil disputes, a criminal justice system
for acts of force and fraud, and little else" (see Ron Paul,
Power and the Rule of Law, 5 February 2007). Dr Paul has been
No" – reflecting both his medical vocation and his insistence
that he will "never vote for legislation unless the proposed
measure is expressly authorised by the Constitution."
early 1980s, Ron Paul has written many books, beginning with Gold,
Peace and Prosperity (1981) The
Case for Gold (1982) and Mises
and Austrian Economics: A Personal View (1982, 2004), and
also including Freedom
Under Siege: The U.S. Constitution After 200 Years (1987),
Foreign Policy of Freedom: Peace, Commerce, and Honest Friendship
of Prosperity: Free Markets, Honest Money and Private Property
Revolution: A Manifesto (2008), End
The Fed (2009) and Liberty
Defined: 50 Essential Issues That Affect Our Freedom (2011).
See also The
Ron Paul File at LewRockwell.com
and the Congressman
Ron Paul website. As an author and member of Congress, he has
rigorously analysed and trenchantly criticised the U.S. Government’s
fiscal, foreign and above all monetary policies. He knows and regrets
what everybody else in Congress ignores or denies: the Fed’s virtually
continuous – since its establishment in 1913 – policy of high inflation
has underwritten Washington’s increasingly profligate fiscal and
ever more aggressively interventionist foreign policy.
years his prescient warnings fell upon deaf ears. On 16 July 2002,
Mortgage Schemes Distort the Housing Market, for example, Paul
policy [is creating] a short-term boom in housing. Like all artificially-created
bubbles, the boom in housing prices cannot last forever. When
housing prices fall, homeowners will experience difficulty as
their equity is wiped out. Furthermore, the holders of the mortgage
debt will also have a loss. These losses will be greater than
they would have otherwise been had government policy not actively
encouraged over-investment in housing. Perhaps the Federal Reserve
can stave off the day of reckoning by purchasing GSE debt and
pumping liquidity into the housing market, but this cannot hold
off the inevitable drop in the housing market forever. In fact,
postponing the necessary but painful market corrections will only
deepen the inevitable fall.
On 10 September
2003, he testified before the House Financial Services Committee,
which was holding hearings regarding the special privileges extended
to government-sponsored enterprises (GSEs), particularly the Federal
National Mortgage Association (Fannie Mae) and the Federal Home
Loan Mortgage Corporation (Freddie Mac). In his testimony, Paul
criticised these privileges; specifically, he warned that GSEs could
and likely would trigger disaster. Paul noted that, according to
the Congressional Budget Office, in fiscal 2000 alone housing-related
GSEs received $13.6 billion in indirect federal subsidies; moreover,
they possessed lines of credit with the U.S. Treasury. This support
was potentially unlimited; as such, it constituted an explicit promise
by the Treasury to rescue the GSEs during times of economic difficulty.
In Paul’s words, it
GSEs attract investors who are willing to settle for lower yields
than they would demand in the absence of the subsidy. Thus, the
line of credit distorts the allocation of capital. More importantly,
the line of credit is a promise on behalf of the government to
engage in a huge unconstitutional and immoral income transfer
from working Americans to holders of GSE debt.
backing of GSEs, Paul observed, isolated their managers from the
market’s discipline, and thereby encouraged them to accept risks
that sane managers in a free market would not undertake. "Ironically,
by transferring the risk of a widespread mortgage default [from
the GSEs to the government, i.e., to taxpayers], the government
increases the likelihood of a painful crash in the housing market,"
Paul warned. He continued:
This is because
the special privileges granted to Fannie and Freddie have distorted
the housing market by allowing them to attract capital they could
not attract under pure market conditions. As a result, capital
is diverted from its most productive use into housing. This reduces
the efficacy of the entire market and thus reduces the standard
of living of all Americans. Despite the long-term damage to the
economy inflicted by the government's interference in the housing
market, the government's policy of diverting capital to other
uses creates a short-term boom in housing. Like all artificially
created bubbles, the boom in housing prices cannot last forever.
When housing prices fall, homeowners will experience difficulty
as their equity is wiped out. Furthermore, the holders of the
mortgage debt will also have a loss. These losses will be greater
than they would have otherwise been had government policy not
actively encouraged over-investment in housing.
today’s hearing sheds light on how special privileges granted to
GSEs distort the housing market and endanger American taxpayers,"
Paul concluded his testimony. "Congress should act to remove
taxpayer support from the housing GSEs before the bubble bursts
and taxpayers are once again forced to bail out investors who were
misled by foolish government interference in the market." For
that reason, on that day he introduced the Free Housing Market Enhancement
Act. This legislation would have removed government subsidies from
Fannie Mae, Freddie Mac and the National Home Loan Bank Board. Alas,
nobody co-sponsored the bill, and it stalled in the committee process.
On 20 October
2005, Ben Bernanke, then the Chairman of George W. Bush’s Council
of Economic Advisers, in his Testimony
before the Joint Economic Committee, showed (as he had repeatedly
done previously and as he has done numerous times since) that he’s
have risen by nearly 25 per cent over the past two years. Although
speculative activity has increased in some areas, at a national
level these price increases largely reflect strong economic fundamentals,
including robust growth in jobs and incomes, low mortgage rates,
steady rates of household formation, and factors that limit the
expansion of housing supply in some areas. House prices are unlikely
to continue rising at current rates. However, as reflected in
many private-sector forecasts such as the Blue Chip forecast mentioned
earlier, a moderate cooling in the housing market, should one
occur, would not be inconsistent with the economy continuing to
grow at or near its potential next year.
two years later, Paul again warned:
economic difficulties, especially the problems in the housing
market, are the direct result of the Federal Reserve’s inflationary
policies … Inflationary monetary policies created the problems
in the economy we are seeing, and these problems will be made
worse, not better, by more inflation … Make no mistake, the problems
faced by the American people are not caused by unscrupulous mortgage
brokers or the rising price of oil. These are symptoms of an economic
disease caused by a spendthrift Congress enabled by loose monetary
policy. Rather than continuing to pursue a policy of easy credit
and increasing debt, we need to return to a sound monetary system.
masters either do not understand or wilfully misunderstand what
money is and what it is not, as well as what it can and cannot do.
In the wake of their relentless meddling, commerce and investment
rest upon weak and unstable foundations. It hardly helps that
the government routinely lies to its subjects about the cause and
magnitude of its inflation (see also Inflation:
Not as Low as You Think, CBS MoneyWatch, 29 February
2012). The bust is merely a visible consequence of less visible
causes – namely erroneous thinking and poor policy regarding money
and banking. The government’s control over a nation’s currency means
that it (through its central bank) strongly influences and – inevitably
– comprehensively mismanages the nation’s economic well-being. By
manipulating the supply of dollars and fixing key rates of interest
(that is, suppressing below the rate that would obtain in a free
market), central bankers continually debase the value of money.
As a result, the depreciating value of our savings and the dwindling
purchasing power of our paycheques, etc., relentlessly make us poorer.
Hence Paul concludes that a return to first principles is both urgent
embrace fundamental reforms, we will be caught in a financial
storm that will humble this great country as no foreign enemy
ever could. We can find safe harbour in our ideals. Reclaiming
our historic legacy of principled commitment to liberty will,
once again, unleash the innovative spirit that propelled our nation
to the heights of prosperity.
the Mainstream Media Treat Ron Paul Impartially?
Ron Paul foresaw
the crisis that brewed for years and erupted in 2007-2009. The mainstream
media (MSM), in contrast, blindly worshipped Greenspan and Bernanke
and otherwise dozed contentedly. Perhaps that’s why the MSM have
not covered Ron Paul’s philosophy, proposals and campaign impartially.
Quite the contrary: typically, and despite the fact that he often
polls better than candidates who receive a greater quantity of positively-slanted
coverage, it either ignores or maligns him. Never mind that, if
he were the Republican presidential nominee, Paul would run neck-and-neck
against Barack Obama: as far as the MSM is concerned, Ron
Paul is "unelectable." In Ron
Paul Remains Media Poison (Politico, 15 August 2011),
Roger Simon reported that the MSM had "shafted" Paul.
In his own words, "it [his electoral
support] is hard for them [the MSM] to accept. I had one interview
scheduled for this morning, a national program, but they cancelled.
It is shocking to be told nobody wants you." Simon added: "was
this because technically Paul came in second and not first [in the
Iowa Straw Poll]? I don’t think so. Four years ago, Mike Huckabee
came in a bad second to [Mitt] Romney, losing by 13.4 percentage
points. Huckabee managed to spin that into a victory at Ames and
became a media darling. But Paul almost wins the thing and he remains
poison." Why is this? "They [the MSM] believe this guy
is dangerous to the status quo," Paul said of himself.
"I am a bit more challenging, but I am not on the wrong track.
I don’t think that my ideas are more exotic. They are threatening."
Fox News asked
Paul: "what is it about you that the MSM fears?" He answered:
"they don’t want to discuss my views, because I think they’re
frightened by me challenging the status quo and the establishment."
Shortly thereafter, on CNN’s Piers Morgan Tonight, he elaborated:
"they don’t want my views out there – they’re too dangerous
… We want freedom, and we’re challenging the status quo.
We want to end the war, we want a gold standard, and their view
is that people just can’t handle all this freedom" (see Ron
Paul: Media Are Frightened By Us, The Wall Street Journal,
16 August 2011 and Ron
Paul: I Scare Mainstream Media, Newsmax, 17 August 2011).
Does The Establishment
fear liberty, or does it detest truth that speaks to power? A little
context and history speak volumes. On 22 September 1964, during
that year’s presidential election campaign, the Republicans’ nominee,
Barry Goldwater, said
that the U.S Government should do "whatever it took" to
support U.S. troops in the (escalating) Vietnam war, and that if
the administration of then-President Lyndon Johnson was not prepared
to "take the war to North Vietnam," then America’s military
should withdraw. Although Goldwater discussed the possibility of
using low-yield nuclear weapons in order to defoliate infiltration
routes into and within Vietnam, he never explicitly advocated the
use of nuclear weapons against the North Vietnamese. Nevertheless,
the Democrats depicted Goldwater as a warmonger and an extremist
who, if elected, would drop atomic bombs on Hanoi. Goldwater lost
the election in a massive landslide.
My oh my,
how times have changed: today, Ron Paul’s views are "threatening"
and "extremist" partly because he is the only Republican
candidate – indeed, the only presidential candidate of either party
– who has categorically refused to use nuclear weapons – indeed,
weapons of any description – against Iran. Mitt Romney, who some
have alleged is a "moderate," demands "régime
change" in Iran. When pressed how a President Romney would
achieve this goal, he has supported both "covert and overt"
actions – that is, acts of war including military action "if
necessary" – but will not deploy "boots on the ground."
Rick Santorum has repeatedly demanded, in effect, that the U.S.
military commit a war crime (as defined by the Nuremberg War Crimes
Tribunal) against Iran, i.e., that it pre-emptively bombard Iranian
nuclear facilities. Santorum has also implied that he would expand
the use of covert operations, possibly including targeted killings,
against Iranian nuclear scientists: "I will say to any foreign
scientist that’s [sic] going into Iran to help on their [nuclear]
program: you will be treated like an enemy combatant, like an al-Qaeda
1: "Fair and Balanced" Faux News Claims This Was an "Oversight"
too, is not just belligerent: he’s bloodthirsty. He advocates "régime
change" by "whatever means necessary." He demands
increased sanctions and covert operations – that is, acts of war
– to "break the Iranian régime" within a year by
"cutting off the gasoline supply to Iran and then, frankly,
sabotaging the only refinery they have." He supports the use
of "conventional military force" against Iran as a "last
resort," and struts and bellows like a Gauleiter: "unless
they disarm their entire system, we are going to replace their régime."
For a summary of these candidates’ positions, see in particular
Talk on Iran from GOP Candidates, The Los Angeles Times,
12 January 2012 – which, by the way, and characteristically, completely
ignores Ron Paul!
to emphasise that warmongering and imperial delusion is hardly a
Republican affliction: it’s a psychosis that, with a few honourable
exceptions, pervades the Beltway, the American general public –
indeed, the entire West (see Exploding
the Myth of the Iranian Bomb, Public
Takes Strong Stance Against Iran’s Nuclear Program and Some
Caliphate). On 21 April 2008, the "progressive" Democrat
Hilary Clinton pre-empted and outdid all of today’s neoconservative
Republicans when she threatened
to use nuclear weapons against Iran. In her warped mind, it
presumably takes a nuclear detonation to remake a village to her
satisfaction. In 1964, the mainstream denounced Goldwater as an
extremist because (among other things) he wanted to intensify the
war in Vietnam; in 2012, the mainstream dismisses and denounces
Paul as an "extremist" partly because he refuses to attack
Iran! The sad truth is that over the decades Paul hasn’t changed,
but the American mainstream certainly has. Have Americans as a whole
become so aggressive because their most prominent politicians are
so bellicose? Or have American politicians merely given the public
the wars they crave?
Jon Stewart – whose thoughtful interviews shame the MSM – has also
decried the MSM’s unbalanced coverage of Paul’s campaign. Stewart
has presented a montage of MSM clips that shows commentators
ignoring – and two CNN correspondents frankly admitting that they
suppress – Paul (see also Stewart’s
extended interview with Ron Paul). In The Economist (Manufacturing
Irrelevance, 18 August 2011), Will Wilkinson wryly noted that
if Paul had won the Iowa Straw Poll then the MSM would have dismissed
the victory as irrelevant; but since Michelle Bachmann won – albeit
by a razor-thin margin over Paul – they agreed that it boosted her
campaign! The MSM’s approach seems to be: heads, the others win;
tails, Paul loses. How’s that for impartiality?
CBS/National Journal Debate in South Carolina on 12 November 2011,
Paul was allocated a grand total of 90 seconds – 2.5% of the total
– speaking time. His campaign responded: "Congressman Paul
was only allocated 90 seconds of speaking in one televised hour.
If we are to have an authentic national conversation on issues such
as security and defence, we can and must do better to ensure that
all voices are heard. CBS News, in their arrogance, may think they
can choose the next president. Fortunately, the people of Iowa,
New Hampshire, and across America get to vote and not the media
Candidates Blast CBS News for ‘Disgraceful’ Bias at South Carolina
Debate, ABC News, 12 November 2011). And on 3 January 2012,
on the evening of the New Hampshire primary, CNN
cut its live feed in mid-sentence during an interview with an American
soldier supporting Ron Paul and his non-interventionist foreign
policy. Was that another "technical" problem?
On 17 August
2011, the Pew Research Center’s Project for Excellence in Journalism
released research that confirmed that Paul has received quantitatively
less and qualitatively more negative coverage from the MSM than
have other candidates (see Are
the Media Ignoring Ron Paul?). In October 2011, Pew released
another study that reconfirmed that the MSM has accorded Paul disproportionately
low and negative coverage. In nationwide surveys during the period
the study covered, he polled 6.0-10.0% support, but received just
2% of media coverage – the lowest of all candidates. In late January
2012, The Atlantic cited the Pew study. It noted that despite
steadily rising in the polls, Paul’s share of press coverage
has shrunk. It also observed a sharp drop of positive coverage
and a small rise of negative treatment (see Ron Hudson, The
Ron Paul Media Blackout is Back On, The Atlantic, 26
January 2012). According to Paul Mulshine, The New York Times
has effectively admitted that it has blacklisted Ron Paul (see The
Times Admits It Deep-Sixed Ron Paul, The Star-Ledger,
16 January 2012 and News
Narratives for 2012, The New York Times, 7 January 2012).
Liberty, prudence, peace and strict adherence to the rule of law
and the U.S. Constitution – apparently, these are not news that
The Grey Lady sees fit to print.
that long ago he foresaw the economic and financial catastrophe
that the mainstream’s banking and monetary policies have fomented:
the MSM ignores and derides Ron Paul’s philosophy, presidential
campaign and policy positions. Similarly, never mind that over the
past decade and more his investments have generated outstanding
results that shame professionals: although they acknowledge the
consistency of his economic views and his investment portfolio,
the mainstream has belittled his portfolio and smeared the philosophy
that underlies it. On 20 August 2011, for example, in an article
of Gloom and Doom, Barron’s stated:
for him: Ron Paul puts his money where his mouth is. Over the
past 16 years, the dollar gloom-and-doom prophet has invested
heavily in gold-mining stocks. It’s his hedge against what the
Texas Republican congressman and perennial presidential candidate
calls "The Great Inflation," which he has long preached
is inevitable, given the profligacy of the federal government
and the easy monetary policies of the Federal Reserve.
In all, Ron
Paul’s portfolio amounts to a super bearish bet against the U.S.
economy. … Paul’s investment strategy is a financial planner’s
nightmare. Most pros say that gold-mining stocks should be a small
part of a diverse portfolio because the shares tend to outperform
in bull markets but underperform in bear markets. Mining stocks,
for example, were among the most dismal performers in 2008.
On 21 December
2011, The Wall Street Journal joined the fray. In an article
Ron Paul Portfolio, it reported
presidential candidate Rep. Ron Paul marches to his own drummer
in politics – and in his investment portfolio, too. … We’ve looked
at hundreds of the annual financial-disclosure forms in which
the members of Congress reveal their assets and trades – and we’ve
never seen a more unorthodox portfolio than Ron Paul’s. … Rep.
Paul’s portfolio is valued between $2.44 million and $5.46 million.
(Congressional disclosures are given in ranges, not precise amounts.)
… But Ron Paul’s portfolio isn’t merely different. It’s shockingly
Figure 2 (next
page) shows that real estate comprises approximately one-fifth of
Paul’s portfolio, and cash another ca. 15%. He owns no bonds or
bond funds, and effectively no managed (what Americans often call
"mutual") funds: these constitute a miniscule 0.1% of
the portfolio. Moreover, these managed funds are all "short;"
that is, the more American stocks fall, the greater are these funds’
returns. Indeed, one is a "double inverse" fund: on a
daily basis, it rises twice as much as its stock benchmark falls.
It’s important to emphasise that Paul owns no diversified mutual,
index or other equity fund: he holds, in other words, no broadly-diversified
basket of American or other stocks. Instead, the shares of gold
and silver mining companies comprise two-thirds – fully 64% – of
his portfolio. Paul owns no shares of world-leading technology firms
like Apple; no shares of consumer staples such as Procter &
Gamble; no shares of industrial conglomerates like General Electric;
and no "too big to fail, too well-connected to gaol" banks
such as Bank of America. Paul doesn’t own the stock of any major
company at all – except precious-metals stocks like Barrick Gold,
Goldcorp and Newmont Mining.
Paul also owns
shares of 23 other mining companies – many of them smaller, Canadian
"juniors" whose stocks – according to The Wall Street
Journal – are "highly risky." In its words, "ten
of these stocks have total market valuations of less than $500 million,
a common definition of a "microcap" stock. Mr. Paul has
between $100,010 and $326,000 (roughly 5% of his assets) invested
in these tiny, extremely volatile stocks." It added:
appears to be a strict buy-and-hold investor who rarely trades;
he has held many of his mining stocks since at least 2002. But,
as gold and silver prices have fallen sharply since September,
precious-metals equities have also taken a pounding, with many
dropping 20% or more. That exposes the risk in making a big bet
on one narrow sector.
2: Ron Paul’s Investment Portfolio (2011)
At the Journal’s
request, William Bernstein, an investment manager at Efficient Portfolio
Advisors in Eastford, CT, reviewed Paul’s portfolio. Bernstein says
he "has never seen such an extreme bet on economic catastrophe.
This portfolio is a half-step away from a cellar-full of canned
goods and nine-millimetre rounds." According to Bernstein,
many "possible doomsday scenarios" menace the U.S. economy
and financial markets. Yet, he says without corroboration, Paul’s
portfolio protects against only one of them: the very high inflation
that would accompany the collapse of the dollar. In Bernstein’s
opinion, if deflation (which he presumably defines in conventional
terms, that is, as a general decrease in the prices of most goods
and services) occurs instead, then "this portfolio is at great
risk" because it contains no bonds and is so highly exposed
to gold. The Journal concluded:
investment portfolio that protects against only one bad outcome
is like living in California and buying homeowner’s insurance
that protects only against earthquakes, says Mr Bernstein. You
also want protection against fire and wind and theft and the full
range of risks that houses are prone to. Likewise, he adds, investors
should hold a broad mix of assets that will hold up under a variety
of good and bad scenarios.
for Rep. Paul didn’t respond to requests for comment. But you
can say this for Ron Paul: In investing, as in politics, he has
the courage of his convictions.
On 5 January
2012, in a follow-up article entitled How
Weird Is Ron Paul’s Portfolio?, The Journal noted that
"Paul’s supporters protested, in their comments [about the
article on 21 December], that his portfolio has already been vindicated
by its performance." It conceded a vital fact that its first
article somehow forgot even to mention:
isn’t much doubt that Rep. Paul’s portfolio has outperformed the
U.S. stock market as a whole. Ten years ago, the NYSE Arca Gold
BUGS Index, a basket of stocks in mining companies, was at $65;
this week, it’s at $522. That’s roughly a 23% average annual return;
over the past decade, by contrast, the Standard & Poor’s 500-stock
index, counting dividends, has returned some 2.9% annually
But it conceded
this point very grudgingly:
Yet we would
argue that performance alone can’t tell you whether an investment
approach is sensible or not. After all, over the 10 years ended
Dec. 31, 1999, Internet stocks far outperformed most other investments.
[It doesn’t deign to list the Internet stocks that existed in
1989.] That didn’t ensure that they would continue to do so in
the years to come, and it certainly didn’t mean that it was prudent
to put all or most of your money into stocks like Pets.com or
has been true of countless other assets at many other times and
places. In each of those cases, just as those assets were cresting
in price, the people who owned them declared that their past performance
proved that they were "right" to make huge bets on them.
History proved them wrong. In short, investing isn’t just about
maximizing your upside if you turn out to be right. It’s also
about minimising your downside if you turn out to be wrong. Putting
two-thirds of all your assets into one concentrated bet is a great
idea if the future plays out just as you imagine it will – but
a rotten idea if the future turns out to be full of surprises.
"reasoned," apparently with a straight face, that Ron
Paul’s portfolio has vastly outperformed the S&P 500; therefore
it’s no good and might show losses in the future. That, according
to the Journal, is why most investors diversify: in order
to insure against "the two greatest risks we face."
One is the
danger of other people’s ignorance and error: that governments
will pursue reckless policies, that corporations will be run into
the ground [and] that speculators will drive valuations of assets
to euphoric highs and miserable lows. This is the kind of risk
that Rep. Paul has insured against, so far very successfully.
risk is the danger of our own ignorance and error: that we will
underestimate the resilience of people and markets, that we will
mistake likelihoods for certainties, that we ourselves will be
swept up in manias and dragged down into depression when markets
go mad. Above all, it is the simple risk that we will end up so
sure of our own view of the world that the future is certain to
catch us by surprise. And this is the risk that Rep. Paul’s portfolio
doesn’t appear to insure against at all.
interesting, to put it mildly, that The Wall Street Journal’s
article of 21 December 2011 – the one that belittled Paul’s portfolio
as "unorthodox," "shockingly different" and
"a half-step away from a cellar-full of canned goods and nine-millimetre
rounds" – somehow omitted any mention – never mind a
dispassionate analysis! – of his portfolio and its long-term returns!
Its follow-up article conceded that he has generated excellent results
– but still omitted any dispassionate analysis. But no matter: his
portfolio is "weird." Barron’s listed Paul’s top-ten
holdings. Curiously, however it displayed two glaring biases. First,
it provided readers with one-year and three-year return numbers;
that is, it omitted any mention of the portfolio’s long-term results.
Second, Barron’s claimed that "Paul’s ‘stopped clock’
portfolio looks like it’s finally paying off."
Why does Barron’s
provide information about one-year and three-year returns, but exclude
long-term returns? Now that’s weird: as Barron’s acknowledged,
Paul acquired most of his big holdings 8-15 years ago. It’s true
that gold miners’ shares – indeed, virtually all shares, which it
also forgot to mention – fell significantly in 2008-2009. Did Barron’s
select a short-term time-frame deliberately in order to distract
attention from Paul’s outstanding long-term results? Does the apparent
unwillingness of Barron’s and the WSJ to consider
the long-term performance of Paul’s portfolio reflect their blindness
(unintentional or otherwise) or unwillingness to face the facts?
As both Barron’s
and The Wall Street Journal correctly note, Paul is a long-term,
buy-and-hold investor. As such, his portfolio’s long-term results
merit consideration. Ron
Paul’s Long-Term Holdings Outperform the Market and Most Pros
(Seeking Alpha, 18 August 2011) analysed his portfolio from
that point of view. Table 1, which is reprinted from Seeking
Alpha, shows clearly that it has left the broader market (as
defined by the S&P 500) utterly in the dust. Notice first that
over five and ten years, all of Paul’s top holdings have
beaten the S&P 500 by a country mile. In the five years to August
2011 (when Seeking Alpha compiled the table), these holdings
returned an average of 81% – that’s a compound rate of return of
12.6% per year. In the decade to August 2011, Paul’s top holdings
returned an average of 547% – that’s a compound rate of return of
20.5% per year. In diametric contrast, in the five years to August
2011 the S&P 500 shrank by 9.1% – that’s a compound rate of
return of -1.9% per year. And in the decade to August 2011, the
S&P 500 shrank 0.9% – that’s a compound rate of return of -0.1%
1: Ron Paul’s Biggest Investments – and Their Results
like these, why doesn’t the MSM praise Ron Paul to the rafters?
Why doesn’t it laud him like Warren Buffett? After all, Buffett’s
returns over these intervals, whilst quite respectable and better
than many, don’t match Paul’s. It’s also worth noting that William
Bernstein – who derided Paul’s portfolio – has
over the past decade generated results that are better than many
others’ but nowhere near as good as Paul’s. Specifically, a
decade ago Bernstein recommended a no-load, all-indexed portfolio.
In the five years to 2 March 2012, Bernstein’s recommended portfolio
generated a compound rate of return of 2.3% per year; and in the
ten years to 2 March 2012, it generated a compound rate of return
of 5.8% per year. It’s true that in the twelve months to August
2011 Paul’s portfolio dipped slightly – albeit significantly less
than the S&P 500. Still, his stellar long-term return refutes
Barron’s snide dismissal. Paul’s portfolio, it’s important
to emphasise, is not "finally paying off:" it’s
been performing superbly for years. Not bad for what Barron’s
sneeringly described as a "stopped clock." (For an informative
overview of Ron Paul’s portfolio and its results, see
this video by Peter Schiff.)
Follows – and the MSM Repudiate – Warren Buffett
Over the last
decade, Ron Paul’s portfolio has greatly outperformed the S&P
few funds managers outpace the S&P 500 (or any other major
market index) over the long-term, it’s reasonable to infer that
over the past decade Paul has outperformed most professionals. He’s
also shamed the vast
majority of hedge funds. Yet Barron’s and The Wall
Street Journal remain unimpressed. "In more than 20 years
as an investing reporter, I’ve never seen a more unorthodox portfolio
than Rep. Paul’s." His portfolio is "shockingly different."
Why is that
a bad thing? An average portfolio, by definition, will tend to generate
average results. And surely finance journalists are well aware that
the average return of the past decade has fallen well short of expectations
– which, by the way, many finance journalists have done much to
inflate, or, at least, little to reduce to realistic levels. In
Intelligent Australian Investor, I noted that in the decade
to 2002 returns in Australia were well-above their historical average,
that at the time mainstream finance journalists generally failed
to emphasise this vital fact, and that they thereby encouraged many
investors to develop unrealistic expectations that the future would
likely dash. A decade ago, in other words, mainstream portfolios
were highly risky, and information readily available at that time
to anybody who sought it and was prepared to think for himself could
have demonstrated that vital fact. But no matter: for mainstream
journalists, cheering the Internet, mining and government intervention
booms is far easier. Perhaps mainstream finance journalists simply
feed their audience the bullish tripe they both crave; still, it
should come as no surprise that during the past ten years returns
have regressed below (whilst valuations remain well above) the long-term
historical mean. Similarly, gold-based investments generated modest
or poor returns in the two decades to 2002; consequently, it should
shock nobody that more recently they have generated much better
and the WSJ rightly say that – by the mainstream’s standards
– Ron Paul’s portfolio is unconventional. But on what basis is it
therefore "weird" and "risky"? The MSM superficially
and ritually worship Warren Buffett, but his many insights utterly
escape them and so they flout him. In the Warren Buffett Partnership
Letter (1964), Buffett sagely wrote
It is unquestionably
true that the investment companies have their money more conventionally
invested than we do. To many people conventionality is indistinguishable
from conservatism. In my view, this represents erroneous thinking.
Neither a conventional nor an unconventional approach, per
se, is conservative.
actions arise from intelligent hypotheses, correct facts, and
sound reasoning. These qualities may lead to conventional acts,
but there have been many times when they have led to unorthodoxy.
In some corner of the world they are probably still holding regular
meetings of the Flat Earth Society [and at universities around
the world, Chris adds, they’re still teaching Modern
no comfort because important people, vocal people, or great numbers
of people agree with us. Nor do we derive comfort if they don’t.
A public opinion poll is no substitute for thought. When we really
sit back with a smile on our face is when we run into a situation
we can understand, where the facts are ascertainable and clear,
and the course of action obvious. In that case – whether conventional
or unconventional – whether others agree or disagree – we feel
we are progressing in a conservative manner.
applauds this sentiment when it passes Buffett’s lips – but condemns
it when Paul consistently applies it. Indeed, Barron’s and
the WSJ turn Buffett’s insight on its head. To them, if it’s
conventional then it’s conservative; and if the portfolio is conservative,
then – to use the WSJ’s words – it will comprise "a
broad mix of assets that will hold up under a variety of good and
bad scenarios." Never mind that during the past few years this
"conservatism" and this "broad mix of assets"
has decimated countless people’s finances: to the mainstream a spectacular
failure following from strict adherence to the conventional wisdom
is unremarkable and forgivable – but great success that’s achieved
by defying that "wisdom" is risky and unpardonable.
To grasp this
point, compare the mainstream’s coverage of Ron Paul and William
H. ("Bill") Miller III. The Legg Mason Value Trust, which
Miller managed, beat the S&P 500 for a record 15 years through
2005. As a result, during the late 1990s and early 2000s the mainstream
hailed him. In The Warren Buffett Portfolio: Mastering the Power
of the Focus Investment Strategy (John Wiley & Sons, 1999),
Robert G. Hagstrom wrote:
to the money management business was unusual. While his competitors
were tied up in business schools studying modern portfolio theory,
Bill was studying philosophy at Johns Hopkins Graduate School.
… During 1990, Bill assumed full control of Value Trust and began
to put the full weight of his investment approach into the Fund.
What happened next was not repeated by any other general equity
fund in the 1990s. For eight consecutive years (1991-1998), Value
Trust consistently outperformed the S&P 500. At the end of
1998, Bill’s outstanding track record brought him one of the industry’s
most coveted honours: he was named Morningstar’s Domestic Equity
Fund Manager of the Year. "Bill takes big positions and takes
the long view," said Eric Savitz, formerly of Barron’s.
"Over the long term, you can see how it has worked … He was
more insightful about stocks than anybody I knew."
he is not a focus investor by strict definition, he comes very
close – he routinely keeps Value Trust in only thirty to forty
names, with over half of the assets invested in just ten stocks.
"There are several parallels between Bill Miller and Warren
Buffett," explains Amy Arnott, editor of Morningstar. "He
does have a very low turnover strategy and his portfolio is very
concentrated compared to other equity funds. His method of valuing
companies is similar to [Buffett’s] …"
In the 1990s
and early 2000s, the mainstream also lauded Miller’s bullish – that
is, very conventional – views about the U.S. economy in general
and American financial institutions in particular. Alas, more recent
years have been less kind to him. In the words of Bloomberg BusinessWeek
Mason’s Miller to Exit Main Fund After Trailing Peers, 25 November
2011), Miller "became mired in the worst slump of his career
as he wagered heavily on financial stocks during the 2008 credit
crisis." Most notably, he invested heavily in Bear Stearns
and Freddie Mac just before they imploded. As a result, "Value
Trust lost 55% that year as the S&P 500 dropped 37%, including
dividends, prompting a wave of withdrawals. The fund’s assets have
plunged from a peak of $21 billion in 2007 to $2.8 billion."
Late in 2011, Miller relinquished the reins of the Value Trust "after
trailing the index for four of the past five years."
they rise, the harder they fall? Not if you’re an insider: to my
knowledge, at no point before or after 2008 has anybody called Miller
"weird" or his methods "risky." Nor at the height
of his success did the MSM tut-tut that he was headed for a fall.
Brett Arends (Legg
Mason’s Bill Miller on the Prowl Again, The Wall Street Journal,
2 July 2009) is typical:
years of heavy losses, Bill Miller’s diehard investors are breathing
a tentative sigh of relief. The famous Legg Mason value investor,
who stumbled so badly during the stock market turmoil of the past
few years, is off to a much more promising 2009. Indeed, it’s
been the best first half for his mutual funds since 2003 … The
explanation is simple: Mr Miller has stuck with the same kinds
of bullish bets on an economic recovery that got him into hot
water earlier. "Both funds [i.e., the flagship Legg Mason
Value Trust and his smaller, more flexible and more volatile Legg
Mason Opportunity Trust] are tilted towards economic stabilisation
and recovery, that benefits them," Mr Miller said in an interview.
It has been
a tough few years, to put it mildly. Through 2007 and 2008 the
U.S. stock market fell by about 32%. During that same period Legg
Mason Value crashed 58%, and Legg Mason Opportunity 66%. Mr Miller
turned bullish on housing and homebuilders, plus other stocks
sensitive to the economy, way too early. The nadir came last summer,
when he raised his stake in mortgage giant Freddie Mac just before
the government took it over, wiping out investors altogether.
"I underestimated the crisis," Mr Miller admits. He
thought the extra liquidity being pumped into the system would
turn things around. He never thought house prices, or share prices,
would fall as far as they did.
It has been
a tough few years, to put it mildly. Through 2007 and 2008 the
U.S. stock market fell by about 32%. During that same period Legg
Mason Value crashed 58%, and Legg Mason Opportunity 66%. Mr Miller
turned bullish on housing and homebuilders, plus other stocks
sensitive to the economy, way too early. The nadir came last summer,
when he raised his stake in mortgage giant Freddie Mac just before
the government took it over, along with Fannie Mae, wiping out
The big question
remains unanswered: is Bill Miller a terrific investor who has
simply had a bad few years? Or was he always just an OK investor
who once had a great run of luck? Maybe we are going to find out.
Investors in Mr Miller’s funds, as always, need to understand
what they own. This is a maverick manager willing to take big,
bold bets. I’d rather have a small stake in the Opportunity Trust,
which lets him pick his shots freely, than a big stake in the
Value Trust, which is more constrained.
MSM has applied double standards to Miller and Paul. Miller, the
insider, is "a maverick manager willing to take big, bold bets;"
Paul, on the other hand, is "the dollar gloom-and-doom prophet"
whose portfolio "protects against only one bad outcome"
which "is like living in California and buying homeowner’s
insurance that protects only against earthquakes." Miller’s
portfolio didn’t conform to the norm; therefore, in Hagstrom’s words,
"Bill’s discriminating taste for companies, coupled with his
long holding period, has certainly helped Value Trust achieve its
status as one of the best mutual funds of the 1990s." Barron’s,
too, praised his non-conformity. "Bill Miller, the world’s
other [than Warren Buffett] great investor, ranks right up there
in the pantheon of all-time greats," wrote Sandra Ward ("Another
Legend, Another Book?" 22 June 1998). "Yet, unlike Buffett,
Bill Miller’s a big believer in technology. Indeed it has been Miller’s
heavy bets on technology shares, in addition to heavy weightings
in financials, that have helped push his performance beyond the
benchmarks." Notice, then, that Barron’s grants to Miller
the very thing that it denies to Paul. Because Miller’s results
from 1990 to 2005 were excellent, therefore he is (or at
least was) a great investor. What about Paul? "We would argue
that performance alone can’t tell you whether an investment approach
is sensible or not."
portfolio didn’t conform to the norm; therefore Miller was an innovator.
Ron Paul’s portfolio doesn’t conform: therefore, it’s "shockingly
different" and "risky." Never mind Paul’s stellar
long-run return, which is better than Miller’s during his glory
days; further, forget that it performed very well before, during
and since 2007-2009. According to Hagstrom, "Bill’s track record
is, without question, impressive, but it is how he achieved the
investment return that holds a valuable lesson for us all."
So never mind the staggering losses that Miller’s portfolio sustained
in 2008. According to Barron’s and the WSJ, neither
Ron’s track record nor the thinking that underlies it has anything
to teach us. Indeed, the anointed command the benighted to reject
Ron Paul’s portfolio: remember, it’s "a financial planner’s
nightmare" and "a half-step away from a cellar-full of
canned goods and nine-millimetre rounds."
and the WSJ don’t bother to answer – or even to address –
obvious questions which their smears raise. Why should an investor
care whether his financial planner can sleep at night? Why should
the planner’s comfort be the investor’s priority? To use dispassionate
language, shouldn’t investors plan for a rainy day? Shouldn’t they
strive humbly to assemble a portfolio of investments at attractive
prices? As Seeking Alpha rightly notes:
may be true that a financial planner may sleep easier knowing
clients are broadly invested in fee-based instruments and market-linked
baskets, such a move would have cost Ron Paul essentially all
of his substantial profit over the last decade. Do keep in mind
that a financial planner’s daydreams cost about 1-2% in annual
fees that are not included in the S&P 500’s performance, and
that about half underperform the S&P 500 before fees anyway.
and WSJ have also forsaken – and Paul has embraced – Buffett
in another critical respect. "Put all your eggs in one basket,"
Buffet has approvingly cited Mark Twain, "and then watch that
basket." In The Warren Buffett Portfolio, Hagstrom lauds
Buffett’s and others’ concentrated (in terms of their number of
holdings) portfolios: "Warren Buffett recommends that investors
act as if they owned a ‘lifetime decision card’ with only twenty
punches on it. Throughout your life, you get to make only twenty
investment choices. Each time you swing the bat, your card is punched
and you have one fewer investment available for the remainder of
your life. This would force you to look only for the best investment
opportunities." Hagstrom adds:
a large number of stocks representing many industries and many
sectors of the market, investors hope to create a warm blanket
of protection against the horrific loss that could occur if they
had all their money in one arena that suffered some disaster.
In a normal period (so the thinking goes), some stocks in a diversified
fund will go down and others will go up, and let’s keep our fingers
crossed that the latter will compensate for the former. The chances
get better, active managers believe, as the number of stocks in
the portfolio grows; ten is better than one, and a hundred is
better than ten. … We have all heard this mantra of diversification
for so long, we have become intellectually numb to its inevitable
consequence: mediocre results.
with conventional diversification? For one thing, it greatly increases
the chances that you will buy something you don’t know enough
about. "Know-something" investors, applying the Buffett
tenets, would do better to focus their attention on just a few
companies – "five to ten," Buffett suggests. Others
who adhere to the focus philosophy have suggested smaller numbers,
even as low as three; for the average investor, a legitimate
case can be made for ten to fifteen. Thus, to the earlier question,
How many is "a few"? the short answer is: No more than
fifteen. More critical than determining the exact number is
understanding the general concept behind it. Focus investing falls
apart if it is applied to a large portfolio with dozens of stocks
the mainstream applauds the concentration of insiders’ portfolios
– and condemns the concentration of Ron Paul’s. Theirs is "focussed;"
his is "weird." Similarly, Barron’s reckons that
"bullion prices likely will pull back as the born-again gold
bugs rush to take profits. Gold-mining shares would pull back even
more if history is any guide, taking a lot of the glitter of Ron
Paul’s gains." Curiously, before 2008 neither Barron’s
nor anybody else in the mainstream criticised Miller’s heavy investments
in American financial institutions, especially GSEs; and neither
before or since 2008, nobody has called those weightings "extreme"
or "a financial planner’s nightmare."
Paul, it seems,
has focused much too heavily upon a suite of winners that the mainstream
simply doesn’t like. But isn’t that the very essence of intelligent
investing? Didn’t Warren Buffett advise "most people get interested
in stocks when everyone else is. The time to get interested is when
no one else is. You can’t buy what is popular and do well."
Isn’t that exactly what Ron Paul did? Paul had the gall to pick
a suite of stellar winners before others – and certainly before
the mainstream! – recognised them as such. Moreover, he’s dared
to hold them through thick and thin. Apparently, for the sake of
Modern Portfolio Theory (and the academics and journalists who preach
it) Paul would do well to diversify into some losers. Applying that
impeccable logic, gardeners should poison some of their roses and
fertilise a few of their weeds!
Paul Knows and the Mainstream Stridently Denies
In yet another
– and much more profound – sense, mainstream journalists’ condescending
dismissal of Ron Paul’s portfolio and investment acumen demonstrates
how they reject – and how Paul embraces – the investment wisdom
of Benjamin Graham and Warren Buffett. In The
Intelligent Investor (1949), Graham wrote: "Have the
courage of your knowledge and experience. If you have formed a conclusion
from the facts and if you know your judgment is sound, [then] act
on it – even though others may hesitate or differ. You are neither
right nor wrong because the crowd disagrees with you. You are right
because your data and reasoning are right." In the Warren Buffett
Partnership Letter (1964), Buffett reiterated Graham’s point: "truly
conservative actions arise from intelligent hypotheses, correct
facts, and sound reasoning. These qualities may lead to conventional
acts, but there have been many times when they have led to unorthodoxy."
And in his Preface to the 1973 edition of The Intelligent Investor,
Buffett added: "to invest successfully over a lifetime does
not require a stratospheric IQ, unusual business insights or inside
information. What’s needed is a sound intellectual framework for
making decisions and the ability to keep emotions from corroding
financial journalists, in short, "lead" by following the
crowd; Paul, in sharp contrast, ignores the MSM and thinks for himself.
What, then, comprises the intellectual framework that underlies
Ron Paul’s investments? He hasn’t directly linked the principles
detailed in his voluminous writings and many speeches to his investments,
at least publicly; still, we can infer reasonably clearly towards
some foundations of his investment framework.
what St Thomas Aquinas glimpsed and what the theologians at the
of Salamanca, who were scholars of natural law, discovered in
the 16th century: property is a naturally-arising relationship
between human beings and material things. From property – and clear
and stable property rights – spring economic calculation, a wider,
deeper and hence more productive division of labour – and therefore
increasing levels of prosperity. Accordingly, any encroachment
by the state upon private property invariably diminishes liberty
and prosperity. Paul thus rejects the utilitarian (Chicago School)
notion that the state must modify the bundle of property rights
such that it "allocates transactions costs" in a way that
promotes maximum economic growth and efficiency. Paul also rejects
the related (social democratic) notion that property is important
but that its status as a "right" is always subordinate
to an overriding "public good," and therefore that it
must be regulated in the "national interest." The problem,
as Paul knows well, is that state’s legislation invariably violates
natural law, and thus property rights, and thereby weakens liberty
and prosperity. In the wake of the many débâcles
it has caused, the mainstream is undeterred: property, it claims,
does not arise naturally; rather, it is the product of the legal
system (which in turn is a creature of the state). For this reason,
it insists, state must intervene in order to prevent alleged abuses
of economic power – even at the cost of infringing or eliminating
the natural rights (which in any case the mainstream obscures or
denies) of property owners.
upon the natural rights conception of property, and more specifically
upon the insights of Eugen
Böhm von Bawerk and Carl
Menger, Ron Paul knows that physical objects (such as
a motor car, an ounce of gold, etc.) cannot possess intrinsic economic
value. Warren Buffett, in other words, is flatly wrong: when
applied to goods and services in the economic realm, there’s simply
no such thing as "intrinsic value." Goods can, however,
possess extrinsic value; that is, a human mind imputes value to
particular objects and actions. Only then do economists regard these
things as goods and services. Something is valuable because – and
only because – at least one person believes that it can help satisfy
his (or somebody else’s) subjective desires. Suppose, for example,
that a particular root cures cancer. If no one knows this, and if
the root has no other known uses, then it has no economic value
and people will not trade money (see below) for it. Once somebody
discovers its ability to cure cancer (or to serve some other purpose)
people will value it. Value, then, doesn’t inhere within goods;
rather, people impute value to goods. The value of a good or
service arises from an individual’s subjective desires and beliefs
about its causal properties.
Paul thus dissents
from the mainstream notion that the value of a good or service is
determined by the interdependence of supply and demand (i.e., the
interaction of cost and utility). The mainstream doesn’t explain
value on the basis of utility alone; instead, it contends that value
stems both from subjective preferences and allegedly objective technological
conditions. The mainstream therefore believes that if a particular
good’s cost of production rises, then its equilibrium price must
also inevitably rise. In contrast, subjectivists like Paul know
that under these conditions this good’s price will rise only to
the extent that buyers are willing to pay the higher price – that
is, only if they are willing to forego other purchases in order
to pay the higher price for the same quantity of the good or service.
If they are not willing, then its price will not rise and its producer
must either find a way to reduce his costs or else cease production.
rejects Marx’s (and, to a significant extent, Adam Smith’s) contention
that the value of a commodity is equal to the amount of total labour
used to produce it. If one bicycle has the same market value as,
say, 500 eggs, then we can write 1 bicycle = 500 eggs. In what does
this equality consist? Obviously the bicycle is not "equal"
to the eggs in the sense that they possess common physical properties.
According to this "labour theory of value," the relevant
thing that the two goods have in common is the equal amount of labour
used to produce them.
von Mises, Ron Paul knows that the state never has – and in
principle cannot – originated money. Money always emerges from the
actions of large numbers of individuals, typically through barter.
It’s often hard to find bartering partners; hence the emergence
of commodity monies. Durable, portable and divisible commodities
such as gold and silver typically best suit individuals’ requirements
for money. Given its durability, portability, divisibility and other
characteristics, in other words, for millennia people have imputed
value to gold. Money and related institutions thus emerge as a positive
unintended consequence of individual self-interest. For this reason,
the evolution of money and monetary institutions is best left to
the market forces that created them in the first place. Above all,
artificial, destabilising and destructive institutions like central
banks are anathema to liberty and prosperity.
applauds a few of its corollaries, Paul rejects the mainstream (Friedmanite)
notion that money can emerge from barter, but private interests
will probably not develop it to suit the needs of a modern economy.
According to Milton Friedman, central banks can in principle sustain
a stable and healthy financial sector. At the same time, says Friedman
(and agrees Paul), the government’s efforts to stimulate the economy
by manipulating the supply of money will at best fail and at worst
cause severe problems. According to Friedman, monetary authorities
should not increase the supply of money at their discretion; instead,
they should increase it at a constant and widely-known rate, i.e.,
that which corresponds to the economy’s long-term rate of growth.
Under a strict application of Friedman’s rule, the central
bank would exist but its staff would not: its policy (namely a constant
increase of the supply of money at a pre-announced rate) could be
implemented "by a computer." Under these conditions, say
Friedmanites, businessmen would correctly anticipate all monetary
policy decisions (see How
Milton Friedman Changed Economics, Policy and Markets, The
Wall Street Journal, 17 November 2006).
Paul even more
strongly rejects the mainstream (Keynesian) contention that money
is inherently a creature of the state, and that sound monetary institutions
require central planners acting through a central bank. According
to Keynesians, central banks can and do stabilise economies and
financial markets. In particular, contend Keynesians, central bankers
can smooth booms and busts (which, Keynesians say, are born in the
private sector) by expanding the money supply during recessions
and decelerating monetary growth during booms. For Keynesians, the
state’s control of money is a sine qua non of its management
of the economy, and the state’s "steering" of the economy
is a necessary condition of its stability and growth. Both Mao Tse-Tung
and Keynesians agree that the state’s agents are omniscient and
omnipotent "helmsmen" who expertly steer the economy between
the shoals and into safe waters.
he knows about property, value and money, Ron Paul also knows that
the mainstream is flatly and diametrically wrong about gold. Warren
Buffett, who epitomises the mainstream’s view, reportedly
said that gold "gets dug out of the ground in Africa, or
someplace. Then we melt it down, dig another hole, bury it again
and pay people to stand around guarding it. It has no utility. Anyone
watching from Mars would be scratching their head." To assert
that "gold has no utility" is, unwittingly or otherwise,
to ignore or deny 5,000 years of human history (see also Buffett’s
Bursting Bubble by Peter Schiff).
Böhm-Bawerk and Menger, Ron Paul knows that payments
of interest reflect the higher value of present goods vis-à-vis
future goods. Other things equal, everybody wants to consume sooner
rather than later. For this reason, and as an example, the current
price of a computer might be $1,000 but the current price of a claim
to a computer delivered one year hence would be less – say $900.
Also for this reason, an entrepreneur might today invest $900 in
labour and raw materials in order to sell a product next year for
$1,000. His expected interest of $1,000 - $900 = $100 (and rate
of return of $100 ÷ $900 = 11.1%) derives from the fact that today’s
factors of production represent "claims" on future consumption
goods; thus their current price (in this example, $900) is less
than their ultimate sale price ($1,000). Obviously – and as Ron
Paul has long warned – the government must not interfere with the
market interest rate. Not only does the rate reflect the subjective
premium individuals place on a marginal present good over a marginal
future good; moreover, the government cannot know or foresee this
rate any more accurately than the many buyers and sellers in markets.
Equally obviously, any interference by the government with the market
interest rate will emit false signals and cause actors to make mistakes
they would not have committed absent the government interference.
in some respects with, but nonetheless rejects, the mainstream (Chicago
School) idea that payments of interest payments are returns on capital,
and that in equilibrium the rate of interest equals the marginal
product of capital (among other things, Paul knows that in the real
world "equilibrium" doesn’t exist). To this strand of
the mainstream, the situation with respect to capital is analogous
to labour, i.e., in equilibrium the wage rate equals the marginal
product of labour. On the margin, say the Chicagoans, consumers
prefer to consume sooner rather than later, and an extra unit of
invested capital will yield an additional increment of output in
the future. That additional increment renders the consumer indifferent
between consuming now or waiting an additional unit of time and
consuming the higher yield made possible by the productivity of
capital. According to a strict rendering of this conception (which
is almost always ignored), the government should not meddle with
interest rates for the same reasons that it should not meddle with
rejects the mainstream (Keynesian) assertion that payments of interest
compensate investors for their loss of liquidity when they invest
cash a business project or lend it for a certain period. To Keynesians,
the rate of interest is the price of liquidity, and interest is
an artificial phenomenon. Keynesians recognise the role of expectations
(or what might generically be called "confidence in the future").
For example, if the rate of interest rate jumps from 5% to 10%,
this does not mean that people have become more oriented towards
present consumption: it could simply reflect their heightened anxiety
about economic conditions during the next several years. To Keynesians,
the government’s manipulation of interest is certainly one of several
tools needed to smooth economic fluctuations, but by itself (and
particularly in the absence of increased spending by the government)
it is relatively impotent.
Cycle and Its Cause
his knowledge of property, value, money and interest, Ron Paul knows
that the artificial expansion of the supply of money – which is
caused by fractional reserve commercial banks acting in cahoots
with the central bank –suppresses rates of interest below the level
that would obtain without government intervention. This reduction
causes the spending of consumers and investors artificially to boom.
As a result, investors’ (including businesses’) time horizons begin
to lengthen, that is, tilt away from the production of present goods
and towards the production of future goods. Meanwhile, consumers’
preferences for present versus future goods remain unchanged. As
a result, the artificial expansion of the supply of money not only
sends false signals (in the form of deceptively low rates of interest):
it also dis-coordinates the interactions of producers and consumers
in the market.
intervention thus disseminates false information that disrupts and
deranges the relationship between saving and investment, and between
production and consumption. The dis-coordination in the market eventually
reveals that many investments prompted by the artificially low rates
of interest are not profitable but instead are "malinvestments"
(clusters of errors). Businesses must ultimately liquidate these
poor investments; this liquidation (recession) is the visible consequence
of the less visible cause – the government’s expansion of the supply
of money through its manipulation of interest rates. The more pervasive
and extended is the meddling, the more egregious are the malinvestments
and the more severe is the recession. The business cycle, in short,
emerges as a negative unintended consequence of politicians’ and
Paul thus rejects
the mainstream (Friedmanite) contention that the variation of the
rate of growth of the money supply from its appropriate trend is
the source of the problem. This variation, said Friedman, causes
the rate of growth of GDP to deviate from its general trend. Given
a constant rate of monetary growth, he added, the economy and its
growth will be relatively stable; large variations in the supply
of money, on the other hand, cause inflationary booms and deflationary
crashes. Paul also rejects the mainstream (Keynesian) notion that
excessive optimism, often prompted by technological shifts resulting
in speculative frenzies, causes booms. He also rejects the Keynesian
contention that deficient total spending causes recessions and that
"stimulated" expenditure cures them. Why should total
spending become "deficient?" According to Keynesians,
if total savings exceeds total investment, then total spending on
goods and services falls. This "deficiency" decreases
the demand for the labour required to produce these goods. The resultant
pessimism among businesspeople and investors begets "insufficient
aggregate demand" and economic hard times. The remedy, say
Keynesians, is to reverse the insufficiency.
How to Combat
prescription for a recession follows logically from his diagnosis.
The recession reveals the underlying dis-coordination and mal-investment
that reckless monetary and banking policy caused. Irresponsible
(that is, expansionary) monetary policy causes the recession; clearly,
then, the cure is to cease the recklessness. Accordingly, "countercyclical"
policy – that is, even more aggressively expansionary policy during
the recession – is counterproductive at best and severely damaging
at worst: it’s akin to plying a drunk alcoholic with heavy doses
of alcohol in order to delay his hangover after a blinder. Of course,
future recessions can and should be prevented by abolishing the
monetary system that causes the boom in the first place. Similarly,
there’s no such thing as a former alcoholic; there are only alcoholics
who no longer drink.
For this reason,
Paul categorically rejects the mainstream’s claim that the central
bank’s policy of artificially-low interest rates and the government’s
policy of deficit spending can "stimulate aggregate demand."
Ditto its claim that, once the economy returns to "equilibrium,"
the central bank can and will permit rates to rise and the government
will curtail its spending and repay the debt it incurred in order
to defeat the recession. Paul also rejects the contemporary fantasy
that, in addition to activist fiscal and monetary measures, it is
essential that the government protect the industries that the recession
hits particularly severely. Ditto the mainstream’s conviction that
consumers should not hoard cash; rather, they should spend it. If
they can’t or won’t, then they insist that the government must borrow
(or print) money and spend it. Businesses, too, they say, should
freely borrow from both banks and the government in order to restore
Paul Uses This Framework to Invest
states that Paul has been "predicting disastrous inflation
since President Richard Milhous Nixon took the U.S. off the gold
standard in 1971." In two respects, this sentence reflects
the mainstream’s faulty knowledge of both money and history. First,
Nixon removed the last vestiges of the gold-dollar
standard associated with the Bretton
Woods System. The mainstream (including Ben Bernanke) mistakenly
regards them as synonyms; yet the gold-exchange standard was profoundly
different from the classical gold standard which Paul champions
(for more details, see Murray Rothbard, The
Case for a 100 Percent Gold Dollar).
has correctly predicted that the state’s relentless inflation
will continue to cause disasters because for years he has properly
diagnosed and accurately observed it. Paul knows that
since its creation in 1913 the Federal Reserve has almost continuously
expanded the supply of money. Because (i) it has virtually always
inflated since its establishment in 1913, (ii) it has inflated at
a frantic pace since 2007, (iii) since then has promised to continue
this crazed policy "for the foreseeable future" and (iv)
there are no credible grounds to believe that the Fed will cease
(never mind reverse) its inflation, Paul’s prognosis is quite reasonable:
what’s occurred for a century, and at an accelerating pace in the
more recent past, will continue unabated into the future.
3: Only a Crazed Partisan of the State Could Call This "Success"
Federal Reserve, RBA and the Currency’s Purchasing Power, 1913-20101
What has been
the consequence of central banks’ relentless inflation? Figure 3
(reprinted from The
Evil Princes of Martin Place) plots the purchasing power
(PP) of the $US and $A since the formation of the Fed and RBA in
1913. Within a decade of the Fed’s birth, the purchasing power of
the American currency halved: the basket of consumer goods and services
that cost $US1 in December 1913 cost exactly twice as much in March
1920. PP subsequently rose from $US0.50 to $US0.78 by the nadir
of the Great Depression in 1933. Since then, however, its slide
has been inexorable – to a derisory $US0.0454 in July 2010. That’s
a virtually total destruction of the currency during the last century.
The consumer goods and services that cost $US1.00 at the beginning
of 1913 thus cost $US22.02 in mid-2010. That’s a total rise of consumer
prices of no less than 2,102% during the past 97 years. Who in his
right mind – unless, of course, his intention is to trash the $US
– calls that "success?" The U.S. has enjoyed many things
since 1913, but a stable (in terms of its PP) currency simply hasn’t
been among them. The PP of the $A has collapsed even more comprehensively.
Ron Paul knows
that it’s likely – not least because it’s said so – that the Fed
will continue to "print" $US at a frenzied pace. He also
knows that it cannot print gold, and that throughout history – as
well as today – people impute value to gold. Over time, the quantity
of $US has thus risen drastically relative to the quantity of gold.
Under these conditions, Paul has long known that the price of gold
(expressed in $US, and once it was decontrolled) would eventually
rise – probably greatly – over time. Knowing that value is subjective,
he did not expect that the rise of its price would be steady and
that its exact timing was predictable. But no matter: its price
would eventually reward his (and others’) patience. Bill Bonner
knew these things, too. As MoneyWeek (Gold
– the Trade of the Decade, 15 December 2009) recounted:
Back in 2000,
Bill Bonner announced his trade of the decade. It was
a simple one: sell dollars, buy gold. It turned out to be a good
plan. In 2000, you could buy an ounce of gold for $280 (the average
price over the year). Now, it will cost you $1,125. At the time,
Bonner saw what most others did not. He saw the US not as an economy
carefully and cleverly managed by then Federal Reserve chairman
Alan Greenspan and his passion for low interest rates, but as
a massive credit bubble waiting to burst.
He also saw
the massive and growing national debt, the trade and budget deficits,
and fast growth in the money supply as factors that would
naturally debase the dollar over the long term. He also saw
the credit bubble as global rather than peculiar to America. So
it made sense to him to hold the only non-paper currency there
is – gold. Bonner had a good decade, making returns of 400% plus.
4 vindicate Paul and Bonner, or the mainstream?
4: The Price of Gold ($US per ounce), 1968-2012
Sir Francis Galton to Do with Ron Paul’s Portfolio?
noted, in a blog in 2010 Ron Paul discussed the consequences of
central banks’ constant, massive and cumulatively ruinous inflation
(see also Is
Inflation about General Increases in Prices? By Frank Shostak).
This inflation "guts the savings and earnings of the people,
who have very limited options for protecting themselves against
these ravages. One option is to convert their fiat currency into
something out of reach of central banks and government spending,
such as gold or silver." In reply, Barron’s sniffed:
"but if he’s wrong, bullion prices likely will pull back as
the born-again gold bugs rush to take profits. Gold-mining shares
would pull back even more if history is any guide, taking a lot
of the glitter of Ron Paul’s gains."
implicitly raises (but of course does not attempt to answer) two
important questions. On what basis could Ron Paul have decided a
decade or more ago that gold was cheap relative to (say) stocks?
Today, does the mainstream have grounds to assert (and often to
gloat) that the price of gold has become a "bubble" which,
like the housing, Internet and other bubbles, is bound at some point
to collapse? I don’t know how Ron Paul answered the first question
a decade ago, or how he’d answer the second one today. I do know,
however, how I answered the first question more than a decade ago,
and how I answer the second one today; further, I suspect that my
answers (if not my methods and reasoning) corroborate Paul’s.
Galton (1822-1911), a cousin of Charles Darwin, was keenly interested
in heredity and not at all in business and finance. Yet his studies
of "the average ancestral type" uncovered a regularity
that provides a basis for sensible investing. In an analysis of
the heights of parents and their children, Sir Francis found that
tall parents (that is, parents who were taller than the average
parent) tended to bear tall children (that is, taller-than-average
kids who tended to become taller-than-average adults) and that short
parents tended to breed short children. Heredity, he found, clearly
matters. But it matters in a somewhat counterintuitive way: on average,
the offspring of very tall parents were taller than the average
person but not as tall as their folks; and the offspring of very
short parents were shorter than average but not as short as their
These and other
experiments led Sir Francis to describe a principle that has become
known as reversion (or regression) to the mean. According to Galton,
"reversion is the tendency of the ideal mean filial type to
depart from the parental type, reverting to what may be roughly
and perhaps fairly described as the average ancestral type."
Simply, what goes up (say, a man’s height compared to his father)
tends to come down (say, the height of this man’s son). If this
tendency did not exist then the world would eventually comprise
nought but midgets and giants. Mean regression is vitally important
to investors because it anchors financial markets. If people are
unduly optimistic or pessimistic about (say) a particular company’s
securities, and if that company’s fundamentals remain unchanged,
then after some decent interval their stance is likely to reverse.
"Hot" stocks, market segments – and markets as a whole
– eventually fall from grace, and highly unfashionable (or undervalued)
ones, like the Phoenix, rise from the ashes.
bulls (including and especially the MSM!), like all enthusiasts
at all times, care nothing about history’s "base rate"
and everything about today’s "case rate." They believe
either that (a) because they’re happening now, Good Things must
continue to occur; or (b) because they haven’t happened in a very
long time, Bad Things can’t possibly recur. Speculators,
in other words, extrapolate, whereas investors, following Galton,
regress to the mean.
2012, S&P 500 averaged 1,301 and gold sold for an average of
$US1,744 per ounce. Their ratio was thus 1,301 ÷ 1,744 = 0.75. If
the S&P 500 were a corporation, then the price of one share
of "S&P 500 Corp." would be 0.75 ounces of gold. The
greater (lower) is the ratio, the larger (smaller) the amount (ounces)
needed to buy one share. Hence the greater is the ratio, the dearer
is the share compared to gold; and the lower is the ratio, the cheaper
is gold compared to the share. In any transaction, we seek to exchange
the minimum amount of the goods and services we possess for the
maximum quantity of a good or service we desire; as investors, we
seek to buy a security or other investment cheap and sell it dear.
In principle, then, the greater is the ratio the more sense it makes
to sell shares of "S&P Corp." and use the proceeds
to buy gold; and the lower is the ratio, the more sensible it is
to sell gold and buy the S&P 500.
Figure 5 plots
the S&P 500-to-gold ratio since 1968. (Before 1968, major central
banks fixed the price of gold at $US35 per ounce. In that year,
the "gold pool," which included the U.S and major Western
European nations, and which dominated the world’s supply, stopped
selling gold on the London market. The cessation of their intervention
allowed the price of gold to emerge in something bearing a rough
facsimile to a free market.) Since 1968 the ratio has averaged 1.59.
It fell steadily from January 1968 (2.71) until January 1980 (0.17);
that is, during the 1970s gold became much dearer relative to the
S&P 500. Indeed, during this interval gold increased from $35
to $653 per ounce, and the S&P 500 was virtually stagnant (it
rose from 95 to 111). The ratio then rose steadily until December
1995, when it reached 1.59. During that 15-year interval, gold became
much cheaper relative to the S&P 500. Indeed, from January 1980
($653) to December 1995 ($400) the price of gold fell by almost
40%; in sharp contrast, the S&P 500 zoomed more than five-fold
5: The S&P 500-to-Gold Ratio, 1968-2012
and 2001 the ratio rose dramatically – to above 5.0 in 2000-2001.
During that half-decade, the S&P 500 became extremely expensive
relative to gold: indeed, neither before nor since have stocks been
anywhere near so dear. In May 2000, gold fell to $272 per ounce;
and by August 2000, the S&P 500 rose to 1,485. At the time,
a small number of investors (who richly deserved the title) recognised
the prices of many stocks had risen to a level described as a "bubble."
Robert Shiller coined the term "irrational exuberance"
(which was popularised by Alan Greenspan) in order to describe the
dangerous heights to which stocks rose during these years. Today,
the mainstream concedes that stocks formed a bubble during these
years;2 interestingly, however, the
cause of the bubble – namely central banks’ policy of relentless
crazed inflation – continues to elude them. Further, then or now
few people (apart from Ron Paul and Bill Bonner) saw the other side
of the coin – namely that gold became extremely cheap relative to
the S&P 500, and that they would profit handsomely by ditching
stocks and accumulating gold.
the ratio has fallen equally dramatically. In 2008, the ratio fell
below its overall mean of 1.59, and by August 2011 fell further
to 0.65. During the past decade, gold has become much more expensive
relative to the S&P 500. During these years, the S&P 500
stagnated (it fell to 1,325 in August 2011) and gold skyrocketed
(to $1,815 per ounce). The question therefore arises: is it true,
as several in the mainstream have claimed
and even gloated,
that the price of gold has become a bubble?
To answer this
question, let’s assume (as many in the mainstream have conceded)
that in 2000-2001 stocks (our proxy is the S&P 500) had risen
into "bubble" territory. More specifically, let’s assume
that in those years the S&P reached a bubble vis-à-vis
gold. If an S&P-to-gold ratio of 5.0 is our quantitative measure
of stocks’ bubble vis-à-vis gold, then its inverse (i.e.,
1 ÷ 5.0 = 0.20) is our measure of gold’s bubble vis-à-vis
stocks. Today, the ratio stands at 0.75. The ratio is 3.75 times
0.20. Clearly, then, given these assumptions the price of gold hasn’t
reached "bubble" territory – indeed, it’s not remotely
close. Gold is somewhat but not particularly dear relative to stocks;
and stocks are somewhat but not particularly cheap relative to gold.
constitute a bubble of gold vis-à-vis stocks? Either the
S&P must remain constant and the price of gold must rise to
$1,750 · 3.75 ≈ $6,500 per ounce, or the price of gold remains
steady and the S&P 500 collapse to 1,300 ÷ 3.75 ≈350.
If one or the other or some combination of these two events occurs,
then the MSM can talk sensibly about gold entering bubble territory;
but until then, let it spare us its gibberish and mindless anti-gold
diatribes. Indeed, until the West abandons its failed economic policies
– i.e., stops printing trillions of dollars of funny-money and stops
running budget deficits that in the U.S. alone exceed $1.5 trillion
– and starts running massive budget surpluses, repay debt and above
all adopt a sound currency, it makes perfect sense that Ron Paul
should continue to own the stocks of gold mining companies.
#1: Distrust the Mainstream Media
of Ron Paul provides yet another reason (we already had plenty!)
to distrust the MSM. Should journalists "challenge ‘facts’
that are asserted by newsmakers they write about"? It’s astounding
that anybody should ask this question; and it’s drearily predictable,
but no less disappointing, that a leading light at The New York
Times did so. As Glenn Greenwald (Arthur
Brisbane and Selective Stenography, Salon, 13 January
2012), put it, "that’s basically the equivalent of pondering
in a medical journal whether doctors should treat diseases, or asking
in a law review article whether lawyers should defend the legal
interests of their clients, etc.: reporting facts that conflict
with public claims (what Brisbane tellingly demeaned as being "truth
vigilantes") is one of the defining functions of journalism,
at least in theory." Greenwald continues:
reporters faithfully follow the stenographer model – uncritically
writing down what people say and then leaving it at that – is
so obvious that it’s hardly worth the effort to demonstrate it.
There are important exceptions to this practice … But by and large,
most establishment news coverage consists of announcing that someone
or other has made some claim, then (at most) adding that someone
else has made a conflicting claim, and then walking away. This
isn’t merely the practice of journalists; rather, it’s virtually
their religion. They simply do not believe that reporting facts
is what they should be doing. Recall David Gregory’s impassioned
defence of the media’s behaviour in the lead-up to
the Iraq War, when he rejected complaints that journalists failed
to document falsehoods from Bush officials because "it’s
not our role" and then sneered that only
an ideologue would want them to do so (shortly thereafter,
NBC named Gregory the new host of Meet the Press).
own admission, the MSM are docile scribes and strident shills
for the welfare-warfare state. In Stephen Colbert’s words, uttered
at the White House Correspondents’ Dinner in 2006: "let’s review
the rules. Here’s how it works. The President makes decisions.
He’s the decider. The press secretary announces those decisions,
and you people of the press type those decisions down. Make, announce,
type. Just put ‘em through a spell check and go home." The
state routinely lies, and its clerks dutifully disseminate its lies.
So distrust the regime’s stenographers and propagandists, and assume
that everything they say is false. Greenwald concludes:
every day, one finds major news stories that consist of little
more than the uncritical conveying of official claims, often protected
by journalists not only from critical scrutiny but – thanks to
the shield of anonymity they subserviently extend – from all forms
of accountability. Every day one can find prominent news
articles that are shaped entirely by the following template: A,
B and C are true, say anonymous American officials; government
claims drive the entire article and shape its narrative, with
"officials say" tacked on as an afterthought, an unnoticed
formality. In the realm of reporting on the government, this practice
encourages and enables government lies; … it incentivises candidates
to lie freely.
is one important caveat that needs to be added here. This stenographic
treatment by journalists is not available to everyone. Only those
who wield power within America’s political and financial systems
are entitled to receive this treatment. For everyone else – those
who are viewed as ordinary, marginalised, or scorned by America’s
political establishment – the exact opposite rules apply: their
statements are subjected to extreme levels of scepticism in those
rare instances when they’re heard at all. … This stenographic
model is the primary means by which media outlets turn themselves
into eager spokespeople and servants for the most powerful factions:
the very opposite of the function they claim, with increasing
absurdity, to perform.
#2: Heed Ron Paul
About one thing
the MSM is quite correct: Ron Paul’s ideas are "out of the
mainstream." The trouble, of course, lies not with Paul’s ideas;
it lies with the American mainstream’s. In 1944, at the height of
the Second World War, John T. Flynn wrote in As
We Go Marching:
of fascism is not one’s rage against the Italian and German war
lords. The test is how many of the essential principles of fascism
do you accept and to what extent are you prepared to apply those
fascist ideas to American social and economic life? When you can
put your finger on the men or the groups that urge for America
the debt-supported state, the state bent on the socialisation
of investment and the bureaucratic government of industry and
society, the establishment of the institution of militarism as
the great glamorous public-works project of the nation and the
institution of imperialism under which it proposes to regulate
and rule the world and, along with this, proposes to alter the
forms of our government to approach as closely as possible the
unrestrained, absolute government. Then you will know you have
located the authentic fascist.
Long ago the
mainstream became precisely what today it laughably pretends to
oppose. America’s approved political spectrum – stretching from
Mitt Romney to Barack Obama – in effect if not in name advocates
fascism. The same special-interest and predatory élites that
supported Mussolini and Hitler now underwrite the welfare-warfare
state. Today’s Europeans, too, worship at the fascist altar. You
think I exaggerate? "The most serious financial problem for
the Nazi State," wrote Günter Reimann in The
Vampire Economy: Doing Business Under Fascism (1939),
is not the
danger of a breakdown of the currency and banking system, but
the growing illiquidity of banks, insurance companies, saving
institutions, etc. … Germany’s financial organisations are again
in a situation where their assets which should be kept liquid
have become "frozen" … But the totalitarian State can
tighten its control over the whole financial system and appropriate
for itself all private funds … [and] the institutions which still
exist as private enterprises are not allowed to go bankrupt. For
an artificial belief in credits and financial obligations has
to be maintained in open conflict with realities.
That’s an eerily
accurate description of the EU’s trials and tribulations today.
The Establishment in countries like Australia and Canada, of course,
is every bit as bad – but its craven subservience makes it far more
comical. As Mises and others have demonstrated, fascism and communism
are peas in a pod. In "Bailout Marks Karl Marx’s Comeback"
(The Financial Post, 20 September 2008), Martin Masse reminded
us that the Communist Manifesto demanded the "centralisation
of credit in the banks of the state, by means of a national bank
with state capital and an exclusive monopoly." Doesn’t Karl
Marx’s demand now epitomise monetary policy throughout the West?
contrast, Ron Paul advocates liberty, property, peace and sound
money. He doesn’t lie, cheat, steal or kill. And that, frankly,
is what’s "weird" about him. It’s startling – indeed,
unnerving – to encounter an honest and consistent politician. It’s
astounding that he doesn’t make profligate and idiotic promises
that he cannot possibly keep; nor does he bribe electors with their
own money. It’s astonishing to hear him utter the painful truth
rather than a mishmash of babble, vague threats and blatant lies.
It’s surreal that an intelligent, compassionate and honest man should
speak truth to power – and to possess a voting record that proves
every word of it.
that simple," insists the mainstream. "It isn’t that simple"
is what people say when they’re too stubborn to admit they’re wrong
– or are profiting handsomely from a game that’s rigged massively
to favour them. Whatever the mainstream’s stupid or loaded question,
the answer is simple: property, liberty, peace and sound money.
I’m sick of uninformed people with vested interests calling Dr Paul
"weird." He hasn’t destroyed the currency and the
banking system, exploded America’s debt, gravely weakened its civil
liberties, murdered tens of thousands and impoverished millions.
His policies haven’t wrought this grievous damage: the mainstream’s
have. The Establishment cannot abide the fact that he correctly
warned about the stock market and housing bubbles, as well as the
insane monetary policies that inflated them. To all of the dangers
that Paul identified, the mainstream was as alert as Mister Magoo.
Paul’s anti-statist warnings have been vindicated; for this reason,
the statist mainstream ignores and smears him. He knows what it
hysterically denies: although it enriches a privileged few insiders,
interventionism always and inevitably impoverishes the mass of outsiders.
If Ron Paul is "crazy" then America and the Western world
as a whole desperately need more "crazy" people. Ron Paul
of data: U.S. Bureau of Labor
Statistics and Reserve
Bank of Australia.
- See in
particular Charles Kindleberger, Manias,
Panics, and Crashes: A History of Financial Crises (5th
ed., John Wiley & Sons, 2005); Roger Lowenstein, Origins
of the Crash: The Great Bubble and Its Undoing. (Penguin
Books, 2004); and Robert Shiller, Irrational
Exuberance (1st ed., Broadway, 2001).
Leithner [send him mail]
is a Director of Leithner & Company, a private investment company
in Brisbane, Australia.
© 2012 by LewRockwell.com. Permission to reprint in whole or in
part is gladly granted, provided full credit is given.