Ron Paul Appeals To America: "Default Now, Or Suffer A More Expensive Crisis Later"

Tyler Durden's picture

By Ron Paul, op-ed first posted in Bloomberg

Default Now, Or Suffer A More Expensive Crisis Later

Debate over the debt ceiling has
reached a fever pitch in recent weeks, with each side trying to
outdo the other in a game of political chicken. If you
believe some of the things that are being written, the world
will come to an end if the U.S. defaults on even the tiniest
portion of its debt.

In strict terms, the default being discussed will occur if
the U.S. fails to meet its debt obligations, through failure to
pay either interest or principal due a bondholder. Proponents of
raising the debt ceiling claim that a default on Aug. 2 is
unprecedented and will result in calamity (never mind that this
is simply an arbitrary date, easily changed, marking a
congressional recess). My expectations of such a scenario are
more sanguine.

The U.S. government defaulted at least three times on its
obligations during the 20th century.

-- In 1934, the government banned ownership of gold and
eliminated the right to exchange gold certificates for gold
coins. It then immediately revalued gold from $20.67 per troy
ounce to $35, thus devaluing the dollar holdings of all
Americans by 40 percent.

-- From 1934 to 1968, the federal government continued to
issue and redeem silver certificates, notes that circulated as
legal tender that could be redeemed for silver coins or silver
bars. In 1968, Congress unilaterally reneged on this obligation,

-- From 1934 to 1971, foreign governments were permitted by
the U.S. government to exchange their dollars for gold through
the gold window. In 1971, President Richard Nixon severed this
final link between the dollar and gold by closing the gold
window, thus in effect defaulting once again on a debt
obligation of the U.S. government.

Unlimited Spending

No longer constrained by any sort of commodity backing, the
federal government was now free to engage in almost unlimited
fiscal profligacy, the only check on its spending being the
market’s appetite for Treasury debt. Despite the defaults in
1934, 1968 and 1971, world markets have been only too willing to
purchase Treasury debt and thereby fund the government’s deficit
spending. If these major defaults didn’t result in decreased
investor appetite for U.S. obligations, I see no reason why
defaulting on a small amount of debt this August would cause any
major changes.

The national debt now stands at just over $14 trillion,
while net total liabilities are estimated at over $200 trillion.
The government is insolvent, as there is no way that this
massive sum of liabilities can ever be paid off. Successive
Congresses and administrations have shown absolutely no
restraint when it comes to the budget process, and the idea that
either of the two parties is serious about getting our fiscal
house in order is laughable.

Boom and Bust

The Austrian School’s theory of the business cycle
describes how loose central bank monetary policy causes booms
and busts: It drives down interest rates below the market rate,
lowering the cost of borrowing; encourages malinvestment; and
causes economic miscalculation as resources are diverted from
the highest value use as reflected in true consumer preferences.
Loose monetary policy caused the dot-com bubble and the housing
bubble, and now is causing the government debt bubble.

For far too long, the Federal Reserve’s monetary
policy and quantitative easing have kept interest rates
artificially low, enabling the government to drastically
increase its spending by funding its profligacy through new debt
whose service costs were lower than they otherwise would have

Neither Republicans nor Democrats sought to end this gravy
train, with one party prioritizing war spending and the other
prioritizing welfare spending, and with both supporting both
types of spending. But now, with the end of the second round of
quantitative easing, the federal funds rate at the zero bound,
and the debt limit maxed out, Congress finds itself in a real

Hard Decisions

It isn’t too late to return to fiscal sanity. We could
start by canceling out the debt held by the Federal Reserve,
which would clear $1.6 trillion under the debt ceiling. Or we
could cut trillions of dollars in spending by bringing our
troops home from overseas, making gradual reforms to Social
Security and Medicare, and bringing the federal government back
within the limits envisioned by the Constitution. Yet no one is
willing to step up to the plate and make the hard decisions that
are necessary. Everyone wants to kick the can down the road and
believe that deficit spending can continue unabated.

Unless major changes are made today, the U.S. will default
on its debt sooner or later, and it is certainly preferable that
it be sooner rather than later.

If the government defaults on its debt now, the
consequences undoubtedly will be painful in the short term. The
loss of its AAA rating will raise the cost of issuing new debt,
but this is not altogether a bad thing. Higher borrowing costs
will ensure that the government cannot continue the same old
spending policies. Budgets will have to be brought into balance
(as the cost of servicing debt will be so expensive as to
preclude future debt financing of government operations), so
hopefully, in the long term, the government will return to sound
financial footing.

Raising the Ceiling

The alternative to defaulting now is to keep increasing the
debt ceiling, keep spending like a drunken sailor, and hope that
the default comes after we die. A future default won’t take the
form of a missed payment, but rather will come through
hyperinflation. The already incestuous relationship between the
Federal Reserve and the Treasury will grow even closer as the
Fed begins to purchase debt directly from the Treasury and
monetizes debt on a scale that makes QE2 look like a drop in the
bucket. Imagine the societal breakdown of Weimar Germany, but in
a country five times as large. That is what we face if we do not
come to terms with our debt problem immediately.

Default will be painful, but it is all but inevitable for a
country as heavily indebted as the U.S. Just as pumping money
into the system to combat a recession only ensures an
unsustainable economic boom and a future recession worse than
the first, so too does continuously raising the debt ceiling
only forestall the day of reckoning and ensure that, when it
comes, it will be cataclysmic.

We have a choice: default now and take our medicine, or put
it off as long as possible, when the effects will be much worse.

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legal eagle's picture

Too reasonable to be heard

ZerOhead's picture

Don't look now but your ass is on fire!

(New York is 102 today... I think you'll beat that easily :)

max2205's picture

you guys junked 2 "..." ? lol

the deleted post said RP is a toothless duweeb

Oh regional Indian's picture

Interesting, because I happen to agree.

ANd now it is clear why Grampappy Paul, Not so Free Mason was groomed in that image all these years.

The rational voice of Professor (or is that Pontiff to some?) Paul will move his herd in teh right direction. His moment of truth; Default my brothers and sisters, the voice of fiscal sanity in the USSA hasss ssssspoken.




High Plains Drifter's picture

it is interesting that in all of ron paul's  career, his most important part in the play comes at the end of his life and his career. now his time has come. like a falling star streaking across the sky, he is shining brightly now and his light attacts the disaffected to its brightness, as it was intended, when the plan was concocted so many years ago........

Quintus's picture

......or could it just be that he's getting more recognition now that the stuff he's been predicting for several decades is actually coming to pass just like he said it would?

High Plains Drifter's picture

yes and who listens to him? you? me?  so what? we don't matter. get it ?  he is just playing his part.   why won't he go near 911?  and please don't tell me, it is because it is politically not viable for him. heck if he ever did start asking the right questions, how long do you think he would live?  anyone can say this or that is coming. nobody listens. nobody. he is playing the part of the controlled opposition. watch him run third party this time and see as he splits the vote just like another controlled opposition person (ross perot)  did in 1992. it never gets better but always get worse. there is no hope unless you take the hope by force. this is the game as it is played. this is our only option now. there is no more time for talk and no more time for voting games. the system is broken and ron paul will not fix it. not him or anyone else.........except you and me......

traderjoe's picture

+1 - he's been in the house since the 70's...

mouthpiece's picture

That's a nice little theory, and I suppose it could be true.  I don't know for sure.  But I'm willing to take a gamble on Ron Paul.  What if he is the real deal?  What have I got to lose voting for him?  It's worth a shot.

After all, there's no one else to vote for.

dark pools of soros's picture

plenty of people talk about 9/11 - look what they did to Sibel - so why does Ron have to be everything for everyone?? Blame the rest of congress that do not join forces with him.



Ra-Marduk's picture

Stop smoking da weed. You have been junked - now have a nice day.

Baptiste Say's picture

Because going near 9/11 would have him incur the wrath of 99% of the obese, mentally deficient, brainwashed, fluoridated and ultranationalist citizens subjects of your broke, shithole, war mongering nation fiefdom and would almost certainly ruin his chances of ever taking down the Federal reserve.

Shell Game's picture

Short answer:  yes.   I don't buy the "Ross Perots and Ron Pauls" of the world are paid stooges to throw us off.  Bullshit.  The herd needs no stooge to be thrown off. LOL!  They are thrown quite far off by the game as it is without a third party conspiracy theory.

If I might pen some hope.. When all this shyte goes down, there will be many who remember the few who spoke the truth.  I may be naive, but I believe this will catalyze a new era of realism and sound living.


Havana White's picture

Agree.  We'd probably be in pretty good shape if Perot had won.

DCFusor's picture

I live in a small town.  Only two polls.  As a goof (and partly serious) we all decided to vote for Perot, just to see what the returns looked like.  They recorded almost no votes for him -- he didn't have a poll watcher in our district, so the DemoCans just canned all the votes for him outright.  This created another few hundred people who *KNOW* how corrupt things are - we doggone well know we voted and who for, and hundreds of our votes got tossed.  Can't prove it, of course, just that we all did, and we all know what was reported.  What a joke.  In bad taste, of course.

mouthpiece's picture

Assuming you aren't just full of shit, what you should do is try to organize this small town of yours again, and this time, videotape every single person in the town going in to place their vote, and when the votes get counted, if yours aren't, post the video on youtube.  There's proof.

yeah right's picture

Solution, write your name on the ballot!!

bigkahuna's picture

I have seen this kind of thing during the 2008 republican state convention. The Ron Paul delegates were harassed continuously by the mccain thugs - I almost knocked one of the thugs out. It was downright nasty and hostile. I am a Paul supporter who is not prone to violence but the bs I encountered there tore what was left of the blinders off of my eyes and revealed the political process to me to be a sham. Oh boy I was ANGRY! I will never get myself elected to be a delegate again. Needless to say fuser, I believe what you are saying. 

GreenSideUp's picture


My experience exactly.  One of my friends was threatened with arrest if he didn't shut up in response to a neo-con speaker saying the RP folks should be thrown out of the party. 

4 of my friends were delegates to the national convention.  Thier books and other materials were confiscated, they were watched constantly and they were told that they could not vote for Ron Paul.  Remember, RP was not allowed to speak at the repub convention but Joe LIEberman was.

Those events ripped the last of the scales off my eyes.  Any notion I had of honesty in the electoral process was ripped to shreads.  This isn't a republic or a democracy, and the entire election process is nothing but a show.  



Havana White's picture

In many of the black neighborhoods here in Florida, signs will appear overnight, urging citizens to vote, on such and such a date - that date being one day late.  Other dirty tricks too many to mention.  Of course this kind of thing is as old as voting itself.

Not as old was the notorious Ohio incident, when the top dog at Diebold, the maker of the voting machines, guaranteed R-party officials he "could deliver Bush."  Same election, same place: we saw TV of blacks having to wait in long lines for hours, to vote, while white voters breezed through their precincts.

In swing states, campaigns are only part of the persuasive process.

Bob's picture

A majority of states are implementing state ID requirements for voting.  This will definitely cut down on the black vote: If you have outstanding warrants--traffic tickets, child support being the most common, wouldn't be surprised if it were 20% of black men--for shit you don't have the money to pay, would you show up to vote if suddenly a lot of attention were being focuses on ID?

CompassionateFascist's picture

RP's libertarian economics = open borders labor sweatshopping + Free Trade job outsourcing. These STRUCTURAL disasters are one of the prime sources of gov't effort to force demand via funnymoney. He's got part of the solution - HardMoney - but he's also part of the problem. Also, he grossly understates the consequences of Fed Govt default. There will be cascading defaults throughout our entire political economy, and the dollar will be run w/in hours. Unless you are armed, provisioned, networked, and non-urban....Kiss Tomorrow Goodbye. But I still think the Republicrats in the House will crack wide open before the so-called deadline, with the liberal wing of the party lining up with the Dems to up the debt ceiling. Result: can kicked down the road to summer of 2012, + huge - tho temporary - political victory for Zero. Remember, this guy is Chicago Mafia. He won't back down.

traderjoe's picture

Why does a sovereign country borrow its own 'money' from private corporations at interest? Ron never addresses why we borrow in the first place.

I bought a 1966 United States Note recently. Very different in terms of how that money comes into existence.

samslaught's picture

maybe I can help you out.  Dollars are not "money," dollars are debt.  Gold has been and is (secretly) still the money of nations.  Dollars can only be brought into existence through borrowing.  The use of Fiat currencies is a brilliant scam that allows nations to inslave their people through debt and steal from them through inflation.  When the scam finally runs it's course the governments of the world will have just as much "money" (gold) as they did before they started the scam.  The government has no intention of paying back the principal or interest on any of the "dollars" it borrows.  It would however like to keep the scam going as long as possible.  Any attempts at fiscal responsibility is just to extend the ponzi and nothing more 

dark pools of soros's picture

and that is why Another used to say 'Gold goes where it needs to be' as far as countries are concerned...


small self-sustaining towns have no need for big government....  remember the Kulaks


samslaught's picture

not anymore they aren't.  The fiat scam always starts and ends the same way. 

B9K9's picture

Actually, too clueless to understand.

Why is it so difficult to grasp that the US is nothing more than an empire? Our very lifestyles (by that, I mean taking a crap and having the shit actually flush down the toilet, or getting in your car and driving somewhere with -0- concern whatsoever about fuel availability/affordability, etc.) are based on two key predicates: we control the world's most critical resources via our military, and the tools/personnel are paid with FRNs backed by this self-same resource. A perfect, virtuous cycle if you will.

Break one segment, and the other fails. The banks don't control our government; the federal government is THE bank. It's truly all we've got - our economy doesn't produce anything of value that the world wants/needs. All we've got are the most techologically advanced arms in which to dominate other peoples. No one, even Ron Paul, wants to call that out, because what it means is we're nothing more than a scaled up mafia operation controlling local neighborhoods.

Is it sustainable? Of course not. So what does that mean? Well, it means stop paying attention to the day-day BS and focus on the bigger picture in terms of surviving the coming cull.

legal eagle's picture

Just not true.  The United States was only surpassed this year in manufacturing by China.  For all the hot air about our lack of manufacturing, we still do manufacture. We shoud, of course, attempt to increase the manufacturing by entering into "fair" trade agreements, not those which benefit other nations.  China is bankrupting the US by keeping its currency pegged to the dollar at a low rate so their goods are incredibly cheap.  If we simply have trade agreements that equalized the currency debasement, manufacturing would return home. Time is of the essence, because we do lose manufacturing jobs every month.

You are simply buying into the US propoganda regarding its "necessary" war machine.  This is the same propoganda every abusive government in history has used, you should not fall for it so easily.

Vic Vinegar's picture

Absolutely all of what B9K9 said is true.  The only question you need to ask yourself is do you keep on trading stocks on the internet or worry about "surviving the coming cull".  Pick a side brother!

Oh regional Indian's picture

The B9K9 is definitely a woof of sanity.


Vic Vinegar's picture

Agreed, ORI.  For your sake, mine and I guess everybody's, let's hope the stuff CPL was prattling on about the other night doesn't come to fruition.  Have a great weekend. 

jm's picture

"Corn Pone Lameass"

Vic Vinegar's picture

It was the highlight of the week when it came to Zero Hedge.  Four minutes after Tyler gives us an update about the budget talks, CPL rolls into town with this magic:

ATM's picture

Only everything he posted isn't true and demonstrably so.

I got no problem with the Empire stuff but the controlling oil crap thru the military isn't accurate. We are able to use much more oil than we should because we have the reserve currency and oil is priced in dollars. This gives us a huge discount every day.

Also, the propoganda about the US not producing anything of value that the rest of the world wants is horseshit. Come to the industrial Midwest and I will show you a hundred companies that produce all sorts of things that are sent all over the world.

How about things like construction equipment, ball bearings, transmissions, aircraft, HVAC, machine tools, farm equipment, mining equipment, yada yada yada?

Our enemy is the same that it has always been - those that seek power. Govt is the problem in the US because it is one that has done what all govts do - it has assumed more and more and more power until it has stiffled individual liberty to a point that it almost makes no sense to even try any longer.

The power seekers always bankrupt the people who then have to try to throw off the oppressors. I hope we can.

Vic Vinegar's picture

All fair points.  But sorry I can't resist:

Come to the industrial Midwest and I will show you a hundred companies that produce all sorts of things that are sent all over the world.

And come to Van Nuys and I will show you the same.  :-)

Joe Sixpack's picture

pornography is not wanted everywhere.

Nathan Muir's picture

Think macro - as long as we import more than we export it doesn't really matter how much we produce.  The thing that saves us (or has in the past), as you point out, is what we really export are FRN's...I also agree that is why we can consume 35% of the world's energy.  It's all about the FRN.

DCFusor's picture

No need to create a false dichotomy -- I am ready for the cull, and still trade and make hay while the sun shines (or whatever that is that makes stocks go up and down).


TruthInSunshine's picture
by legal eagle
on Fri, 07/22/2011 - 16:03

Just not true.  The United States was only surpassed this year in manufacturing by China.  For all the hot air about our lack of manufacturing, we still do manufacture. We shoud, of course, attempt to increase the manufacturing by entering into "fair" trade agreements...


It's the trend that matters, LG, and the trend is quite bad, and since NAFTA was passed and China given MFN trading status, that quite bad trend has been firmly entrenched.

You say we still manufacture things; I say that we're still losing manufacturing capacity, manufacturing jobs, and manufacturing prowess, technology and innovative processes to foreign nations each and every year since NAFTA and China's MFN status were signed into law.

Whether this is a good, bad or neutral thing is a matter for debate, though I tend to think that it's net negative for our future (multinationals have no national allegiance, and once the IP and technology is gone, it's gone for good).

JW n FL's picture


The Federal Reserve is a PRIVATE BANK!


The ShareHolders! of the Federal Reserve Bank earn 6% for EVERY! dollar Printed out of thin air.


At their web site, the Federal Reserve describes the branches as corporations operated for non-profit purposes *[]. The Fed indicates the shares do not constitute ownership as such. The 'non-profit' aspect is only partly true as member banks receive a 6% dividend on their shares.

* the link has been killed off but is 100% accurate.


Big Picture? Let the Culling Continue Un-Abated!

ATM's picture

That's why the first thing we should default on is the Treasuries the Fed has now and the second thing is the treasuries that are owned by federal agencies. Then we can default on foreign owned debt because we haven't been billing them for police services for 65 years. If my math is right the rest of the world owes us about $200T. 

nufio's picture

nobody asked for police service... and nobody is going to give the US any resources for its police service..i can understand that the US needs money because its broke, but its not going to be able to convince anyone else that they owe it money for services rendered. thats laughable.

what i really dont understand is why bullies need a moral justificaiton for thier acts of bullying?

SilverRhino's picture

Enjoy your land bound existence then.  Who owns the seas again?  

Something to consider.   The day the US wants to isolate each continent it pretty much has the capability to do so. 


HellFish's picture

Are you referring to the bullying that in WWII that cost the US 400K deaths to preserve a free Europe?  Or maybe The deaths US deaths due to the bullying during WWI?  Or maybe the bullying during the cold war?  Or the bullying from the Gulf war where the US stepped up to enforce UN resolutions the rest of the hapless world couldn't or wouldn't do without them.


You might need to revisit your definition of bullying.