2012 U.S. Presidential Candidate Ron Paul Agrees: Barnaby Was Right

10 Jun

U.S. Republican Congressman Ron Paul, the Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy, who is again running for President in 2012, confirms that the USA is already defaulting on its debts.

From Think Progress, 6 June 2011:

Paul, who is running for President, claimed we are already in default but that the government was mitigating the effects through inflation.

KEYES: Congressman, there’s been a lot of heated rhetoric about this upcoming debt ceiling fight. Do you think it’s really going to be that bad if a default were to happen come August 2nd?

PAUL: Well, they’re not going to let it happen. They’re going to do it. But I try to tell people, a default is already occurring, it’s just how they do it. Governments always default, but most of the time, they don’t quit paying their bills because they’ll just print the money. They default by giving you money back that doesn’t have as much value and that’s when prices go up. So that’s how they’re defaulting and since there’s inflation back and hurting us, there’s plenty of default going on right now.

Barnaby was ridiculed up hill and down dale in late 2009 / early 2010, for daring to forewarn of the risk that the USA “could” default on its debts. He even lost his job as Shadow Finance spokesman, thanks to the flack he received from smart-arse, all-knowing and all-wise “experts” on all sides.

Not one of whom had the simple commonsense to see and predict the onrushing GFC.

Even I – a humble small businessman, and lowly blogger – was able to see that coming easily. Backed my intuition and commonsense, and put all my super into cash in May 2007, in defiance of “expert” financial advice.  And completely avoided any losses in the global sharemarket crash:

If even I could see that coming, then why – after millions of Aussies lost billions in the GFC – why do we continue to bend our knees and doff our caps to the very same so-called “experts” in the Treasury department, the Reserve Bank, and the financial media, who all completely and utterly failed us?  And, massively overpay them for crappy / wrong / non-existent “advice”?

Barnaby foresaw the risk of a coming US debt default back in late 2009, and had the courage to warn that Australia should have a “contingency plan”.

Now, a highly respected longstanding US congressman and 2012 Presidential candidate has outright conceded the truth … that Barnaby was right.

Perhaps some Australians might now think to heed Barnaby’s most recent warning.

Both of our major political parties are planning to steal our super to pay down ever-rising debts.

Just like the USA, France, Ireland, Poland, and many more have done, and are doing right now.

15 Responses to “2012 U.S. Presidential Candidate Ron Paul Agrees: Barnaby Was Right”

  1. JMD June 10, 2011 at 10:16 am #

    Ahh, the banker’s dark art……inflation

  2. Abe June 11, 2011 at 7:11 pm #

    I thought Barnaby was ridiculed for saying that Australia would default on its debt, which when it is running at 14% of GDP in gross terms and around half that in net terms, seems pretty unlikely.

    • JMD June 11, 2011 at 7:19 pm #

      Care to explain for us what is GDP & how it is calculated & what you mean by “in net terms”? It’s easy to spout verbatim what you have read elsewhere, how about trying to lay out your argument in some detail?

      • Abe June 11, 2011 at 9:04 pm #

        GDP = Gross Domestic Product and I think you’ll find many definitions wherever you care to look, JMD.

        Net Debt = Debt less financial assets like cash, other people’s bonds, etc. A big chunk of the assets in the future fund, for example.

        Like if you had a debt of $1m but owned financial assets of $400k, which would be the better measure?

        At any rate, Net Debt seemed to be in vogue a few years ago when Mr Costello was prepared to shout from the rooftops that it had been paid off, despite gross commonwealth debt on issue still being around $50bn.

        My point is that by either measure, Australia really doesn’t have a sovereign debt crisis.

      • JMD June 11, 2011 at 9:59 pm #

        And how is this GDP derived? What does it actually measure?

        These ‘assets’ you talk of; the obligations of others? How do you know these obligations be met?

        Cash? Did you know cash is the obligation of the government? How can it thus ‘net’ out the obligations of the government? Read the article I linked to in TBI’s latest post, in particular Edwin Vieira’s excerpt of Section 16 of the Federal Reserve Act;

        “Federal reserve notes, to be issued at the discretion of the Federal Reserve Board for the purpose of making advances to Federal reserve banks are hereby authorized. The said notes shall be obligations of the United States”.

        The Australian dollar no different in its nature than the Federal Reserve Note, more commonly known as the US dollar.

        Like I said, it is easy to spout verbatim that which you read elsewhere. Some critical thinking is required however before attempting to debunk the considered arguments of others.

      • JMD June 11, 2011 at 10:07 pm #

        Will be met?

        You need an edit button BTI.

      • JMD June 11, 2011 at 10:08 pm #


        See what I mean?

    • The Blissful Ignoramus June 11, 2011 at 7:50 pm #

      Abe, I think you will find (if you care to check) that Barnaby never unequivocally said that either the US, or Australia, would default. Rather, he flagged the possibility, and in specific context of his expressing the view that Australia should have a “contingency plan” if that happened (US default).

      Barnaby was consistently and virulently misquoted by all and sundry. Unsurprising. Noone wants a popular Senator drawing attention to the truth, and risking impacts on “confidence” (Ken Henry’s word), now do they? Better to have the great unwashed masses walk blindly into another debt-driven fiasco.

      • Abe June 11, 2011 at 9:10 pm #

        PM Program 9/2/10 has a transcript worth checking out:


        But for the record, he said “We’re going into hock to our eyeballs to people overseas. And you’ve got to ask the question how far in debt do you want to go? WE ARE GETTING TO A POINT WHERE WE CAN’T REPAY IT.”

        • The Blissful Ignoramus June 11, 2011 at 9:29 pm #

          And IMO, his point was quite correct, Abe.

          We are getting to the point where we can’t repay it. Probably well past it already, IMO. As per my four charts in today’s post. Especially the last one.

          A simple look at history (as per that chart 4) suggests that it is highly unlikely that we can even pay the Interest-only, much less the principal. We’re talking “estimates” and “projections” for $12-14bn per annum, Interest-only, when only a handful of years under the Howard Govt (I’m no fan) managed surpluses large enough to cover such an Interest bill.

          If China continues to slow, USA and/or EU financial sectors blow up, our housing bubble pops (wiping out our banks, forcing the Govt to go into even deeper hock to bail them), multiple ME crises spikes oil, or any one of a large number of potential threats hits us, we’re toast.

          Even without those threats, I do not for a moment believe that the present government – or an Abbott-led one – will ever manage the public purse responsibly enough (ie) risk incurring voter wrath through higher taxes / reduced spending, to cover even the presently forecast Interest bill.

          The fact that the Interest-only bill blew out by $5.69Bn over the forward estimates in just 6 months from MYEFO to the recent May budget, only affirms that view.

  3. Abe June 11, 2011 at 9:49 pm #

    Sorry to be a pedant, but if gross debt never fell below $50bn, then I’m guessing interest on gross debt never fell below $3bn in any given year – even when we had negative net debt – yet despite this we managed to book surpluses of around 1% of GDP.

    Don’t get me wrong, debt servicing costs are rising, but they’re included in budget projections with all of the other $350 bn odd of payments and receipts.

    Pointy heads debate when public debt becomes problematic but they are typically playing in the 60-90% of GDP space.

    Pointy heads also look at metrics around debt servicing cost to government revenue when they debate sustainability of public debt levels – the conventional wisdom is that a ratio of above 20% is potentially an issue (again, the debate seems to be in the 20-30% playground). That would be around $70bn in Australia’s context. Your numbers are $12bn in gross terms, right?

    So if you think a peak debt level of less than 10% of GDP in net terms and say 15% in gross terms is problematic, then I guess we’re going to have to agree to disagree. Similarly, if you think gross debt servicing cost to gross revenue of 3 or 4% is a problem then I don’t think I am Robinson Crusoe if I respectfully disagree.

    • The Blissful Ignoramus June 11, 2011 at 10:21 pm #

      Abe, I’m one of those who considers the practice of referring to debt as “a percentage of GDP”, as being either misleading, or misled.

      In context of debt servicing ability, the GDP figure is utterly irrelevant. Take Australia. We often hear it shrieked that we’ve got no worries due “low” debt-as-%-of-GDP. Look at it more closely. Our “GDP” is in the order of $1.2 to $1.3 Trillion … allegedly. So what? Our government’s tax revenue is the only figure that matters. For this year 2010-11, they are “estimating” revenues of $310Bn. The 2009-10 FBO was $292.8Bn. That is the only figure that matters, because that is the figure from which they must cover all planned (and unplanned) Govt expenditure, AND have enough left over to cover a $10.8bn rising to +$14bn Interest-only bill.

      The basic accounting numbers are all you need, Abe. The rest is ivory-towered gobbledy-gook crap that keeps JAFA’s in paid employment … and blind to on-the-ground reality.

      Our Govt is not going to be able to pay back the Interest, much less the principal. And when our housing bubble bursts, and banks go to the wall, we’re FUBAR.

  4. Abe June 12, 2011 at 7:49 am #

    Putting debt to GDP to one side (although I disagree that it is utterly irrelevant), I’m interested in what ratio of public debt interest to government revenue you WOULDN’T think was too high? As I said, the debate seems to be centred on the 20-30% region, whereas ours is 3 or 4% by my reckoning.

    • The Blissful Ignoramus June 12, 2011 at 10:41 am #

      My answer to your question is necessarily two-fold, Abe. The reason being that my weltanschauung is that there is no acceptable justification for government to incur any debt. Ever. Full stop. So that’s the first part of my answer. To discuss that would require a big sidetrack into views on the nature of money, currency, and usury. Perhaps for another time.

      In the second part, since our unfortunate reality is that government does (unnecessarily, IMO) incur debt at the expense of its citizens, then how much is too much is not simply a question of numbers. And especially, not one of %’s … the economist’s equivalent of the sophist’s “weasel word”. How much govt debt is too much is a political, and moral question. And, one of simple commonsense, cast in the spotlight of the many externalities that can impact on ability to repay. Things like (eg) the risk of a key customer supporting our only non-recessionary sector (mining) falling over, as per today’s post on China.

      For example, you correctly point to the govt’s current “estimated” and “projected” (proven grossly unreliable in the recent past) Interest-on-debt figures as being 3-4% of (forecast) government revenues. Doesn’t sound like much .. which is exactly why politicians and those whose jobs depend on maintaining “con-fidence” repeat the figures using this kind of deceitful terminology, ad nauseum. Simple reality is, however, that in order to find that 3-4% (which is only 3-4% IF government revenue comes in as “projected”; it rarely does, and increasingly so in the post-GFC era) … or in the hard numbers that matter, $10.8bn – $14+bn per annum … the government needs an awful lot of influencing variables to all go its way. If any of those variables .. some controllable, most not … do not go the government’s way, then they do not balance the budget in any single year. If you can’t balance the budget in a single year, you can’t make inroads on your debt burden. Any businessman or householder can tell you that.

      AND, even setting aside externalities (which one can’t), it needs the political will to STOP borrowing more in the first instance. And, it needs the political will to either cut spending, and/or increase taxes, in order to (a) achieve a balanced budget, thence (b) make inroads on debt burden. I don’t believe either major party has the will, or the ability, to achieve that, even in smooth, non-volatile global economic times. As these are not, I believe there is zero chance this country will ever get out of debt, but rather will only go much deeper. Exactly like the rest of the West.

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