Rep. Ron Paul (R-TX) answers questions about monetary policy, taxes, regulation, jobs, trade agreements, energy policy and other issues facing the business and manufacturing industry.
Candidates for the Republican nomination for president gathered at Vermeer Corporation headquarters in Pella, Iowa for a forum sponsored by the National Association of Manufacturers and broadcast by Iowa Public Television.
Candidates participating in the forum included Rep. Michele Bachmann (R-MN), former Rep. Newt Gingrich (R-GA), Rep. Ron Paul (R-TX), Texas Gov. Rick Perry (R-TX) and former Sen. Rick Santorum (R-PA). The forum was moderated by Iowa Gov. Terry Branstad and Nightly Business Report Co-Anchor and Managing Editor Tom Hudson.
Hudson: Up next Congressman Ron Paul of Texas. Welcome Congressman, welcome to Iowa.
Paul: Thank you. Good to be here.
Hudson: Congressman, America sold almost $300 million worth of corn to China last year which was a five fold increase from the year before. Last year American manufacturers like Vermeer sold $6 billion of farm equipment worldwide. Vermeer just signed its biggest customer deal ever yesterday and it is all export. How would you open up more international markets for American manufacturers?
Paul: It sounds like we're doing pretty good with China. Well, what you have to do is be more competitive and we're less competitive to be the world producer because we have too much taxes, too much regulation. But it is also involved with the monetary system. When the country becomes the issuer of the reserve currency of the world unfortunately the biggest export is money. So, there's a temptation to buy from overseas, increase your current account deficit and then we go to consumption. That is our disease. We have been doing that ever since we have been issuing this paper currency since 1970 and it is gradually getting much worse. So, if you don't look at the regulation, the taxation, trade policy and monetary policy this is going to continue to get much worse.
Hudson: To the point of monetary policy, Congressman Bachmann mentioned a 2.5% economic growth in the third quarter largely driven by the consumer but also exports were strong. Exporters like Vermeer have been taking advantage of the weaker U.S. dollar. In fact, Vermeer says that part of the reason they were able to sign the big contract this week was because of the lower dollar. The international buyer was able to take advantage of this.
Paul: Yeah, when you get a lower dollar it works for a little while but it's not a solution, it's just temporary and then you have everybody putting their money at different rates, everybody has competing valuations. But it only lasts because we already see price inflation coming back here so you lower the dollar, prices go up and it cancels out the temporary benefits. So, we really have to start talking about if you want a more bounce trade and a fairer trade system you have to have a commodity standard of currency otherwise you will always have these competing devaluations and then everybody is going to be unhappy and then they're going to ask for trade wars. We've already started, look, our tariffs, Brazil has put a 30% tariff on Chinese goods so the trade wars have been devastating so the only way you can solve that is solve the problem with the currencies and the devaluations.
Hudson: Do you support the trade deals that were just signed?
Hudson: Panama, Columbia and South Korea?
Paul: I support the lowest tariffs of anybody in the Congress. I want the freest trade possible. I never vote for sanctions. I want to trade with Cuba but I do not like international arrangements because of the sacrifice on their sovereignty. The WTO is on occasion they give us lower tariffs but most of the time, more times than not you go there to retaliate and I'm not for that, I'm not for another level of government. And another Constitution trade policy needs to be designed by the Congress. It is not to be designed by a body that is created by Congress and give the authority to the executive branch. So, no, I don't like the international trade agreements, I just like low tariffs, as low as possible, as quickly as possible and get out -- a lot of the people who preach free trade are the ones who are the first ones to put on sanctions so they are hypocritical about some of these free trade agreements.
Branstad: You like low tariffs, you also like lower taxes at the federal government. The federal corporate income tax is a real burden. We are being told that that has put us in a non-competitive situation especially with the penalty then for bringing profits back from overseas. What would you do about that?
Paul: Zero tax on the people who want to repatriate their money and as a modest start I would put the corporate tax at 15% and we would become more competitive.
Branstad: That is equal to what Canada is going to be next year.
Paul: Yeah, I want them very low because in many ways I think that the corporate tax, if you lower corporate tax only the executive is going to benefit but the consumer benefits too. Corporate taxes are a form of a sales tax. They do have -- if you're competitive they have to pass this on. So, I am low taxes but you can't get low taxes unless you deal with the big problem and that is big spending and that is where I think so many come up short, they're not willing to talk about significant cuts in spending.
Branstad: You have been really bold in that. Do you want to kind of share with us in a little more detail because I think you have got the boldest plan to reduce the federal deficit and I think most Americans are scared to death, they have seen this country become a huge debtor nation, we see the federal debt go up $1.3, $1.4 trillion year after year, we know this is not affordable, not sustainable and you have a plan to deal with that.
Paul: We have two debts, we have the foreign debt which is the biggest in the history of the world and that is one subject. But the national debt is now $15 trillion and it is unsustainable. And we get into a mess because of this and everybody in Washington thinks the solution is spending more money. But the best example to realize why you have to cut spending is what happened after World War II. They cut spending 60%, they cut taxes 30%, they brought 10 million people back home and the economy boomed. It was taken out of the government, put into the economy. Now, I have a propo9sal to cut $1 trillion, cut five departments and significantly cut and put all that money back into the business community and the private community. Government expenditures just doesn't work. But the real reason is taxes, spending is a tax. You either tax the people, you borrow the money or you print the money. It is always a tax so spending has to come under control and this idea that the economy would collapse is absolutely false. The economy would blossom if you cut taxes and spending.
Branstad: One of the problems with borrowed money is you've got to pay it back with interest and you can only build half as much stuff if you're doing it with borrowed money.
Paul: That's right and it's a good case for individuals can't do it, business can't do it, why should government do it. If a business gets into trouble do we go to the businessman and say, well you're in trouble, now you're approaching bankruptcy, what you need to do is borrow more money. But at the government level they say to solve the problem we have to borrow more money to stimulate the economy and take people that don't have jobs -- if the consumer drives the economy you should be spending more money, get another credit card and you'll save the economy. It makes no sense.
Branstad: Haven't they already tried that with this administration and the previous administration with these so-called stimulus plans? It hasn't worked, right?
Paul: It hasn't worked since the Depression and it didn't work in Japan. You need to cleanse the system, you need to get rid of the mal-investment and you need to get rid of the debt otherwise you can't have economic growth and that is what they refuse to accept.
Hudson: And just to that point we have a question from the audience from Pat Meyer on housing which gets to just the point about some of the things that may be holding back the economy.
Meyer: Pat Meyer, Pella Corporation. Manufacturers have a considerable stake in housing and the construction industry and obviously with the recent recession it has impacted our business. As president what are you going to do to address the significant and rapid decline of the housing industry?
Paul: What the government needs to do is a lot less a lot sooner. The market should have been able to adjust in one year and we'd be back on our feet again. We need to get out of the mal-investment and the incentive to make mistakes. That is when you're subsidizing housing interest rates like Fannie Mae and Freddie Mac and you create too much credit you'll always get a bubble. So, you have to get rid of the bubble. You have to get those prices down where people will go back in and buy these houses, people can maybe buy a house again that have saved but to stimulate housing or keep the government involved in giving artificially low interest rates absolutely wrong. It will perpetuate the problem, you need to get that system where housing prices go down and then we'll go back to building houses again.
Hudson: You talk about artificially low interest rates in housing because of government involvement in Fannie Mae and Freddie Mac guaranteeing home loans. The treasury market, the Treasury Department can borrow at less than four percent, borrow that money for a decade, that's not being withheld, that is not being artificially held down, that is what the market is saying it can bear. You're a free market guy. The market is saying that interest rates ought to be low.
Paul: Yeah, but it's all artificial because the feds, they are pumping QE1, QE2, there's nothing market oriented with our interest rates and that is how you created the bubble. I mean, most everybody in Washington now can see this but Bernanke kept interest rates too low too long. So, what was the solution? Lowering to minus. We have an inflation not at 3%, it's much higher and interest rates, banks can borrow money for less than one percent. So, we're getting a negative rate. So, it's all artificial. We have -- most business people know that you don't put on wage and price control, very damaging to the economy. But generally speaking everybody accepts this notion that the price of money is not to be left to the marketplace and it is always regulated, it has been since we've had this Federal Reserve, much more so in the last 40 years. But if you regulate the price of money, believe me, you're going to have mal-investment, too much debt and you're going to have bubbles and you're going to have a recession. And if you don't understand the business cycle you can't solve the problem of a recession. That is my contention.
Hudson: Congressman, what does the short-term cycle look like under a Paul presidency if you're able to put in place the type of monetary policies that you are, leave alone the monetary policies usually in the garage of the Federal Reserve?
Paul: You have to deal with monetary policy -- so if I could have my way, it took about a year after World War II, '46 the unemployment rate was quite low, economic growth was booming, I would say a year, year and a half. But it will be prolonged. '08 up until now nothing has been solved.
Hudson: But the time of World War II you had a growing, youthful population. You didn't have the burden necessarily of Social Security and Medicare and you had American as the top economy, developed economy in the world. It's much different this generation.
Paul: But why? It's because we've wrecked the economy. We have young people graduating from college with a trillion dollars worth of debt and there are no jobs. So, there's a young population sitting there begging and pleading for jobs and that is what we have to do is create that. Now, I wouldn't say that the conditions are different. Markets work whether you have people, no matter what the age is or what the conditions are, on the market principle if you cut spending and taxes and regulations and do the right things the jobs will become available and jobs, there will be people there to work. Right now I still get people looking for workers coming in because our people aren't trained. So, yes, we have to have workers programs, a booming economy would have a requirement for more labor. But under these conditions it's not going to be solved, of that I'm certain.
Branstad: Congressman Paul, some of the young people in the Occupy Wall Street group and whatever are demanding that their loans be forgiven or dramatically reduced. How do you feel about that? What would that do? Would that make things better or worse?
Paul: Well, it would just be more interference. It was created by the government by Sally Mae and they shouldn't be forgiven, we should give them jobs so that they can start paying that debt down. But that is where our real problem is. But it's a mixed bag on Wall Street. Some are complaining they want their, they want more stuff handed out from the government and get out of their debt. Others they are demonstrating against the Federal Reserve. I sort of like the second half.
Hudson: You have talked about your desire to have a more transparent monetary policy coming from the Federal Reserve. The way that the terms are situated for the Federal Reserve Board governors, of course, are designed to cross over administrations and governments here in the United States. The chairman, Ben Bernanke, is due to hold a news conference tomorrow after an interest rate meeting. What would you like to hear from the chairman tomorrow?
Paul: He was resigning. (applause) That he's going to throw in the towel and say I am very sorry. Keynesian economics and place controls on money absolutely doesn't work and everything we've done the last four years really hasn't solved our problems.
Hudson: And then after the stock market explosion we've seen in October what happens to capital prices?
Paul: What happens to capital ...
Hudson: Capital prices.
Paul: With, you mean after what?
Hudson: After your resignation.
Paul: Well, it's going to be steady, healthy growth but it would be based on value, it will not be based on speculation. You won’t see up 300 points one day and down 400 the next day because that is not value, that's pure speculation but you have to have a sound currency. The currency is the measurement of value and if the currency isn't sound this is what you have. Price fluctuate because it is the currency that is unsound and internationally that is the case. We're witnessing the destruction and the elimination, the end stages of the dollar fiat standard of the past 40 years. It is a big -- it's worldwide, the dollar is the reserve standard of the world, everybody holds dollar is not a United States problem, it's a Greek problem, Spain problem, Japanese problem but it's a monetary policy, that is what has created the monster that we're dealing with today.
Branstad: A lot of what we're seeing, you know, the analysts are saying the stock market's fluctuation has a lot to do with what is going on in Europe and their huge debt problem. Is it your analysis that we're headed in that direction when you look at the debt situation in Greece and Italy and Spain and all of those European countries? Is that the direction we're headed if we don't change directions?
Paul: We are and it's going to be much bigger and much worse but right now the dollar is still respected compared to a euro and a yen and people will still take it. But the dollar is very vulnerable. The dollar bails out everybody and it bails us out domestically. We will be involved overseas with the European thing, they say no but we're in the IMF, we bail out, there's a limit to how much weight you can put on the dollar. When the crisis hit in 2008 the fed was very much involved. We did get some information, they dealt with $15 trillion worth of credit. Congress only messed around with the simply little trillion dollars that they gave away to their friends. $15 trillion, $5 trillion of it went to foreign central banks and foreign governments and they didn't want to tell us a thing. That is why you have to have transparency and the American people are with me on that because the percentage of people that want transparency of the fed about 68%. So, I think that's very healthy.
Hudson: Congressman Paul, thank you for your comments, appreciate it.
Paul: Thank you very much. (applause)