Dr. Ron Paul discussed the future of the dollar on the Ron Paul Liberty Report this week. He believes that the value of the dollar is in a bubble that will eventually pop when the Federal Reserve is forced to raise interest rates.

The best measurement throughout history for the value of a currency is its relationship to gold… On the long run, it is in the interest of governments to make sure gold prices do not go up. During the 60s and the 70s, they did everything to dump gold and pretend gold was $35 an ounce… Even though gold may seem to be in the doldrums right now, eventually [it] will break out.”

Highlights from the video:

“Is the dollar healthy? Right now, the markets are saying the dollar is pretty good. Yet the other day, I was on CNBC and they were rather taken back because I had a different opinion. I thought the dollar was vulnerable. It’s way out of whack. It’s overvalued in many ways… I believe the dollar is in a bubble…

“The market is distorted, because…it is not a gold standard; it is a political system; it’s paper. Therefore, [subjective values] can have sudden changes. The housing bubble – it looks great when the bubble is being blown up and everybody has houses and the interest rates are low, but eventually it has to crack. This reserve currency in the dollar will have to make this correction…

“[The dollar is in a bubble] because of the way other countries have valued it. They think it’s very good, out of proportion to what it really is. But the trust is still there. The trust factor is very, very important…

“I believe we could be in a transition already. If you look at what foreign banks are doing… They essentially haven’t increased their holdings of Treasury Bills and our debt in the last two years… I think they’re worried about the dollar bubble in the future…

“Paper money never lasts. I remember bringing this up to Alan Greenspan before a committee. I said, ‘Well, if you can achieve this (that is, perpetuate this paper money)… you’re actually changing 6,000 years of history that you can make paper money true currency.’ He acknowledged that…

“[The financial media] always argues that there is no inflation. But what about stocks? Could those prices be inflated? The other day we heard about GE selling their property, which I thought was a hard asset you want to hold. They sell their property, get $50 billion and they buy their stock. The price of their stock goes up, and their executives get bigger bonuses. But where does $50 billion in credit come from? Did it come from savings? No. It is such a distorted system that we have and it won’t last. People will accelerate leaving the dollar…

“Nobody knows exactly when or what [the bursting of the dollar bubble] will look like. Generally speaking, the value of the purchasing power of the dollar will go down. I think that’s happening now, but it’s going to go down a lot more. The conventional measurement of inflation, the cost of living, that’s going to go up…

“In order for the dollar to survive, they have to raise interest rates. In some ways they ran into that in the 1970s. Interest rates went to 21% to save the dollar, Something like that could happen, but to predict who would get hurt the most – I think everybody is going to get hurt. Hopefully, the outcome will be that people will wake up, and recognize that this problems [is due] to the fact that we have a fiat currency…

“What has happened when we have this artificial system, is they destroy the most important instrument for dealing with the free market healthy economy, and that’s the signal we get from interest rates. This bubble has been built, because there has been no interest rate information for us. That’s why I see almost everything as distorted…

“The best measurement throughout history for the value of a currency is its relationship to gold… On the long run, it is in the interest of governments to make sure gold prices do not go up. During the 60s and the 70s, they did everything to dump gold and pretend gold was $35 an ounce… Even though gold may seem to be in the doldrums right now, eventually this will break out. When they lose confidence in paper, which they always do, hard assets will serve the interests of the consumers…”