Former U.S. Congressman and Presidential candidate Ron Paul told CNBC in an interview that Detroit is just the first of the major cities in America to go bankrupt, and citizens should be prepared to buy gold in the face of a collapsing dollar.
"We're going to see more Detroits, and eventually the government of the United States will be somewhat similar to Detroit, because people will give up their confidence in us, they'll give up confidence in the dollar, and eventually they'll give up confidence in our military. And then you'll see some real, real changes in this system, which has been built on a fiat dollar for the last 40 years," the former U.S. representative said on Tuesday's "Futures Now."
He expects people to flee to gold to preserve their wealth as the dollar is devalued by the rest of the world, causing the gold price in dollars to hit reach unheard-of heights. "As long as we have excessive spending and excessive computerized money, you're going to see gold go up." Paul said.
Paul believes that as more cities fail and more people lose their jobs and pensions, the more money the Federal government will print, and eventually the dollar will collapse. However, his belief that the government will bail out mismanaged cities like they did for the banks might be misplaced, at least in the short term.
Congressional leaders in both houses have said that there will be no bailout for Detroit from Washington. Even Democratic Senator Carl Levin of Michigan, a former Detroit councilman said that there will be no new programs enacted to rescue the failing city. He urged officials to seek help through existing Federal programs.The White House issued a press statement that said in part that Detroit's insolvency was a local problem for local leaders and creditors to handle.
Senator Richard Shelby of Alabama, leading Republican in the Senate Appropriations Committee, agrees with Ron Paul, in that Detroit is just the first to fail. "What's happening in Detroit is going to happen in a lot of our cities. They're losing their tax base, have eroding schools. It's a tough situation." Shelby may sound more moderate than others in Congress, because Jefferson County, the most populous state in Alabama, filed for bankruptcy protection in 2011, leaving many of his constituents in the lurch. Home to the state capitol of Birmingham, Jefferson County's bankruptcy was the largest municipal bankruptcy in America before this week's filing by Detroit.