Ron Paul appeared on CNBC to warn that a US dollar currency crisis is inevitable. The host tried to zero-in on a specific time frame for a crisis, but Dr. Paul emphasized that the catalyst for such an event will be an unpredictable change in investor psychology.

Most of the time these things [currency crises] are unforeseen, and most of the time there is a psychological element and a panic. If you have unsoundness and there’s no foundation, [and] it’s just held together by confidence, what happens when the confidence is gone?”

The host’s insistence on a specific time frame is a perfect example of the very problem Dr. Paul lays out. Since the markets can move quickly, both investors and central bankers get caught up in a short-term mindset. The stock market becomes the barometer of economic health, and long-term effects of monetary policy are largely ignored. When those effects finally emerge, investors react quickly and drastically, because they did little to prepare. Dr. Paul points out that this is exactly the problem the world faces today – psychological factors play a larger role than economic fundamentals.

Video Length: 00:03:39

Highlights from Dr. Paul’s interview:

“Most of the time these things [currency crises] are unforeseen, and most of the time there is a psychological element and a panic. If you have unsoundness and there’s no foundation, [and] it’s just held together by confidence, what happens when the confidence is gone? Something might happen in Greece. Who knows what will happen there. It may have ripples. Did anyone warn us about 2007, 2008, and Lehman Brothers? Nobody warned us about that. The malinvestment was there. It’s all out there, and it’s very, very fragile. To be confident… is to be in denial…

“There’s going to be some international, economic, or geo-political event. Right now, the price of oil – how many people predicted the price of oil would be down to $50 a year or so ago? Why is Saudi Arabia selling dollars like crazy and selling their assets just to get by? All the petrodollars are being brought in at a rate for some countries faster than they did in 2008 and 2009…

“I think in the next few years. The important thing about Austrian economics is they can sense trends. They know what malinvestment is. They know what too much debt is. They know that corrections always come, which are corrections from the inflation by the Federal Reserve system. The one thing… is that you can’t predict the timing of the event. You know that the corrections have to occur, but you don’t know what year or what date it is because of the psychological factor…

“Right now, there’s confidence in the marketplace, but there’s no confidence in investing, in creating new jobs right now. The confidence factor is something you cannot measure, but you can measure the degree of debt and the degree of malinvestment. In time, it has always happened that there will be a correction. Right now, the markets have tried to correct things from ’08 and ’09, but the correction has been prohibited. Just like in the depression, we prohibited and delayed the inevitable. Japan has done the same thing. Right now, we do not have a healthy economy, because we do everything to perpetuate debt, increase debt, increase printed money, increase regulations – and think they can compensate for all the mistakes of the Federal Reserve.”