Ron Paul is one of the few politicians I have seen that understands economics. Here he is talking about credit and capital. Capital is vital for any nation to prosper. Savings, in which people forgo current consumption in order to invest in productive future endeavours, is how nations build wealth. Excess credit in the boom years caused the issues we are now seeing take hold on our economies. The market is currently attempting to unwind all this artificial credit as it was never based on prior savings, it was created out of thin air by fractional reserve banking operating in concert with the central banks. It created an artificial prosperity, in fact it actually has impoverished us. We are witnessing this market adjustment by certain lines in our production structure that seemed to be profitable during the boom being liquidated, releasing labor (unemployment). This process can not be stopped nor can it be 'softened' or corrected. When institutions try and stop this process all it does is make this lack of real savings worse and prevents the cure. It keeps discouraging savings and investments. It erodes the value of the capital that currently exists.
As I have said throughout the blog the idea that people should keep consuming just doesn't make sense, even when you don't know economic theory. If people just consumed and never saved to invest in productivity then how would we improve our material well being? Savings are the basis of human prosperity along with technology. They can not be created out of thin air by government and there is no shortcut to this process, it requires self sacrifice and hard work. I will post on a later date about the fallacies of savings, as savings are the way out of this mess along with the unwinding of this current credit bubble.