In 2009, Ron Paul laid out his argument against the Federal Reserve, identifying it as the primary wrongdoer behind the inflationary nightmare that has been maiming the American people’s purchasing power for decades. This is the result of easy money policies that generate boom-bust cycles within the economic order, leading to recessions weeding out unprofitable ventures. His solution is simple: abolish the Fed, and considering the implications of his ideas, I propose something similar that nobody has yet proposed in this rectangular corner of the Iberian Peninsula: axe the Bank of Portugal.
Every government promises to fight inflation, yet the cost of living perpetually rises. This trait isn’t unique to our democratic period, as both the Estado Novo and the First Republic followed these same disastrous recipes. Ideology matters little, so long it supports the constant growth of the state. Policymakers will blame climate change, conflicts in Ukraine and the Middle East, or Trump disrupting international trade by protecting national industries. There is always a scapegoat to deflect their own shortcomings.
But a basic understanding of monetary policy—widely absent in Portugal—destroys all these fallacious explanations. Yes, the central bank—a member of the European System of Central Banks—is responsible for the difficult times we’re living through, by expanding the money supply. To provide readers with a real-life example, I recently requested a fade haircut at my local barbershop and, to my dismay, had to pay almost 10 euros. Prior to the covid scamdemic, seeking the same service cost only 5.50 euros.
There’s the additional element of resource misallocation because interest rates are manipulated—fixing interest rates is another mechanism of central planning—leading to foolhardy investments that leaves society worse off. And since those investments don’t align with consumer preferences, bubbles burst once they become unsustainable, forcing a central bank to raise interest rates to contain price inflation. This is the creation of money out of thin air, giving a false impression of capital abundance. These are problems that are simple to solve if only political will existed.
Time preferences—as brilliantly explained by Böhm-Bawerk—stipulate that interest is not controlled by any public entity but by the preferences of the consumers or capitalists (present consumption versus future consumption); their decisions to invest and receive a bigger slice of the pie later or spending their capital in the short term. When time preferences are lower, the interest charged is also lower because the money supply has increased thanks to savings. Long-term investments encourage more risk, but the timid nature of businessmen in Portugal prevents this, as entrepreneurs are punished for taking initiative. Time preferences are a market signal to ensure resources are allocated efficiently.
Central banking has always been the main culprit behind the erosion of people’s income, whether through quantitative easing and low interest rates fixed by public authorities. Treasury bonds have been especially instrumental in driving up public spending in recent decades.
Let me explain this simply with a recent example. On June 11, the Treasury and Public Debt Management Agency (IGCP) publicly—but not publicly acknowledged by the media—announced the issuance of 1.167 billion euros in treasury bonds through a dual auction with maturities at 10 years (667 million euros at a yield of 3.003 percent) and 29 years (490 million euros at a yield of 3.785 percent). With the ECB lowering the deposit rate to 2 percent, commercial banks—although generating a modest interest on excess reserves—are encouraged to pursue more lucrative returns by lending or investing in assets like Portuguese bonds with higher yields, simultaneously making government borrowing cheaper.
In any case, most of the population hates taxes, so the government—a creature of habit feigning competency—follows the “safe” route: it acquires capital and financial assets to carry out policies by borrowing, paying back investors with interest. The high bid-to-cover ratios of 1.79 and 2.39 for the bond auction reflects strong investor demand, in fact offering to buy more bonds than currently available, because the “state”—unlimited in its coercive capabilities—will guarantee repaying investors, to the detriment of taxpayers. The IGCP, after all, is a state-owned enterprise created by the government of Pedro Passos Coelho (a politician championed by gullible liberals). I would even classify some of his policies as market socialism, just as a good social democrat following the creed Bernstein would laud. For 2025, the ICGP plans to issue treasury bonds totalling a grandiloquent sum 20.5 billion euros, in a bid by the newly-inaugurated cabinet of Luis Montenegro, to win the hearts and minds of the populace with worthless monopoly money.
When the debt matures in both 2035 and 2054, many of the decision-makers will already be dead or retired, condemned only by the wrath of history. The euro, as a currency, is rapidly losing value. If future governments monetize the debt, hyperinflation will truly manifest itself and rear its ugly head on society.
The accumulation of debt induces large-scale fiscal mismanagement against the people, with the powers that be not incurring severe punishments beyond electoral defeats, and (until May of 2025) the rotational system that allowed socialists and social democrats (both left-wing) to keep their political seats warm, ruling under the imaginary “consent of the majority.” Government time preferences are usually high, committing crimes in the name of “Social Justice” and “General Welfare” to extract as many resources as possible with minimal effort. Much of the population has been deceived, normalizing the absurd and ostracizing any sense of normalcy as madness. Stupidity becomes sacred.
Inflation is a silent increase that transfers purchasing power from producers to the beneficiaries of the state—which produces nothing and takes advantage of those who contribute to individual well-being and progress. The 2 million who voted for the Democratic Alliance (a coalition comprised of the Social Democrats and the People’s Party) want neither taxes nor inflation. Those who voted for the Socialist Party don’t know what they want; they wish to reap all the benefits without suffering the consequences. Therefore, taxes are postponed to younger generations, who pay for the sins of their parents. Debt traps those with insufficient understanding of economics and finance, who do not grasp the mistakes of their progenitors—who should serve as role models—to sustain the current caste system. This has the additional effect of driving away entrepreneurs, because their savings will be depleted. Business confidence is undermined, leading to less job creation, less wealth creation, therefore lowering living standards. As Keynesians shamelessly lie, relentless consumption does not equate to wealth, only poverty.
Since the only beneficiaries of such a policy are those who receive interest payments, especially corporations and companies with government contracts, this amounts to unadulterated corporatism. They are not exposed to market risks, eliminating any moral responsibility.
Until this cycle of endemic corruption ends, the state will continue with its institutionalized theft. It is ridiculous the enormous power the Bank of Portugal exerts on the country, with the governor earning a higher yearly wage than Jerome Powell.
Socialists and interventionists are skilled in selling their destructive worldview, claiming to defend the poor while hiding their disdain for them. Inflation drives the working class and middle class up against the wall, hurting the very people they’re meant to represent. We, too, must be clear about our vision: a vision of a prosperous Portugal, free from the supremacy of Lisbon and Brussels, unashamed of generating wealth and owning property without harassment.
In order to accomplish the task of abolishing the Bank of Portugal, commodity-backed currencies must be reintroduced. Gold is especially useful because it prevents states from inflating the money supply beyond their reserves. Deficit spending must also come to a definitive conclusion, removing the diabolical temptation to spend beyond our means. And private banks—in this scenario, banking cartels would have been dismantled—could issue their own currencies also backed by gold or other commodities, ushering in an era of a competitive banking market, working to retain customers through reliability, thus encouraging monetary stability. This was the case in the 19th century until the banking reform of 1891 made the state the sole issuer of banknotes in the country.
The EU does not have a gold standard, so the best option is abandoning the euro and the European Union, without re-nationalizing the Escudo as forces of the Left desire. Articles 115 and 295 of the constitution can be invoked into holding a referendum and although people still maintain a positive opinion towards the EU, many also recognize that prices have quadrupled since joining. By leaving the authoritarian EUSSR—European Union Soviet Socialist Republic—Portugal would be deprived of subsidies that maintain the country indolent, with future governors having more incentives into preventing the economy from becoming sedentary and instead more competitive on the global market. We need a Portexit and we need it now!
