Blame the Federal Reserve, Not China, for Stock Market Crash

written by ron paul

sunday august 30, 2015

Following Monday’s historic stock market downturn, many politicians and so-called economic experts rushed to the microphones to explain why the market crashed and to propose "solutions” to our economic woes. Not surprisingly, most of those commenting not only failed to give the right answers, they failed to ask the right questions.

Many blamed the crash on China’s recent currency devaluation. It is true that the crash was caused by a flawed monetary policy. However, the fault lies not with China’s central bank but with the US Federal Reserve. The Federal Reserve’s inflationary policies distort the economy, creating bubbles, which in turn create a booming stock market and the illusion of widespread prosperity. Inevitably, the bubble bursts, the market crashes, and the economy sinks into a recession.

An increasing number of politicians have acknowledged the flaws in our monetary system. Unfortunately, some members of Congress think the solution is to force the Fed to follow a “rules-based” monetary policy. Forcing the Fed to “follow a rule” does not change the fact that giving a secretive central bank the power to set interest rates is a recipe for economic chaos. Interest rates are the price of money, and, like all prices, they should be set by the market, not by a central bank and certainly not by Congress.

Instead of trying to “fix” the Federal Reserve, Congress should start restoring a free-market monetary system. The first step is to pass the Audit the Fed legislation so the people can finally learn the full truth about the Fed. Congress should also pass legislation ensuring individuals can use alternative currencies free of government harassment.

When bubbles burst and recessions hit, Congress and the Federal Reserve should refrain from trying to “stimulate” the economy via increased spending, corporate bailouts, and inflation. The only way the economy will ever fully recover is if Congress and the Fed allow the recession to run its course.

Of course, Congress and the Fed are unlikely to “just stand there” if the economy further deteriorates. There have already been reports that the Fed will use last week’s crash as an excuse to once again delay raising interest rates. Increased spending and money creation may temporally boost the economy, but eventually they will lead to a collapse in the dollar’s value and an economic crisis more severe than the Great Depression.

Ironically, considering how popular China-bashing has become, China’s large purchase of US Treasury notes has helped the US postpone the day of reckoning. The main reason countries like China are eager to help finance our debt is the dollar’s world reserve currency status. However, there are signs that concerns over the US government’s fiscal irresponsibility and resentment of our foreign policy will cause another currency (or currencies) to replace the dollar as the world reserve currency. If this occurs, the US will face a major dollar crisis.

Congress will not adopt sensible economic policies until the people demand it. Unfortunately, while an ever-increasing number of Americans are embracing Austrian economics, too many Americans still believe they must sacrifice their liberties in order to obtain economic and personal security. This is why many are embracing a charismatic crony capitalist who is peddling a snake oil composed of protectionism, nationalism, and authoritarianism.

Eventually the United States will have to abandon the warfare state, the welfare state, and the fiat money system that fuels leviathan’s growth. Hopefully the change will happen because the ideas of liberty have triumphed, not because a major economic crisis leaves the government with no other choice.
  
Originally Posted on the Ron Paul Institute
  

Meltdown seven years on...Congress and the Fed Refuse to Learn From Their Mistakes

written by ron paul

sunday september 27, 2015

  

This month marks the seventh anniversary of the bursting of the housing bubble and the subsequent economic meltdown. The mood in Congress following the meltdown resembled the panicked atmosphere that followed the September 11th attacks. As was the case after September 11th, Congress rushed to pass hastily written legislation that, instead of dealing with the real causes of the crisis, simply gave the government more power.

Just as few understood the role our interventionist foreign policy played in the September 11th attacks, few in Congress understood that the 2008 meltdown was caused by the Federal Reserve and Congress, not by unregulated capitalism. Not surprising to anyone familiar with economic history, the story of the 2008 meltdown starts with the bursting of the Fed-created tech bubble.

Following the collapse of the tech bubble, the Fed began aggressively pumping money into the economy. This money flooded into the housing market, creating the housing bubble. The Bush Administration and the Republican Congress also added fuel to the housing bubble. These so-called “free-market” conservatives expanded federal housing programs in hopes of creating an “ownership society.”

If Congress understood the Austrian theory of the business cycle, it would have allowed the recession that followed the housing bubble’s inevitable collapse to run its course. Recessions are the economy’s way of eliminating the distortions caused by the Federal Reserve. Attempts by Congress and the Fed to end a recession via inflation and government spending will only lead to future, and more severe, economic downturns.

The corporate bailouts, government spending, and money creation via quantitative easing that Congress and the Fed have engaged in since the fall of 2008, have failed to produce even the illusion of prosperity. The daily experience of most Americans shows that the government’s doctored statistics drastically understate both unemployment and inflation.

This is not to say that no Americans have benefited from Federal Reserve policies. Even Donald Trump has called quantitative easing “a great deal for guys like me.” Much of the growth of government over the past seven years, from the bailouts to the increases in military and domestic spending to Obamacare, has also benefited politically-connected crony capitalists.

The Federal Reserve’s continued delay of an interest rate increase suggests that, contrary to its public statements, the Fed understands that the economy has not recovered from the meltdown and is on the brink of another major recession. Fear that the Fed is not being fully forthcoming with its view of the economy is one reason the stock market declined following the Fed’s recent decision to once again postpone increasing interest rates.

Learning the full truth about how the Fed evaluates the economy and its plans to respond to another downturn are two reasons why it is important to pass the Audit the Fed bill. 

A vote on Audit the Fed would probably be the only good thing to occur in Congress this year. A Congress that cannot defund Planned Parenthood is unlikely to make any serious cuts in spending. Instead of waiting for politicians to do the right thing, those who know the truth must spread the ideas of liberty as far and wide as possible. Only when the teachings of the Austrian school are embraced by a critical mass of Americans will Congress cut warfare spending, cut welfare spending, and audit, and then end, the Fed

Article first published on the Ron Paul Institute Website
 
    

Real Charity Is Voluntary

By Ron Paul   -   9/25/15
  

I have a lot of mixed feeling about the Pope's recent visit to Congress. I'm not necessarily opposed to it, but I really don't like it when spiritual leaders get involved with promoting ideas that I believe are detrimental to the people. 

When the Pope promotes big government programs and government co-opting charity, it reflects a lack of understanding of how markets work. If you're really concerned about the poor, you're not looking for government redistribution of wealth. 

At one time, the churches and synagogues in the U.S. fought hard for separation from government. They did not want to be co-opted in helping those in need.

I can relate to this with my own experience. My parents were always involved with Meals-on-Wheels. They were involved for many years, and it was always voluntarily done through the church. But towards the end, when my Dad was in his 80's or 90's and still making the trips, he became disappointed because he said: "You know...now government's getting involved." It didn't collapse Meals-on-Wheels, but to my Dad, it was part of his church work.

Think about our hospitals. How were the great hospitals started? Through the churches and voluntarism. There was no great federal funding for our hospitals. The same goes for our universities. So many of us have sadly given up on the fact that this stuff happens without the force of the government.

A real understanding of free markets and voluntary transactions is sorely lacking today. We've lost the ability to believe in ourselves, and have fallen for the lie that governments can solve our problems. The trend can be reversed, and it has to be reversed, in order for us to get out of the giant mess that we're in.

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