Ron Paul: "What Has QE Wrought?"

Authored by Ron Paul via The Mises Institute,

The Federal Reserve has once again created an artificial and unsustainable economic bubble. Central planning still doesn't work, and the sooner we move to sound money the better.

Ron Paul discusses the monumental mess that The Federal Reserve has wrought.

Full Transcript:

The Great Recession began in 2007. It didn’t take long for the money managers to recognize its severity, and that a little tinkering with interest rates would not suffice in dealing with the economic downturn. In Dec. 2008, the first of four Quantitative Easing programs began which did not end until Dec. 18, 2013. Some very serious consequences of this policy of unprecedented credit creation have set the stage for a major monetary reform of the fiat dollar system. The dollar’s status as the reserve currency of the world will continue to be undermined. This is not a minor matter. As our financial system unravels, the seriousness of it will become evident to all, as the need to pay for our extravagance becomes obvious. This will make the country much poorer, though the elite class that manages such affairs will suffer the least.

By the time the QE’s ended, the Central banks of the world had increased their balance sheet by $8.3 trillion, with only $2.1 trillion worth of GDP growth to show for it. This left $6.2 trillion of excess liquidity in the banking system that did not go where the economic planners had hoped. Central banks now own $9.7 trillion of negative interest yielding bonds. The financial system has been left with a bubble mania, financed by artificial credit and unsustainable debt. The national debt in 2007 was $8.9 trillion; today it’s $20.5 trillion. Rising interest rates will come and that will be deadly for the economy and the Federal budget.

This inflationary policy is generated by the belief that there is no benefit in allowing the needed economic correction to the problems generated by the Fed to occur. The correction is what the market requires, not the resumption and acceleration of the dangerous inflationary policy that caused the bubble economy. It’s like giving a case of beer to an alcoholic to calm his nerves as he attempts to stop drinking. It should not surprise anyone that perpetuating a problem won’t solve the problem.

The obsession with a QE monetary policy has created a bubble economy of enormous size which one day will burst. The warning signs are everywhere, yet ignored. Political demands control policy; not common sense or sound economics. All major decisions are bipartisan and guarantee a continuation of current spending, taxing, inflationism, welfarism, and warfarism until the giant bubble bursts.

All recessions since the Great Depression were essentially caused by the Fed’s mismanagement of monetary policy and subsequently resolved by it with renewed vigor in monetary mischief by rigging interest rates and the money supply. This off and on process temporarily aided the economy, but structural defects multiplied. Debt accumulation, mal-investments, unfunded liabilities, welfare benefits, militarism, constant wars, uncontrolled government growth, and systematic attacks on our liberties, have continued unabated.

The people sense that a major crisis is fast approaching. Today’s Super Bubble economy, promulgated by the QE’s, must resolve itself. A continued program of spending and inflation, while financing even bigger government, will only exacerbate the social chaos that has already started. That is to be expected in a bankrupt nation. And the US is bankrupt! Eventually our dollar and credit will weaken, prohibiting us from living off others or our future generations.

Social conflict will add to the financial difficulties caused by the QE dangerous experiment. Trillions of new dollars created in the last decade is unprecedented and the full consequence of this policy is yet to be discounted. My concern is that it will be much more serious than most expect and few will be prepared to offer a solution -- other than to demand more government even if it’s at the expense of liberty, peace, and prosperity.

Prosperity, built on debt, inflation, and false government promises, is illusionary and can disappear quickly. It will be necessary that the people learn, or relearn, that debt is not wealth, paper is not money, free stuff is not justice, war is not peace, and government coercion is not liberty. Signs of social chaos are readily apparent and are a predictable consequence of the economic distortions created by the excesses of the QE bubble.

Inequitable wealth distribution becomes a problem in an economy regulated by Federal Reserve mismanagement. The wealthy do get wealthier and the poor do get poorer when a currency is debased, with the middle class suffering the most. The ability of the special interests to influence legislation to benefit from the distribution of newly created money, is legendary. Think: “military industrial complex,” “free welfare benefits,” “bank bailouts,” and early access to an inflated currency. All these items play a significant role in the accelerating disparity of wealth distribution between the top 10 percent and rest of the people. These problems will worsen and fuel social conflicts and anger.

The inequity, not being fully understood, causes those who feel cheated to become angry and to start thinking about the false promises of the Socialists. This, along with the large number of economic Marxists who have inundated our government-run colleges, presents a problem that feeds into the anger. It doesn’t take a lot of searching to witness the anger in action on the campuses, as expressed by both students and ...
2 Published By - Zero Hedge - 2018.01.13. 00:15
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