Ron Paul: QE2 Signals the Fed’s Desperation

Ron Paul weighs in on the Federal Reserve’s last-ditch efforts to boost the economy by printing more money.

Date: 11/08/2010


Neil Cavuto: With the President defending Ben Bernanke to the world, as Ben defends his latest moves to the world as a necessary step to boost the economic recovery for the world. Texas Congressman Ron Paul know how to end all of this defending: just end the Fed. Period. He joins me on the phone. Congressman, good to have you back.

Ron Paul: Good to be back with you, Neil.

Neil Cavuto: Now I know last time we chatted, sir, you were not a fan of just sort of like making a department store out of the Federal Reserve, but that there’re other more useful things it could take on. I assume buying 600 billion dollars’ worth of government securities ain’t one of them.

Ron Paul: Hardly, hardly. He’s not there to destroy the value of the money, he’s supposed to be there to protect the integrity of money. So no, this is foolishness, it’s going to do only harm. He’s been trying it for a couple of years now and it hasn’t worked. I don’t know how many more years he’ll get away with doing this before people wake up and say, “He’s going on the wrong track. He is going in the wrong direction”. But so far, you know, at least now I think there are more questions. A year-and-a-half or 2 years ago people hardly asked 1 question, now they’re asking more questions and holders of dollars are more concerned, and rightfully so, they should be concerned.

Neil Cavuto: But, congressman, what are his options? The argument for him doing this, whether you agree or disagree, is that he can’t lower interest rates anymore; they’re at zero. I guess he can give us a negative return. But the fact of the matter is this is about the last trick pony in his arsenal. What do you make of that?

Ron Paul: Yea, well, its desperation is what it is. And I think it does as much harm psychologically because it means that he has nothing else that can be done, and it means he has no real desire to return to the market place. I mean, if we want to have a market economy, we have to liquidate debt and get rid of all the malinvestment. We have to get market interest rates, we have to get people saving money. We have to reduce regulations, we have to reduce taxes.

Neil Cavuto: All of these efforts the Fed has undertaken, from lowering rates to buying back to the tune of trillions of dollars over the years, all this paper… Now I guess the argument for it is, “Oh, things will be a lot worse if we didn’t, we’ll never know.” But what then could the Fed do?

Ron Paul: Well, nothing would be better than what they’re doing. What they have to understand is they shouldn’t be buying up bad debt. I mean, people who’ve had illiquid assets floating around and we have a financial crisis because nobody could use them anymore – but to buy them up with new money, dilute the value money of the money, stick it to the American people with the coming inflation – at the same time with the assets of bad debt – it used to be we had gold and silver to back up our currency, then we had treasury bills. Now we back them up with illiquid mortgage debt.

Neil Cavuto: You know, I tip my hat to the congressman, because very early on before you were this presidential candidate sensation, people forget that you really knew your stuff in grilling Fed chairmen. You were merciless. You were like watching Mike Wallace on steroids. And one of the things I enjoyed about those gives and takes is that you cut to the core of the issue. The emperor sort of had no clothes. I alluded to that in the beginning here. The world is catching on to something you seemed to grasp years and years ago. That in itself is dangerous, isn’t it?

Ron Paul: What? The world catching up to me is dangerous?

Neil Cavuto: Well, no. But the world now sensing that Ben Bernanke has no clothes.

Ron Paul: Oh yeah, that is true. When he could do this and everybody ignored it, you know, it wasn’t as harmful. Reactions are crucial. And the reactions now are negative. Just last week it surprised me, and even to the point where people say, “Hey, maybe we should be talking about gold again”. You know, this is pretty amazing but it’s something that I’ve always anticipated, and you never know when it will come because if you really study fiat money over history, it always ends. Sometimes it lasts 20 years, sometimes 50, but it usually ends. Gold always lasts. Gold is the ultimate money, it’s been here for 6000 years and you can’t repeal it. I remember one time asking Greenspan – I said, “You’re repealing history”. He said, “I realize that”, he conceded what I was saying, but he said, “I believe, we as central bankers, have learned to make paper money act as if it were gold”. And I said, “Well, good luck, because it doesn’t work that way”, and I think that’s what they’re recognizing. But they’ve failed, central economic planning through monetary affairs, fixing interest rates and doing all the things they do; buying up bad assets. Really, it doesn’t seem that complicated. It never seemed that complicated to me. I talk to a lot of young people (high school kids and college kids) and it seems that it’s not a complicated issue that just doubling the money supply doesn’t create wealth, it just lowers the value of the currency. Most people would realize that if you doubled the number of shares in a stock company, would everybody be twice as rich? No. The stock prices…

Neil Cavuto: That’s an excellent analogy. And again, whether people agree or disagree with you, you were way ahead of this whole debate. I mean, way, way ahead. Congressman, a pleasure, thank you.

Ron Paul: Thank you, Neil.

Thanks to Kathleen Keane for proofreading this transcript!

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