Ron Paul: How the Fed’s “Wise Gurus” Devastate America

by Ron Paul

One of the most enduring myths in the United States is that this country has a free market, when in reality, the market is merely the structural shell of formerly free institutions. Government pulls the strings behind the scenes. No better illustration of this can be found than in the Federal Reserve’s manipulation of interest rates.

The Fed has interfered with the proper function of interest rates for decades, but perhaps never as boldly as it has in the past few years through its policies of quantitative easing. In Chairman Bernanke’s most recent press conference he stated that the Fed wishes not only to drive down rates on Treasury debt, but also rates on mortgages, corporate bonds, and other important interest rates. Markets greeted this statement enthusiastically, as this means trillions more newly-created dollars flowing directly to Wall Street.

Because the interest rate is the price of money, manipulation of interest rates has the same effect in the market for loanable funds as price controls have in markets for goods and services. Since demand for funds has increased, but the supply is not being increased, the only way to match the shortfall is to continue to create new credit. But this process cannot continue indefinitely. At some point the capital projects funded by the new credit are completed. Houses must be sold, mines must begin to produce ore, factories must begin to operate and produce consumer goods.

But because consumption patterns have either remained unchanged or have become more present-oriented, by the time these new capital projects are finished and begin to produce, the producers find no market for their goods. Because the coordination between savings and consumption was severed through the artificial lowering of the interest rate, both savers and borrowers have been signaled into unsustainable patterns of economic activity. Resources that would have been used in productive endeavors under a regime of market-determined interest rates are instead shuttled into endeavors that only after the fact are determined to be unprofitable. In order to return to a functioning economy, those resources which have been malinvested need to be liquidated and shifted into sectors in which they can be put to productive use.

Another effect of the injections of credit into the system is that prices rise. More money chasing the same amount of goods results in a rise in prices. Wall Street and the banking system gain the use of the new credit before prices rise. Main Street, however, sees the prices rise before they are able to take advantage of the newly-created credit. The purchasing power of the dollar is eroded and the standard of living of the American people drops.

We live today not in a free market economic system but in a “mixed economy”, marked by an uneasy mixture of corporatism; vestiges of free market capitalism; and outright central planning in some sectors. Each infusion of credit by the Fed distorts the structure of the economy, damages the important role that interest rates play in the market, and erodes the purchasing power of the dollar. Fed policymakers view themselves as wise gurus managing the economy, yet every action they take results in economic distortion and devastation.

Unless Congress gets serious about reining in the Federal Reserve and putting an end to its manipulation, the economic distortions the Fed has caused will not be liquidated; they will become more entrenched, keeping true economic recovery out of our grasp and sowing the seeds for future crisis.

  • http://www.youtube.com/profile?user=PistolPackingPatriot PistolPackingPatriot

    Because Honey Boo Boo, Dancing With The Stars and MLB are way more important to Americans. Also, because the media are all controlled by the same puppetmasters who control romney and Obama. Just google “Operation Mockingbird.” We only hear what they want us to hear, and Ron Paul is a “nut job.”

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  • http://www.youtube.com/profile?user=RapsAlive RapsAlive

    Vote Gary Johnson!

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  • Surfisher

    Voting for the lesser of two evils, still gets you evil.

    Has anyone noticed the Barack creature looks more and more like a chimpanzee, and the Mitt creature like a statue in Madame Tussaud’s Wax Museum…and that both are liars and cheats that hate Free Americans!

    So, are you going to vote for Plastic Man or Monkey Boy…hoping whichever one of these evils “wins” will destroy our Free Nation at a slower pace…?
    ————————————————————————–

    Or, are you going to take a stand against these two anti-American subhumans, and vote your conscience instead!

    Gary Johnson is THE ONLY ONE TO GET YOUR VOTE — if you are a Real American and want to save our Nation!

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  • Kip Spelling

    I don’t get it? Ron Paul is either right or wrong. If the country is really in trouble, how can I throw away my vote? I figure my vote is more important now.

    If Obama wins, will there even be a 2016 election?

    I wanted Ron Paul, but am not just going to abandon my country to make a point. Romney is not a perfect candidate and I hate making the “lessor of two evil” argument, but it’s more than that. This really comes down to, is it over? If you really think the US will fall and your last, final message is hey I will vote for Ron Paul, then maybe you don’t get it.

    It sounds to me like you have given up.

    I wanted Ron Paul, did not get him, so I got my name on the ballot in my district for committeeman and will work to support candidates that share Ron Paul values. Stop feeling sorry for yourself, and get out there and do something.

    Fellow Libertarians, don’t punish our children by allowing Obama to rule over us and destroy the constitution for another 4 years.

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  • http://www.youtube.com/profile?user=jonathanminase jonathan minase

    is that no then shoot….

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  • http://www.youtube.com/profile?user=LailaStarss Laila Starss

    why isnt ron paul in the news?

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  • http://www.youtube.com/profile?user=SunnyAndSummer SunnyAndSummer

    why isnt ron paul in the news?

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  • http://www.youtube.com/profile?user=Chris Chris

    Freedom through strength.

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  • http://www.youtube.com/profile?user=simstick simstick

    Freedom through strength.

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  • http://www.youtube.com/profile?user=Chris Chris

    Only as a write-in. He ran as a Republican.

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  • http://www.youtube.com/profile?user=simstick simstick

    Only as a write-in. He ran as a Republican.

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  • http://www.youtube.com/profile?user=tubeviewerX20 tubeviewerX20

    DON’T BE A FOOL!!! Support Ron Paul, his policies, and support Liberty candidates in your state, but VOTE FOR ROMNEY! Granted he’s Establishment, but Obama has some really fucked-up shit planned for America. Let’s focus on 2016. Just bite the bullet and don’t vote for Gary Johnson like a fucking idiot and doom the United States to a point of no return.

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  • http://www.youtube.com/profile?user=tubeviewerX20 tubeviewerX20

    DON’T BE A FOOL!!! Support Ron Paul, his policies, and support Liberty candidates in your state, but VOTE FOR ROMNEY! Granted he’s Establishment, but Obama has some really fucked-up shit planned for America. Let’s focus on 2016. Just bite the bullet and don’t vote for Gary Johnson like a fucking idiot and doom the United States to a point of no return.

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  • http://www.youtube.com/profile?user=afreeworldwithoutlaw afreeworldwithoutlaw

    no where in the world does the federal reseve effects people’s livelyhoods than Australia. A soposedly utopic land owned by the Bitch Victoria.

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  • http://www.youtube.com/profile?user=AuntyLarn Aunty Larn

    I was just watching the Romney v Obama debate and needed to hear someone talk some sense….so im here

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