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.

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185 Comments:

  1. As time goes on, the majority will be BEGGING for a Ron Paul.

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  2. RON PAUL 2012!!!!

    Vote Ron Paul and restore America! Not Ocrappa or Mitt The Idiot!

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  3. Ron Paul never talks about the alternatives to his free market ideals. The devastation associated with a deflationary debt spiral (which is what he advocates) would be enormous, thus it is appropriate for the authorities to take every action to avoid such a dire circumstance.

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  4. You heard Ron Paul was a free mason. At least you didn't accuse him of being a free mason.

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  5. not has son i meant his son

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  6. i am wondering why you are asking , didn´t you saw how has son switched the sides ? and didn´t you see how ron paul stopped his agenda for the sake of his son ?
    Ron Pail is cheater , if he where authentic he would have done his third party , this was a special strategy of the establishment to combine all the votes for ron paul and then let him vanish in thin air, by the way i heard that ron paul is a free mason , is there anyone so naive top believe this man? i certainly not !

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  7. Make sure you remind the sheep as they are led to the slaughter that they didn't vote for this man who would have stopped it..

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  8. yes you are right.. i can tell you have information obesity.

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  9. huh?

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  10. Ron Paul is my president.

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  11. Dear Dr. Paul:
    We need you back immediately-our country is on the the brink of total economic collapse and the war drums are beating harder than ever.
    The American people are face to face with Martial Law b/c we are trying desperately to keep our Constitutional Liberties that was fought & died for by our founding fathers.
    Our beloved country is under a fascism rule and is controlled by Banksters and huge corporations.
    We protest peacefully and get arrested .. please come back and help us!

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  12. what the f# wrong with you. Ron Paul was fighting
    drug war for years. FED. spending. CIA. house bubble.
    he predicted all issues.
    why would he be a sellout?
    if Ron Paul was a president we wouldnt have 2008 crisis.
    I think it's good enough for me.

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  13. "all humans are stupid sell outs"

    Hello fellow sellout. Stupid is as stupid does. 😉

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  14. "no off curse not it is simply a treater and his opportunistic son who by the way lost because they are so cheap that it would be an insult to the american intelligence to elect such vacuum head ."

    Off course? Treator? How about demonstrating some of that American intelligence and perhaps endeavor to parlay something less vacuous.

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  15. Ron Paul is fake sell like his brother the ass kissing retard

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  16. who ? paul what. who ron ? who is that ? a new hamburger ? maybe some new tortilla ? no off curse not it is simply a treater and his opportunistic son who by the way lost because they are so cheap that it would be an insult to the american intelligence to elect such vacuum head .

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  17. and you are far from alone. If there is ever to be "blood in the streets of Boston" again, we will do what is necessary, but our constitution also gave us other ways to maintain and/or restore liberty. Lets thoroughly exhaust those before thinking about armed resistance.

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  18. The American people got ripped off by the GOP! This could have been the man with the plan.

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  19. Ron Paul is an actor .. he is as fake as obama or any one.. all humans are stupid sell outs.. good luck people that is what you want? that is what you get.. a hell of sell outs fuck you retards.. dont act like its not you i am talking about you fake ass retard bitch

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  20. Paul = sell out family

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