Yesterday, the Fed announced that they now have a Facebook Page. As they continue their propaganda efforts, Ron Paul’s Myth-Busters gives you the real truth about The Fed. You won’t find this on Facebook. Don’t miss it!
Ron Paul: Hello everybody and thank you for tuning in to the Liberty Report. Today is the day we do Myth Busters and our co-host is Chris Rossini, who is also the editor of the ronpaullibertyreport.com. Chris welcome to the program.
Chris Rossini: Good morning Dr. Paul. Great to be with you.
Ron Paul: Good. I understand that we will be talking about the Fed and I can assure all the viewers that we are not going to change our position. We still believe strongly that we should end the Fed. Let’s go ahead and talk a little bit more and see how many more people we can convince that the Fed is unnecessary.
Chris Rossini: Yes, actually news came out yesterday the Fed created a Facebook page. obviously they believe they need to work on their public image. Thanks to you for that actually. On this show we are going to talk about some of the stuff that you won’t find on the Fed’s Facebook page. The first topic is that the Fed actually rewards failure. Now, in a free market system, which we don’t have because we have the Federal Reserve.
Profits and losses are supposed to guide businesses and entrepreneurs as to where resources should be applied and where they should be removed. While the Fed comes in and they are able to bail out those who come up with losses if they are considered too big to fail. So, please talk about the moral hazard that the Fed creates and the economic waste that they reward with their bailouts.
Ron Paul: Yes and I think the Congress cooperates with the Fed on this, because they tend to support the bailouts, but the Fed is responsible for many of the problems and one of their goals is not to take care of the middle class and make sure that we have a healthy economy, although that is their claim, stable money, stable prices and a booming economy. It never seems to work out that way. What they do is they use their monopoly powers as directed by the special interest, which would be the large corporations and the banks and the politicians who need money and they don’t have to be responsible and this causes distortion, because as we’ve talked about so often, it distorts interest rates and the system encourages people to make mistakes. That is the biggest thing, it’s called malinvestment and getting too much debt.
The market is very, very powerful, as a matter of fact it is ultimately always more powerful than governments, but the government can along with its monetary management control things and interfere with things for a long, long time. But, the market is always saying correction, too much debt, interest rates are messed up, too much malinvestment, so there has to be a correction, but what the Fed does, especially in later years when the malinvestment and the distortions are not gross, they can tinker around and seemed to improve things and people grow complacent and they go along with this. But, ultimately, things get grossly distorted, which is the conditions that we have today. When you think of interest rates at zero percent or minus percent and the debt is just runaway and the stock market is booming and is not due to economic growth. The spending isn’t due to savings. This has all been distorted by the Federal Reserve.
What the Fed does is they compound this, because they don’t want their friends to lose their shirt in the stock market, so they come and bail people out, both directly, with back-door bailouts and the Congress participates in this, but they don’t allow the liquidation of debt, because politically nobody wants to do this, the average person is convinced it is going to be detrimental to us, it will hurt the middle class, but exactly the opposite happens. The fact that the people trust the Fed and believe the Fed always corrects the distortions that the free market gives us and that they never are caught in the problem.
But, of course they are the problem with both the booms and the bust. They won’t allow the corrections and it’s a good example what Mises talked about that when governments, per se, have an intervention in the marketplace and that is essentially what the Fed does more so than probably anybody else in government and they cause more problems. Each time they interfere they create two new problems, so they have to have two new interferences and this is more or less what happens.
But, something dramatically shifted gears and of course in 1971 giving even more monopoly power for the Fed to print money and it’s a worldwide currency. Since the year 2000 things have been very, very bad and the people who got bailed out were the rich people who were able to make a lot of quick profits, in the market there was a bunch of gambling going on and the middle class of course didn’t get the bailout.
Yes, the Federal Reserve rewards failure, they have something called the President’s Working Group on Financial Markets, some people refer to it as the Plunge Protection Team. It is out in the open, it was designed unfortunately under the Reagan administration because the stock market crashed in ’87 and their purpose is to keep the stocks up and that is what is happening right now. Printing of money doesn’t go into productive effort or protecting the middle class, it goes into keeping the bond prices very, very high and stocks very, very high and of course, eventually the market rules and it will cause a correction, but in the meantime the Fed and everybody else involved are going to do everything conceivable to continue to reward these failures and not admit where the real problem lies and of course that’s the Federal Reserve and its power over money creation.
Chris Rossini: Yes. Next, the next thing that you will not see on the Fed’s new Facebook page is that they are the cause of the economic booms and busts. Not one of the causes, the cause. We’ve been through several of them in the last few decades, with the stock market, with the housing market, there is the bond bubble now and other bubbles, but the way that it is portrayed on the news and in the media is that these bubbles they just dropped from the heavens. Nobody knows what causes them and no matter how many times Dr. Paul you go on television or Peter Schiff to warn that it must end in the bust. They always claim afterwards nobody saw it coming and since nobody saw it coming, the Fed must now act as Superman and save us from this bust that they’ve created. Please talk about how they are the sole creator of the artificial booms and busts by trying to centrally plan the economy by creating money out of thin air and messing with interest rates.
Ron Paul: Yes, now they would like to blame the free market and capitalism for this and obviously it’s the Federal Reserve that causes the gross distortion. Mises argued that even a one percent inflation rate will distort and require a correction, but of course we have a lot more and the people would immediately react no, we are looking for more inflation, we want at least two percent and of course if you look at the figures, we have more than two percent in all prices, but the one thing is they are looking at the wrong number. Inflation means increasing the supply of money and credit and distortion of interest rates and they think, that is they, those individuals at the Fed think, we can manage the economy, we can make sure that we allocate credit if it is not happening automatically and then we will get Congress to participate and say that they should push more money by law into education or more money into housing.
They keep believing that they can do this, but the correction will always have to come and this is what is happening right now. They cannot get away with this idea that they can blame somebody else and right now, of course there is an effort to make this correction, but instead, the bubble keeps building. One pretense of knowledge that they have is first, that they can regulate the economy, second, through especially monetary policy, if they create money and lower interest rates, we can direct it and make people produce more and they think prices should go up, they can do that. If they want prices to come down, they can accomplish that.
The truth is, because the market is more powerful, the money doesn’t always go where they want it to go and that is a typical example what’s happening here. With the crisis of ’08 and ’09, the monetary base was 800 billion, now it’s four times that much, 3.2 trillion dollars and the people, I wonder why isn’t this really clobbering the Consumer Price Index, part of it is that is hidden, they don’t admit to it, but the other part is the money doesn’t go where the Federal Reserve thinks it should go. It has gone to building up stock prices and bond prices, because when interest rates are pushed down that means the price of the bond goes up, so there is a, even though the interest rates are very low, the price of the bond is huge. It has been stated that it has never been like this in the history of the world, to have zero or minus rates, so we are dealing with something that is very, very unique and it’s amazing that has gotten as far.
Some of this was all predictable that this would be the trend as of, as when the Fed was created and then of course, when we went off the domestic gold standard, then when we went off the international gold standard in 1971. It was predictable that things like this would happen, but it has lasted for a long time and there is more distortion and more debt than anybody ever dreamed that could happen.
The bubble is out there and there was a little bit of this misinterpretation in the 1920s because the Fed inflated and the stock market was booming and they were always reassured, the prices aren’t going up. Prices weren’t going up, productivity was up, which isn’t happening today, but productivity was up and kept prices down, so the things are OK. The only evil of putting too much money is when we lose control of prices going up too fast and we have runaway inflation, so they reassure themselves and say there is no bubble. 1929 and the 1930s proved that there was a bubble and they continued to do the wrong things and they prolonged it.
This is essentially done, but it’s a bigger deal right now, because the market broke in ’08 and ’09, so what did they do? The same thing that has been done in the past, at least since Keynesian economics has been invented. Same thing that Japan had done, the same thing that we did in the depression, is more of the same, print more money and run up more debt and spend more money by the Congress. It hasn’t worked before and they continue to do this.
My assessment of all this is the bubble is huge, the biggest ever, the markets will win out, there will be a bust and that will be a great challenge. Right now, the world is still willing to prop up the dollar and use the dollar and the dollar is still king and as long as there is this subjectivity and a trust in the dollar, they will be able to do this for a while longer, but eventually there is a race for the exits. Some of that is occurring already, but there is not a panic out of the dollar and because there is so few other places to go. But, what will happen is, of course, when the market declares victory over this management, the money will rush out in the things that are of a real value, like the value of the metals or land or buildings or whatever. There will be a lot of choices in the matter. Even the artwork is usually sought after under these conditions.
That has started, but it’s not going, the bubble is there and once again, we don’t blame free markets, we don’t blame liberty, we blame this corrupt system of monetary management, the monopoly control of the money by the special interests, which they manipulate in secrecy.
Chris Rossini: Yes. The next thing that you will not find on the Fed’s new Facebook page is that they fund wars and keep them going longer than would happen with sound money and actually help finance wars that would also never happen with sound money. Uncoincidentally, the same time the American government started to go on its warpath about a hundred years ago, it’s about the same time the Federal Reserve was created. We operate under the idea that people are naturally good, don’t want war, but we are virtually powerless when it comes to stopping them financially. Please talk about how the Fed funds wars and how it would work under sound money.
Ron Paul: If you look at all of history, there is a general statement that could be made that all wars are fought by inflation, this is increasing the money supply, diluting the coin. In the old days, it might have been argued a little bit less and sometimes they finance their war by conquering and taking all the gold and rewarding those who did the fighting. That is not what’s happened in the last several centuries. It’s all done by the manipulation of money and credit.
That is why gold is a friend of liberty and peace, because it would very, very difficult to convince the people we need to go and get Saddam Hussein and we need to go into Syria and we need to go into Libya and all this. If they really knew what the real cost were and the real cost will be the monetary cost, but the real cost of course, people don’t think about it and that is the people who get killed, the innocent people who get killed as a result of our invasions of these countries and the soldiers and the military personnel that we send over there, who are naively believing they are fighting for the Constitution and liberty and they suffer the consequences.
But, wars are fought with, in this day and age, with inflation. In the last couple hundred years when the countries, whether it would be England or the United States, they needed to go into war, it was there in our civil war period, certainly during World War II. What they do is they immediately suspend the gold standard, because that would limit the printing of money and they say national defense demands that we have to have the money. Yeah, it’s dangerous, there is a little bit of inflation that might come, but we have to do it. That means that really, that means to me that the people aren’t supportive of the war, because if they believed their country was threatened, sort of like if your house is threatened, you are not going to worry about nickels and dimes, you are going to defend your house and you are going to use whatever means. If the country is threatened, they cannot say we can’t afford to defend ourselves, but when you do these wars overseas and they are not truly in the national security, it is difficult to get people to cough it up.
So, you can say just raise taxes. No, that is not going to go over too big, so the people will be unhappy with that, so we will just borrow the money. You can borrow the money, there might be somebody, some of our citizens would loan the money to the government and they might be talked in these wars are worthwhile, but they still never get enough money and what they have to resort to is a collusion between the government and the people and the central bank and of course if you look at the history of the Federal Reserve, since 1930, it didn’t take many years for the Fed to be very much involved in financing World War I and the cycles and the problems started and the depression in 1921 and the inflation of the 1920s and the depression of the 1930s and then again inflation and the longer things went they need to get the engine of inflation speeded up. No gold reserves whatsoever, no silver in the bank and all these things. So, it was done on inflationary conditions, whether it was World War II or the Korean War.
If a country would live honestly with an honest currency, then you would have to borrow the money of the people, the people be willing to be taxed, if there was really a need for national defense, because you couldn’t print the money, because this is very necessary. If people would realize this, it’d be different. The other thing that is necessary for this conniving and this achievement can occur where the governments are able to talk the people into the war and all this borrowing and all. There has to be a war propaganda, because the instincts are against war and for peace and usually the people don’t wake up until a lot of people have died and there is a lot of tragedy from the war.
Right now, I would say we are sort of in those conditions, the people are tired of the wars in the Middle East and they got tired of the war in Korea, they got tired of the war in Vietnam, because of these conditions. But, the Federal Reserve are the ones that are able to finance this and this is the reason that if you want to curtail war, you have to have honest money and you have to have a much better understanding and the American people to be very cautious about war propaganda. Who is beating the war drums, even today, even though there may be a lot of Americans tired of the Middle East, there is people now beating the war drums to try to build up the antagonism with Russia and looking for a new place to have justification for the military industrial complex. But, the war propaganda is involved with the media, the politicians, the many of the so-called political scientists in our universities, the neoconservative movement and they are the war propagandists.
Unfortunately, the propaganda is a very powerful tool and hopefully we can continue to wake people up through the Internet and other methods in order for the people to know that mistakes are made and it’s hard to correct the mistakes after we are involved. It’s hard to say after they are in battle and fighting and killing each other and say this was a mistake, just walk away. no, by that time, people are so engulfed in total victory that nobody will consider that.
What we have to consider is the connection between the creation of money by the Federal Reserve and the enhancement and the ease with which we go to war.
Chris Rossini: Finally Dr. Paul, the last thing that you will not find on the Facebook page of the Fed is that they are rapidly secretive. We live in an upside-down time right now where the government is pretty much walled off and does everything secretively and meanwhile the citizens are supposed to live in a surveillance state where the government knows just about everything that we are up to at any time of the day. If it can be believed, the Fed is even more secretive than the government itself. They love to hide in the shadows. So, what are they hiding Dr. Paul?
Ron Paul: The most important thing they hide is keeping from the American people the beneficiaries, the ones who benefit when things are going more smoothly and you are thinking there is no crisis, but somebody is benefiting from that and that is the people who get to use the money first. Then, also, when the markets break and when the correction comes, it also hides the fact who gets punished the most, who becomes the victim and who gets the bailout. But, the area where the greatest amount of secrecy is is in their foreign transactions. They claim, just the other day they had the release of the minutes from six weeks ago and they are looking for one word or something that is going to change the markets and sometimes a change of one word can change the market to the tune of billions of dollars within seconds, because instead of maybe, it’s likely or something like this and that would never happen in the free market. None of that would go on.
The Federal Reserve is always there, they do not want us to know, especially exactly how do they turn 17 billion dollars during the bailout here just recently. Their friends got bailed out, governments got bailed out, big banks got bailed out, other central banks got bailed out and we just have a vague idea. We did get a little more information because of our efforts on trying to audit the Fed. But, we shouldn’t even have the Fed, but if we have it, we should know what they are doing. But, they are determined not to release any information about the agreements that they make, because it is a conspiracy of the money managers and we are in the driver’s seat because we have the currency and we still have the most gold and we still have the most powerful economy and therefore we can be the dictator whether it’s at the IMF or the freezing of assets, we are much involved with the Fed being able to freeze assets and that is usually directed by those free traders that say these are bad people, we are going to freeze assets, yet they claim they are free traders.
There is so much to be hidden and if we had sound money, it wouldn’t be run by a monopoly and the monopoly control of the money is very, very powerful and they want to keep that from the American people. There is a lot of special interests that benefit from this and to expose them would be something that they are not much interested in. We should continue until we are able to either get rid of the Fed or the Fed self-destructs. We should keep hitting hard at auditing the Fed and demanding that we know exactly what is going on.
The momentum is still there, we have been talking about this, I in particular have been talking for several decades, but even in the last five to ten years, a lot has been done about it and it continues. There is still a group in Congress that are determined that they will keep an eye on the Fed. As things deteriorate, this is going to become even more important, so the secrecy is of course the one of the most important things to deal with, because if we find out what exactly is going on, the momentum for the change in the system.
But, nevertheless, how it transpires and how it comes about, the monetary system that we have today, the dollar hegemony and the paper standard and the zero interest rates and the unbelievable deficits, it’s going to end. The sooner, the better. That is what I am looking forward to.
Chris I want to thank you today for being with us today on Myth Busters.
Chris Rossini: Thanks very much Dr. Paul.
Ron Paul: Very good and I want to thank all our viewers today for joining us and hopefully stay with us on this issue of the Federal Reserve, because some day we are going to get rid of the Federal Reserve. Thank you very much for being with us and come back to the Liberty Report soon.