Trump is not bashful about flipping positions. While campaigning, he correctly pointed out that we’re in a bubble and that The Fed is responsible for it. But as President, will Trump flip and call on Yellen to keep rates low, or even lower them? Will he call for more air to be blown into the bubble? Dr. Paul tackles this (and more) on today’s Myth-Busters!
Ron Paul: Hello everybody and thank you for tuning in to the Liberty Report. This is Friday and we do Myth Busters. Our co-host is Chris Rossini and Chris I understand we are going to be talking a little bit about the Federal Reserve today.
Chris Rossini: Yes. Good morning Dr. Paul. We are going to talk about the Fed who this week raised interest rates for the second time in Obama’s administration and we are only up to .5 percent, so the interest rates are still very low. We will start with Janet Yellen when she announced the rate hike, she patted herself and the Fed on the back, it was saying that they are very happy with the progress they made with nearly 90 months of zero interest rates. Those of us who understand Austrian business cycle theory don’t really see this as success, we actually see it quite the opposite, that perhaps damage has been done that is now going to have to be paid for. What do you think Dr. Paul?
Ron Paul: The first thing is progress from what and what are you comparing it to and I would say that there is not much progress. If you had problems back 8 years ago, I guess you could find some technical points and say there has been some progress, but you also have to have the other side of the ledger and that is what was the cost of it. We sometimes measure GDP. If you have ten billion dollars increase in GDP and it costs you 15 billion dollars in debt, you really haven’t increased GDP. That is sort of like if you go out and borrow money for a house and you buy a million dollar house and you borrow the money, your GDP didn’t go up a million dollars, so that is a big difference.
The whole fact is there are still a lot of problems. Over the years they created a tremendous bounce of credit and when you do that you have lower interest rates than they should be, so there is a lot of malinvestment, there is a lot of debt accumulation that you have to deal with, there is a lot of excess leverage. But, just this week we had a report where sales were down, retail sales were down and prices were up. That is introducing the notion that maybe we are moving into stagflation and that would be a very serious problem. She brags about the unemployment rate being under 5 percent, but boy you want to talk about a myth, it’s when you look at the real figures. We have 95 million people that are out of the workforce and the Labor Participation rate is high as ever and that is really not progress. But, she claims that the unemployment rate is less than 5 percent. If you go to the U6 figure that our Bureau of Labor Statistics put out, which is a government statistic, they say it’s actually ten percent if you count the people who have part time jobs.
But, then if you go to the private sector and ask John Williams, what his estimate is, he says it’s over 20 percent of unemployment. In one sense you can hype up the economy and the stock markets can go up and get a little bit of euphoria, but that is just ignoring what this election was all about, millions of people were unhappy and disgruntled and angry and they wanted radical change and they don’t believe these figures. So, I would say that we need a lot of room to go and we need a challenge on some of the analysis that they make, because they think low interest rates was a solution. That obviously was not the solution. But, now they are feeling a little bit better, because they are getting to the point where the official statistics are now starting to show that maybe they are devaluing the currency, that is stealing money and wealth from us at a two percent rate and that inflation of prices is a sign of a healthy economy.
Nothing can be more removed from reality than thinking that, because if you have a healthy free market economy and interest rates dictated by supply and demand of savings and credit, that would be one thing. But, to think that just because prices are going up it is good. If you have a healthy economy, prices go down, like TVs and computers and telephones, they go down. But, if you have a mixed economy and an interventionist economy and you have these factors in and you can’t go and look and say isn’t it wonderful about medical care, we’ve spent a lot more money on medical care, but we get a lot less for it. So, it is so fictitious, they distort these views, they lie to us about these statistics, just like they lie us into war.
But, I don’t think ultimately you fool the people, the people know, those people who are underemployed and they would like to be employed, they haven’t had a job yet, but they are all keeping their fingers crossed and hope they are going to get a job next year, but that remains to be seen because you have to change fundamental policies in order to do that and it means tax policy and regulation policy and monetary policy and all these things have to change, but then if you really want progress, that they can brag about, they have to do something which nobody is ready to do in Washington, because the promise is always great times just lie ahead. But, to get great progress, the Fed, the Congress and everybody else has to allow a correction, liquidation, get rid of the bad debt, get rid of the bad investments, that is what is not going to happen, so this progress report that they give us about being wonderful and therefore they can raise interest rates.
I think it’s going to be just total fiction, because even though the increase in the interest rates that we a little bit seen so far, it didn’t hurt the stock markets, so there is an euphoria there, but it did send a message to the bond market. The bonds in the last couple of months, their value have gone 2 trillion dollars and that is going to get a lot worse as they raise interest rates.
So, if the Fed raises interest rates like they claim they might next year, you are going to see lots of instability and even with the best intentions and even with some good moves, it is going to be a real hurdle to overcome the lack of progress that has existed these last 8 years and they are pretending that they have already had.
Chris Rossini: Yes and so many people sit around and they try to analyze every word the Fed says, but does it really matter and that is what we are going to talk about next and that is their outlook, what does the Fed think they try to tell us projections. In this complicated world with infinite variables, they have outlooks for us and they say they are going to raise rates next year. But, regardless of what happens, how much weight should we put into that Dr. Paul? Can’t they just change their mind and say x, y and z happened, so we are going to keep rates low again.
Ron Paul: I don’t think they know, they just are always talking for the moment and they think about what the report of the Fed will be and what the press conference will be like when it’s over with Yellen. They pretend that they think about the future, but they don’t know the future, they have no idea and the first thing is even if they pretended that they knew such things, they don’t know such things, they have no idea what is going to happen. They don’t know what the spending levels will really be. They should anticipate that they are going to go up and they don’t have any idea what the revenues will be because there are times when stock markets are high and they produce a lot of capital gains tax and the revenues are higher than they expect, but if there is a down turn in a weak economy, revenues are going to go down.
But, there is promises of big spending to go on on infrastructure and the military, so they can’t know what the money supply should be and what the interest rates should be and I just don’t think they know what the unemployment rate would be for instance. The unemployment rate is just under 5 percent, just isn’t true. They cannot say the unemployment rate is going to be such and such. They don’t know what the cost of unemployment is going to be.
I think that the Fed is sort of between the rock and a hard place on what they do and what they are going to do in the future and it is only for the moment, to try to send out an immediate message, what is going to do to the stock market and then it’s dismissed and the day after they make the next announcement and say when is the next announcement coming and they are anticipating. But, I think that this Fed is typical, I don’t think it’s any different than any others and they are money managers and they have all orchestrated, not all Yellen, but Bernanke and all, they have orchestrated something that has been totally unusual, totally new for the whole world. The reserve currency managers have inflated the currency, they have created so much new credit and so much disequilibrium out there and yet still you can portray this as progress and even those who know it isn’t true might say that is a message that he market may respond to, so we better be prepared, even though we know what’s going to happen.
For now, on the short run, we’ve just had a good dose of our drug, that is going to make us feel good, so we better go buy stock, but the markets rule and the market will rule and the Fed cannot rule. I think central banking has been totally discredit and it is going to be a lot worse for them, because I don’t believe the economy is going to be very strong, I believe it will turn down, I don’t think they have any room for just lowering interest rates. How much lower can they do, it was down to zero. I do believe they will try more gimmicks if necessary to have QE, but ultimately if the deficits explode, which I anticipate, the Fed will accommodate and they are not going to stand by and since they don’t know exactly when that will happen.
I saw one projection which I think was a pretty good analysis, that if Trump gets all that he wants in a period of months next year, you can’t possibly see any response to that, lowering of regulations and taxes until 2018. Yet, the stock market is telling us it’s all ok now and the Fed has control and they have sent the message and they are going to take this economy, which they have said we have made progress and we are going to give you more progress. I think that is a myth.
Chris Rossini: They want to pretend that the Fed is independent, that it is not political at all. It’s funny because this week right after the rates are raised, some Republicans, notably Anne Coulter tweeted out right away that the Fed is, now they are starting to raise rates and they are trying to sabotage the incoming Trump administration. What do you think about that Dr. Paul?
Ron Paul: I think there is a good reason to think about that, but the Presidents and the Federal Reserve Board Chairmen, they always collude and I think the Fed Chairman, because he gets appointed by the President, that they will do what they think is necessary to help the President. But, right now, it’s interesting because they are speculating that maybe the Democrats will do something right now along with the Fed, to cause and bring on the recession as soon as Trump is inaugurated and it may come anyway, as a matter of fact the recession is locked in place, the timing we don’t know, but it’s locked in place. There is so much distortion with these low interest rates, so yes, the Fed may send this signal and do this on purpose. But, they will be buddies, because they are in it together, they are leadership in the Congress, as well as the Federal Reserve, they are controlled by the deep state and the very powerful financiers.
So, if the spending is necessary and we have to spend all this money on rebuilding the military, which seems to be totally unnecessary and the highway system. That is big bucks and we are sliding into a recession, the revenues are down. I think the deficits are going to explode. It happened in the 80s, even with a conservative Ronald Reagan, the tax rates went down and the spending went up and that may happen again if he gets the tax cuts. But, I am still for the tax cuts, because that is your money and you should have it and we should keep it and that would be helpful, but you have to be realistic. If you don’t deal with the spending, it may be ushering in a period of time where the deficits are much worse and the Fed will have to be more engaged. But, I think they work together, but I think it is interesting that there is talk about that maybe the Fed would like to mess things up.
I sort of don’t think that is going to happen. I think we are so close to the change in administrations and I think the Fed Chairman usually want to be on a reasonably good side of the Federal Reserve Board Chairman.
Chris Rossini: Yes, finally we are going to finish up with Donald Trump. This is more speculation on your part, but while he as campaigning he said a few things correctly, he pointed out we are in a bubble and he pointed fingers at Janet Yellen, there were campaign videos with Janet Yellen and stuff. So, what are your thoughts after he becomes President? Will he flip his position on her and call for more interest rates and for more air to me pumped into the bubble that he was complaining about?
Ron Paul: I really think the answer is yes on what you said, but how he does it, it might be different. He might not tweet it. He might not tweet and say alright Fed, we have spent all this money now, the market is pushing the interest rates up, you do this. No, I don’t think it will happen that way, but I think that is what will come. A lot of our supporters, including myself, we were pleased when the Fed would attack the Fed and even supports, which he has said audit the Fed, find out more about them, they are at fault, they created the bubble and all this malinvestment. They’ve led to the debt, but then again there’s times when he says I am the king of it, I am the King of deficits, he likes deficits, he likes spending and he thinks that if they raise interest rates right now it would be devastating to the economy and he is sort of right on both of them.
So, if he is going to flip-flop, so far we don’t know which way he is going to flip-flop because he has been on sort of on both sides already. But, I think the rhetoric will vary and most people go by the rhetoric, but I think the policy that he would want to support is not raising interest rates, not getting rid of the FOMC and maybe backing off on even signing a bill that would audit the Fed. Because the friends he has on Wall Street and the bankers and all the people that are involved in high financing, they are not interested in what is happening with the Fed, especially on their overseas operations, because that is where a lot of foreign policy is done, our subsidies to other central banks and other governments and we are all in this global economy together and I think Trump and his associates and the people going in the Cabinet know this, so we want to believe and we want to put a little pressure on Trump not to flip-flip on auditing the Fed, because we need that.
It doesn’t even deal with monetary policy, it just deals with exposure, letting the people know what they are doing, the transparency that everybody wants, so that’s why 70-80 percent of the American people say yes, we should have transparency and the Fed they are so powerful. I think the Fed is seen in more negative terms than ever before, but they are still in the driver’s seat, but eventually though they will lose control and they are desperately close to that, but still what they say and do on these short terms can have a lot to do with what the markets do.
I think the most significant thing that has happened so far has been the bond markets, the loss and it looks like, even in that sense we could be moving into what happened in the 70s, interest rates were going up and the bonds were crashing, so the prices of the bonds have been very, very high for many, many years, so even if the Fed doesn’t raise the interest rates, the market may raise the interest rates because they know that people they sense that this is the way the bonds are going this way, the interest rates are going regardless, so I have a lot of profits in these bonds, so I am going to sell them and a lot of these bonds are long term.
The other thing that the administration will have to be concerned about is the increase in cost and financing our debt. If it goes up a point, it’s almost like 200 billion dollars increase in financing the debt and that will be devastating and that is the other thing hat they will have to think about, so it might not only be Trump that might say don’t raise the interest rates, because we have to finance it, but other people who have to deal with financing the debt and I think the chorus will be let’s take another shot of that drug that we like, the drug of inflation, the drug of new money and to me it is exactly like a drug addiction.
There is tremendous withdrawal symptoms of what I am talking about, but what happens is if you are not willing to put up the withdrawal symptoms of getting away from the dependency of this fiction that progress can be defined by prices and money supply and these things. If you can’t get away from that, what your choices are, our choices, the country’s choices aren’t very good, because if we continue to do what we do, this consequence is much worse than the consequence of withdrawal.
So, it would be possible theoretically to work our way out of this, but it won’t happen for political reasons. If we gradually lowered our spending and cut back and protected some of the groups that are more dependent and made that plan and the people believe id, I think it will work. But, there is nobody that is going to put up their hand and say yes, I believe what you are saying is true, we want to participate in advocating ten percent cut in all our budgets and you can cut our budget. Can you imagine the military industrial complex, just look at the howlering and screaming when President-elect Trump suggested this F-35 might be a bad deal, that was pretty important.
So, that is just a sign of things to come. If anybody suggests cuts, that is why it won’t happen and that is why the spending is going to continue, that is why monetizing the debt is going to continue and it is going to continue until the confidence is truly lost and today the confidence is very, very high and the money is being spent, they always wanted to get a lot of money injected in the economy and it’s all going into Wall Street and it’s all into making profits for Wall Street with this unbelievable boom in stock markets. But, like I said, the market is more powerful than all the politicians, so eventually the market will sort this out and unfortunately because there has been so many mistakes made, the consequence will be rather serious.
So, this is the reason I argue the case for less government, less spending and a sound monetary system.
Chris, I want to thank you very much for being with us today on Myth Busters.
Chris Rossini: Thank you very much Dr. Paul.
Ron Paul: Good and I want to thank all our viewers today for joining in and please come back soon to the Liberty Report.