The Federal Reserve Board meets today to decide their next brilliant move to save the US economy. Oh wait, they tried a minuscule quarter of one percent interest rate increase in December and the markets have been reeling ever since. What tools do they have left in their toolbox?
Ron Paul: Hello everybody. Thank you for tuning in to the Liberty Report. With me this morning is Daniel McAdams and Daniel good to see you today.
Daniel McAdams: Good morning Dr. Paul.
Ron Paul: Very good. Later today there will be a major release and an exciting event because the Fed’s going to finish their meeting and tell us what they are going to do to save the economy and there is a lot of fanfare going on. What do you think it’s going to happen? Maybe they are going to solve the problem and everything is going to be ok?
Daniel McAdams: The word everyone is using is dove, they are going to be dovish.
Ron Paul: Dovish. Yeah, that is what they are saying. The odds of that happening are of course slim to none, because even the title of our program The Fed Is In A Box, a lot of times people refer to where the Fed is, between a rock and a hard place that they don’t have a place else to go and some argue that they have been around for a long time and they seem to get out of trouble and the free markets are always giving up these recessions and causing problems and the Fed always comes to the rescue. That is sort of the belief that goes on and they said and are still bragging how they rescued the economy in ’08 and ’09 from a total disaster. Yet, I just saw recently that the total debt now in the economy is 40% higher than it was in 2008 and the unemployment statistics haven’t improved. It’s really still a major mess, but the Fed rarely gets blamed, but more so than ever before and that is what I think is good, because we want to get the people educated.
I want to talk about the Fed and the philosophy of the Fed and philosophy of money, but the biggest contention I have, even though economically it’s terrible, constitutionally it’s terrible, but one result from this is the growth of government. The people would never be willing to give up so much of their savings for the government to spend all this money and here this gimmick is we are going to create new money out of thin air and we are going to get away with it forever. Of course we have the welfare and domestic spending and everybody gets something for free, it’s their stuff. They never ask where does it come from, it comes from the government and the Fed is a part of the government and they never say that ultimately it is a cost to the middle class. But, it’s also, when you think, in the case of foreign policy. It seems like they are participating in this fraud as well.
Daniel McAdams: As you pointed out many times, the Empire as we call it, would be impossible without the Fed. Just look at one thing and a couple of other things if we have time later, but just look at one thing. In 2013 President Obama announced a trillion dollar thirty year program to modernize our nuclear triad. All of our nuclear weapons, a trillion dollars over thirty years. If you divide that by the number of Americans, that is about $3,000 for every man, woman and child in America. But, if you look at the statistics, I forget what the exact percentage is, but there is a very large, significant percentage of American homes, that if they were hit with the surprise $500 bill for something, they simply wouldn’t have their money in their savings. They don’t have the money. So, how is every man, woman and child going to come up with $3,000 for newer nuclear missiles?
Ron Paul: You mentioned the triad. I think there was one of the candidates that sort of messed up and didn’t understand what the triad was, but the triad is really pretty much of old story, it’s a farce, because you are talking about man bombers. In this age of missiles and submarines and everything else they are talking about. The triad, we have to have these airplanes, we have to have to keep this going. You are talking about malinvestment. This is really bad and yet there are still a lot of conservatives, you’ve heard the arguments, the military spending is good for jobs and then what do they do then? Where do these jobs go? Does it go to one state or could it be that it’s a political decision?
Daniel McAdams: There are a lot of good jobs surrounding Washington, the beltway, they come from the military industrial complex, but the poor guy in the middle of the country, who is having to suffer through inflation to pay for it is not feeling that good.
Ron Paul: People say it’s still good, they are getting money and there is jobs and Paul Krugman would argue anything is helpful if they are getting paid for something. The silly story is if you somebody to dig a hole and pay somebody to fill it up, it’s still a job and it’s good for the economy. But, nobody looks at Bastiat instead of what? And Hazlit was so good on it, if we spend this trillion dollars and you think seriously through this you realize that we don’t need it and we are not stronger. It’s cliche today, if you want to be strong for defense and you are going to take care of ISIS, you have to rebuild the military, but they never consider that that expenditure is malinvestment. Yes, there will be a submarine built or there will be airplanes built. They want to redo the nuclear system. How many nukes do we need? So, that they want to do this.
They never ask the question where would that have gone? Would it happen if it stayed in the economy in the free market here. Maybe there would be competition in health care, competition in education. Maybe there would be much better education for more people at a much lower price, but the seductiveness comes from the Fed, because it isn’t like we are not going to appropriate a trillion dollars and that trillion dollars going to come back immediately and the people get to spend it, because what they do is they pump it into debt and this is the culprit that the Fed allows to happen, is they prop up the debt system and they figure they can do it forever. When you issue the reserve currency like we do, you get away with it for a long time, so the more fragile the system becomes, the more the reserve system benefits, but I think there are cracks in that and I think it is coming to an end.
Daniel McAdams: There are certainly a lot of people that look at how countries that are considering stopping using the dollar as the reserve currency end up on the enemies list of the US.
Ron Paul: And like you mentioned people wouldn’t want to pay their fair share, pay for this military stuff and they get away with this. But, what about the humanitarian mentality? It’s all based on a humanitarian instinct, you want to help people who aren’t able to take care of themselves. Just think how many people now don’t have good health care and the cost is going up, just think of all the gimmickry going on there, if you have insurance and do what exactly the government says and pay the insurance companies, the medication might be $3, but if you say I am going to go out on my own, I am going to pay my own way, they $3 medication might cost you $250 or sometimes even thousands of dollars if it’s important drug. It sets up monopolies.
I think this whole system whether it was the drug bill that Bush passed, as well as Obamacare, was designed to help corporations, just as the military industrial complex. It helps the corporations, helps the banks and all this domestic intervention is to help corporations, the medical system is corporations now. Then you have the insurance companies, the drug companies and still people have a tough time getting health care. And the people who are punished the most are the most responsible who want to pay their own way.
It reminds me of the system that the Fed created, if an individual, and I remember when these days where, people felt responsible for taking care of themselves in old age and they weren’t really sophisticated and buying stocks and bonds, but they would save money and they would get paid 2% and 3% and they were frugal and they lived within their own means, but today they are punishing those people. Now they are talking about taxing people who put their money in savings and they want to just spend the money, but that all comes from this mentality that a central bank is able to plan the economy and I think that is where the biggest fallacy is.
They believe in taxation through dilution of the value of the money, they believe in inflation of course, just print the money as you need it, they believe that we have to expand debt and that is one reason why they like the idea of fractional reserve banking, because this allows the banks to expand the money supply, not just the Federal Reserve.
Daniel McAdams: I think people instinctively understand that something is very seriously wrong with the economy, unfortunately not enough of them have listened to you over the years and understood really what the cause is, but I do think that people have a sense of something is really and that is why you see the attraction I think of someone like Donald Trump or Bernie Sanders, each promising something that appeals to people who haven’t spend the time like a doctor would, look at what is causing the disease rather than the symptoms.
Ron Paul: I’ve always maintained that the problem is apparent, the solution really if they hear it is not all that complicated, because if you go to the average ten year old and talk to him and talk to him about monopoly money or paper money, if you just go out and write things on a piece of paper do you think you can go to a store and buy something?
Daniel McAdams: I tried that once. Didn’t get far.
Ron Paul: You learned your lesson about how the Fed worked. The solution there is to find the value of money, that you cannot be arbitrary. Defining the value of money, like our original government did only gold and silver and actually the first monetary act was in 1792, they defined the dollars away from silver and that was precise. It shouldn’t be confused with fixing the value of the money on purchasing power, because you want things to fluctuate and you want prices to go up and down and the money to go up and down, but what you don’t want is no definition and right now there is no definition. The dollar is defined as a Federal Reserve note, as something they owe. If you have a dollar and take it to the government and say this is a note, what are you going to pay me, it used to be that they give us gold and in my lifetime we could go and we get silver dollars.
When I first started collecting coins as a kid, I would pick up the silver dollars and go to the bank and buy silver and even remembering that not too long ago that even copper became, now copper is more valuable than a penny and I would save copper pennies, not that copper is a real hedge against it, but things were of real value, with the definition was so important. But, it was the absence of fixing prices, you didn’t fix the price of money. This is probably the number one economic error of the central bank. They think they know how to manage the entire economy by fixing interest rate, which is something they have no idea what the proper fixing of the interest rates should be.
Why is this so important? We’ve lived through wage and price controls and fixing the prices on different things, education and medical care sort of being fixed by the government, but when you fix the price or value of money through interest rates what you are doing is you are regulating the entire economy, one half of the economy is always the value of the currency. Most people can understand the supply and demand of cell phones and different things and the more they build and the technology and they go up and down as long as there is a market competition, but rarely do people think there is a supply and demand of money and that is also a factor.
They have this control, it’s done once again in secrecy and there are some people who really benefit from this and it’s usually the people who wheel and deal and provide products like in the mortgage market that led up to the crisis of ’08 and then the very people benefiting from this evil, wicked system are the ones who are in control and they get the bailouts, so the innocent people, I was talking about the ones who are trying to save, they end up getting punished because they end up with a higher cost of living and the worst thing in the world to do would be to tax them for putting money in the bank and other countries are doing it.
Then, the other thing that we are on the verge of doing to people wanting the central bankers to counteract, is they are still saying you are not spending enough money, so we are going to penalize you, but we don’t want you to have a run on the bank. We don’t want you to say I am getting worried about this, banks are closing, so I am going to go and somebody says the last time I had savings, I want it in a shoebox, I want Federal Reserve notes and that is why they are going towards this cashless society because that would be the last vote of the consumer to go and protect themselves and even though it’s lousy protection to buy Federal Reserve notes, which are shrinking in value, but in the old days and why Roosevelt, what was the first thing he did, was he confiscated gold, because gold was a hedge against government over-reach and spending and all the things that were going on.
Right now, there is not going to be many things that the people can rely on, but they need to really understand this system that the foreign policy and expenditure depend on it, the welfare system depends on it, the artificial interest rates caused the malinvestment and causes the debt and once again not only does it cause all these problems, but they always try to cover up, they talk will talk about, saying debt doesn’t matter and then they will have the regulations. Right now, the biggest regulator is the Federal Reserve. They make all these mistakes, instead of eliminating mistakes, they will say we will regulate and just pile on. That is what Dodd-Frank was all about. Then, they will come along and say yeah, we understand this is risky business, fractional reserve banking where banks create money out of thin air. We will have insurance, government insurance. We will say that all of your deposits are protected and the big guys get protected too, because you are too big to fail, the government will bail you out. So, they have the insurance and they get cover it up.
What we are witnessing today is the end stage of this and that is why the Fed is in a box. They are truly between a rock and a hard place. They don’t have a solution, because regardless of what they say today, they may be able to move markets right before the announcement, they may be able to move markets afterwards, but long-term they are on a dead-end course and this can’t work and it’s going to end and it’s going to end badly. The good news is that the information and understanding of monetary policy and the Austrian school of economics is better understood than ever before and it involves sound money and it involves truly voluntary contracts and it includes property rights and you put that together and it’s a wonderful answer and it causes a much greater chance of having prosperity as well as peace in the world.
I cannot see why people would even be tempted to reject these principles and today as we look and wait and see what the Fed is going to say and finally end up finding they are not saying anything, we just have to further protect ourselves, but ultimately the only thing, we can talk about economic policy and sound money and the Constitution, but ultimately the only saving grace would be to be able to live in a free society where the government is designed to protect our liberties and not have one where they are representing the various special interest groups who band together and destroy the middle class and that is what is happening. We have this majoritarian approach that as long as we get 51% to agree, we can do anything we want to the people who produce in the world.
That is why you hear some of the candidates saying tax, we need to tax more and more, but we need to wake up and say we are finished with that. We are sick and tired of being taxed, we are sick and tired of the inflation and what we need to do is just have a whole generation of people willing to challenge the monetary system and the economic system that we have today. That is the only thing that will answer to the problems that we have today. We have a good background, we have an understanding and it is better understood today than in ever has in the history of the world, because freedom advances slowly, ups and downs, back and forth, but today there is a much better understanding of monetary policy and economics than it even was when the Founders put the Constitution together. We are advancing in that sort, but believe me Washington has a lot of catching up to do. I don’t see them catching up until the whole thing comes down and we have enough people to rebuild it with this sound economic theories and defending the principles of liberty.
I want to thank everybody for tuning in today and please come back soon.