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The Federal Reserve, responding to concerns about the economy and the stock market, and perhaps to criticisms by President Trump, recently changed course on interest rates by cutting its “benchmark” rate from 2.25 percent to two percent. President Trump responded to the cut in already historically-low rates by attacking the Fed for not committing to future rate cuts.

The Fed’s action is an example of a popular definition of insanity: doing the same action over and over again and expecting different results. After the 2008 market meltdown, the Fed launched an unprecedented policy of near-zero interest rates and “quantitative easing.” Both failed to produce real economic growth. The latest rate cut is unlikely to increase growth or avert a major economic crisis.

It is not a coincidence that the Fed’s rate cut came along with Congress passing a two-year budget deal that increases our already 22 trillion dollars national debt and suspends the debt ceiling. The increase in government debt increases the pressure on the Fed to keep interest rates artificially low so the federal government’s interest payments do not increase to unsustainable levels.

President Trump’s tax and regulatory policies have had some positive effects on economic growth and job creation. However, these gains are going to be short-lived because they cannot offset the damage caused by the explosion in deficit spending and the Federal Reserve’s resulting monetization of the debt. President Trump has also endangered the global economy by imposing tariffs on imports from the US’s largest trading partners including China. This has resulted in a trade war that is hurting export-driven industries such as agriculture.

President Trump recently imposed more tariffs on Chinese imports, and China responded to the tariffs by devaluing its currency. The devaluation lowers the price consumers pay for Chinese goods, partly offsetting the effect of the tariffs. The US government responded by labeling China a currency manipulator, a charge dripping with hypocrisy since, thanks to the dollar’s world reserve currency status, the US is history’s greatest currency manipulator. Another irony is that China’s action mirrors President Trump’s continuous calls for the Federal Reserve to lower interest rates.

While no one can predict when or how the next economic crisis will occur, we do know the crisis is coming unless, as seems unlikely, the Fed stops distorting the economy by manipulating interest rates (which are the price of money), Congress cuts spending and debt, and President Trump declares a ceasefire in the trade war.

The Federal Reserve’s rate cut failed to stop a drastic fall in the stock market. This is actually good news as it shows that even Wall Street is losing faith in the Federal Reserve’s ability to manage the unmanageable — a monetary system based solely on fiat currency. The erosion of trust in and respect for the Fed is also shown by the interest in cryptocurrency and the momentum behind two initiatives spearheaded by my Campaign for Liberty — passing the Audit the Fed bill and passing state laws re-legalizing gold and silver as legal tender. There is no doubt we are witnessing the last days of not just the Federal Reserve but the entire welfare-warfare system. Those who know the truth must do all they can to ensure that the crisis results in a return to a constitutional republic, true free markets, sound money, and a foreign policy of peace and free trade.

(Republished from The Ron Paul Institute by permission of author or representative)
 
• Category: Economics • Tags: China, Federal Reserve 
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  1. AGREED – on your explanation of the need for the FED to keep interest rates unnaturally low to keep the Feral budget from completely blowing up.

    DISAGREE – on your view of the tariffs. They are necessary to restore a completely unfair trade imbalance instigated by American politicians for some chump change and American elites for the big money they got out of it.

    AGREED – it’s just silliness calling China a currency manipulator NOW, when they’ve been pegging the RMB to the US dollar for a couple of decades to keep exports competitive (exactly the point of the recent slight devaluation).

    DISAGREED – Yes, a financial crises is coming, but even the biggest change right now (a Ron Paul for President with a Congress of Ron Pauls) would not get us out of the hole we’ve dug, on the order of twenty thousand bucks owed per working taxpaying family. There’s gonna be financial pain, but it’d be nice to have the real explanation for it out there, so the right path can be taken after Peak Stupidity.

  2. End the Federal Gov’t.

    The states should get together and cancel the agreement.

    Once the Fed Gov is gone, the debt it has outstanding goes into default. Those that gave money to a profligate Fed Gov get what they deserve – nothing in return.

    Now free from Federal debt, the new 50 countries can compete to attract the best residents and businesses driving down costs to compete with China.

    • Replies: @Puffdaddy
    , @Puffdaddy
  3. Puffdaddy says:
    @RoatanBill

    Good luck – our new peoples who we are importing at breakneck speed are too stupid to understand any of it.

  4. Puffdaddy says:
    @RoatanBill

    Good luck – our new peoples who we are importing at breakneck speed are too stupid to understand any of it.

  5. The Federal Reserve is operating as it was designed to operate.

    https://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986212

    Ron Paul knows this but ignored it in his comments.

    The Federal Reserve is designed to protect and serve large financial institutions–and any claim to the contrary (“public interest”, “help the economy”, bla bla bla) is propaganda/disinformation.

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