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The Fed Plans for the Next Crisis
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In her recent address at the Jackson Hole monetary policy conference, Federal Reserve Chair Janet Yellen suggested that the Federal Reserve would raise interest rates by the end of the year. Markets reacted favorably to Yellen’s suggested rate increase. This is surprising, as, except for one small increase last year, the Federal Reserve has not followed through on the numerous suggestions of rate increases that Yellen and other Fed officials have made over the past several years.

Much more significant than Yellen’s latest suggestion of a rate increase was her call for the Fed to think outside the box in developing responses to the next financial crisis. One of the outside the box ideas suggested by Yellen is increasing the Fed’s ability to intervene in markets by purchasing assets of private companies. Yellen also mentioned that the Fed could modify its inflation target.

Increasing the Federal Reserve’s ability to purchase private assets will negatively impact economic growth and consumers’ well-being. This is because the Fed will use this power to keep failing companies alive, thus preventing the companies’ assets from being used to produce a good or service more highly valued by consumers.

Investors may seek out companies whose assets have been purchased by the Federal Reserve, since it is likely that Congress and federal regulators would treat these companies as “too big to fail.” Federal Reserve ownership of private companies could also strengthen the movement to force businesses to base their decisions on political, rather than economic, considerations.

Yellen’s suggestion of modifying the Fed’s inflation target means that the Fed would increase the inflation tax just when Americans are trying to cope with a major recession or even a depression. The inflation tax is the most insidious of all taxes because it is both hidden and regressive.

The failure of the Federal Reserve’s eight-year spree of money creation via quantitative easing and historically low interest rates to reflate the bubble economy suggests that the fiat currency system may soon be coming to an end. Yellen’s outside the box proposals will only hasten that collapse.

The collapse of the fiat system will not only cause a major economic crisis, but also the collapse of the welfare-warfare state. Yet, Congress not only refuses to consider meaningful spending cuts, it will not even pass legislation to audit the Fed.

Passing Audit the Fed would allow the American people to know the full truth about the Federal Reserve’s conduct of monetary policy, including the complete details of the Fed’s plans to respond to the next economic crash. An audit will also likely uncover some very interesting details regarding the Federal Reserve’s dealings with foreign central banks.

The large number of Americans embracing authoritarianism — whether of the left or right wing variety — is a sign of mass discontent with the current system. There is a great danger that, as the economic situation worsens, there will be an increase in violence and growing restrictions on liberty. However, public discontent also presents a great opportunity for those who understand free-market economics to show our fellow citizens that our problems are not caused by immigrants, imports, or the one percent, but by the Federal Reserve.

Politicians will never restore sound money or limited government unless forced to do so by either an economic crisis or a shift in public option. It is up to us who know the truth to make sure the welfare-warfare state and the system of fiat money ends because the people have demanded it, not because a crisis left Congress with no other choice.

(Republished from The Ron Paul Institute by permission of author or representative)
 
• Category: Economics • Tags: Federal Reserve 
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  1. Trump wants to audit the FED. He also wants to end the cold war with Russia and the many hot wars in the MENA. You might at least give him credit where he agrees with you.

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  2. Everyone wants to keep this game going because the ability to create wealth simply by borrowing money (to be squandered any way, it doesn’t matter) and issuing the T-bond has yielded astronomical wealth for quite a cadre of apparatchiks.

    For 35 years of the 50 years since US money was restrained by a metallic yardstick owning a bond was like a money machine. Interest rates fell since 1981 and each time they declined the capital value of existing debt rose. This led to the filling of a Bond Ocean, and Pollyanna has sailed it ever since.

    All this “wealth” denominated in the IOU’s of government, corporations and individuals rose so high that willingness to bid up the prices of stocks, junk bonds, commodities, real estate and even Beanie Babies sloshed around the globe, creating booms and busts in one corner after another.

    The central pillar holding it all aloft was the Bond Ocean, and its value depends entirely upon INTEREST RATES.

    So many bonds now exist that even a small increase in rates leads to a vast decline in dollar-denominated wealth. This is the future…rates will eventually break out to the upside and set off a race for the exits in every market on Earth. Chaos will result.

    There are signs that this has begun. German bunds (bonds) and Japanese government bonds have both seen price declines (interest rate rallies) recently. If these are canaries in the coal mine, the 50 year period of monetary insanity is about to enter its crash and burn phase.

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  3. An audit would be as useful as tits on a bull. We need to start breaking up the too-big-to-fail banks that are the backbone of the Fed, restore the Glass-Steagall separation between retail and investment banking, and maybe even return to a prohibition on interstate banking so we can get back to community-based banking that actually works with people instead of against them. The Fed becomes a much more benign and perhaps useful institution in that world.

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  4. Heymrguda says:

    I’ll always have the utmost respect for brother Ron Paul, but his unwillingness to consider any negative fallout from immigration or trade deals is troubling

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    The US has never really had free trade, but during the period of essentially free immigration (up till 1920, with restrictions on Asians from about 1890), we enjoyed the highest rise in productivity ever. We also had a gold standard and no Federal Reserve. And even if the US didn't enjoy free trade with other countries, it was itself essentially a giant free trade zone within its borders.
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  5. jtgw says: • Website
    @Heymrguda
    I'll always have the utmost respect for brother Ron Paul, but his unwillingness to consider any negative fallout from immigration or trade deals is troubling

    The US has never really had free trade, but during the period of essentially free immigration (up till 1920, with restrictions on Asians from about 1890), we enjoyed the highest rise in productivity ever. We also had a gold standard and no Federal Reserve. And even if the US didn’t enjoy free trade with other countries, it was itself essentially a giant free trade zone within its borders.

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