Ron Paul Takes on the World’s Central Banks
Fresh off of what many saw as a victory in his debate with Nobel Prize winning economist Paul Krugman (of course, others disagree on the outcome), Rep. Ron Paul (R-TX) penned the op-ed($) below for the Financial Times (alternate link here) in which he takes on the central bankers of the world, as usual, making a good deal of sense to just about any reader who doesn’t have a PhD in economics.
Our central bankers are intellectually bankrupt
The financial crisis has fully exposed the intellectual bankruptcy of the world’s central bankers.
Why? Central bankers neglect the fact that interest rates are prices. Manipulating those prices through credit expansion or contraction has real and deleterious effects on the economy. Yet while socialism and centralised planning have largely been rejected by free-market economists, the myth persists that central banks are a necessary component of market economies.
Printing unlimited amounts of money does not lead to unlimited prosperity. This is readily apparent from observing the Fed’s monetary policy over the past two decades. It has pumped trillions of dollars into the economy, providing money to banks with the hope that this new money will spur lending and, in turn, consumption. These interventions are intended to raise stock prices, lower borrowing costs for companies and individuals, and maintain high housing prices.
But like their predecessors in the 1930s, today’s Fed governors behave as if the height of the credit bubble is the status quo to which we need to return. This confuses money with wealth, and reflects the idea that prosperity stems from high asset prices and large amounts of money and credit.
We live in a world that seems to have abandoned the concept of savings and investment as the source of real wealth and economic growth. Financial markets clamour for more cheap money creation on the part of central banks. Hopes of further quantitative easing from the Fed, the Bank of England, or the Bank of Japan – or further longer-term refinancing operations from the ECB – buoy markets, while decisions not to intervene can cause stocks to plummet. Policy makers focus on spurring consumption, while ignoring production. The so-called capitalists have forgotten that capital cannot be created by government fiat.
Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.
In related news, Martin Feldstein, Harvard University Economics Professor and president emeritus of the National Bureau of Economic Research, said in this Bloomberg interview yesterday that equity markets are taking their cues from the Fed and there is a “real danger of a bubble in the stock market created by low long-term interest rates that the Fed has engineered… The danger is you get a market that is not with the reality of what is happening in the economy, which is, as I said a moment ago, is really not very good at all”.
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