Is the Federal Reserve on the ropes?
In his weekly column, Former Congressman Ron Paul believes the warfare-welfare state could be on its final legs.
The Fed’s recent decision to cut its benchmark interest rates from 2.25% to 2% has many worried about the Fed reverting back to its easy money ways. Even President Donald Trump was not satisfied with this cut because there was no indication that the Fed was committed to future cuts down the line. Interest rates are already low as it is, and Trump claims to have the best economy ever. So, what gives?
If we look at recent Fed history, this is part of a decades-long trend of it pursing near-zero interest rates and so-called “quantitative easing,” which is a euphemism for printing money. Even with these policies in place, real economic growth has lagged and Americans continue to save very little.
This recent rate cut will not likely boost economic growth and will continue to incentivize Americans to not save and engage in unsustainable consumerism. Deep down, Trump probably realizes that the American economy is built on a house of cards but still wants to maintain the illusion that the economy is in great shape. Electoral incentives play a massive role as well, and he wants to do all he can to get re-elected in 2020.
Good political maneuvering does not translate into economic prosperity, however. All things considered, these moves towards easy money have the makings of a potential crisis.
Ron Paul is correct in noting how the Fed’s rate cut coincided with Congress’s recent decision to pass a monster budget. By increasing the government debt, the Fed is pressured to keep interest rates artificially low in order to prevent the federal government’s interest payments from reaching unsustainable levels.
To his credit, Trump’s tax and regulatory reforms were welcome aspects of his presidency. The current U.S. tax code is incredibly convoluted, and the regulatory state is simply too much of a hassle for businesses nationwide. Nevertheless, Trump’s continuation of big spending and the Fed’s easy money policies will effectively negate whatever gains that the Trump administration has made on the taxation and regulatory fronts.
The good news is that more people are becoming skeptical of central banking altogether. With renewed support behind the Audit the Fed bill in Congress campaigns to have states re-legalize gold and silver as legal tender, and the emerging interest in cryptocurrencies, central banking’s legitimacy is being questioned by the day. However, none of this would have started without Ron Paul’s efforts while he was in Congress to raise awareness on monetary policy.
We don’t know when the next recession will hit, but there are more people than ever before who are aware of easy money’s pitfalls. It’s very likely these same individuals who have warned about the Fed’s policies will be in a promising position during the next economic crisis as people search for answers. This time around, we have more advocates and a parallel structure in cryptocurrencies that can put us on the path to free-market currencies.
Dr. Paul might be on to something when he argues that central banking’s days are numbered and the warfare/welfare state may also be on its way out.