Congress And The Fed Refuse To Learn From Their Mistakes

This month marks the seventh anniversary of the bursting of the housing bubble and the subsequent economic meltdown. The mood in Congress following the meltdown resembled the panicked atmosphere that followed the September 11th attacks. As was the case after September 11th, Congress rushed to pass hastily written legislation that, instead of dealing with the real causes of the crisis, simply gave the government more power.

Just as few understood the role our interventionist foreign policy played in the September 11th attacks, few in Congress understood that the 2008 meltdown was caused by the Federal Reserve and Congress, not by unregulated capitalism. Not surprising to anyone familiar with economic history, the story of the 2008 meltdown starts with the bursting of the Fed-created tech bubble.

Following the collapse of the tech bubble, the Fed began aggressively pumping money into the economy. This money flooded into the housing market, creating the housing bubble. The Bush Administration and the Republican Congress also added fuel to the housing bubble. These so-called “free-market” conservatives expanded federal housing programs in hopes of creating an “ownership society.”

If Congress understood the Austrian theory of the business cycle, it would have allowed the recession that followed the housing bubble’s inevitable collapse to run its course. Recessions are the economy’s way of eliminating the distortions caused by the Federal Reserve. Attempts by Congress and the Fed to end a recession via inflation and government spending will only lead to future, and more severe, economic downturns.

The corporate bailouts, government spending, and money creation via quantitative easing that Congress and the Fed have engaged in since the fall of 2008 have failed to produce even the illusion of prosperity. The daily experience of most Americans shows that the government’s doctored statistics drastically understate both unemployment and inflation.

This is not to say that no Americans have benefited from Federal Reserve policies. Even Donald Trump has called quantitative easing “a great deal for guys like me.” Much of the growth of government over the past seven years, from the bailouts to the increases in military and domestic spending to Obamacare, has also benefited politically-connected crony capitalists.

The Federal Reserve’s continued delay of an interest rate increase suggests that, contrary to its public statements, the Fed understands that the economy has not recovered from the meltdown and is on the brink of another major recession. Fear that the Fed is not being fully forthcoming with its view of the economy is one reason the stock market declined following the Fed’s recent decision to once again postpone increasing interest rates.

Learning the full truth about how the Fed evaluates the economy and its plans to respond to another downturn are two reasons why it is important to pass the Audit the Fed bill.

A vote on Audit the Fed would probably be the only good thing to occur in Congress this year. A Congress that cannot defund Planned Parenthood is unlikely to make any serious cuts in spending. Instead of waiting for politicians to do the right thing, those who know the truth must spread the ideas of liberty as far and wide as possible. Only when the teachings of the Austrian school are embraced by a critical mass of Americans will Congress cut warfare spending, cut welfare spending, and audit, and then end, the Fed.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by

Congress Fiddles While The Economy Burns

Reports that the official unemployment rate has fallen to 5.1 percent may appear to vindicate the policies of easy money, corporate bailouts, and increased government spending. However, even the mainstream media has acknowledged that the official numbers understate the true unemployment rate. This is because the government’s unemployment figures do not include the 94 million Americans who have given up looking for work or who have settled for part-time employment. John Williams of Shadow Government Statistics estimates the real unemployment rate is between 23 and 24 percent.

Disappointingly, but not surprisingly, few in Washington, D.C. acknowledge that America’s economic future is endangered by excessive spending, borrowing, taxing, and inflating. Instead, Congress continues to waste taxpayer money on futile attempts to run the economy, run our lives, and run the world.

For example, Congress spent the majority of last week trying to void the Iranian nuclear agreement. This effort was spearheaded by those who think the U.S. should waste trillions of dollars on another no-win Middle East war. Congressional war hawks ignore how America’s hyper-interventionist foreign policy feeds the growing rebellion against the dollar’s world reserve currency status. Of course, the main reason many are seeking an alternative to the dollar is their concern that, unless Congress stops creating — and the Federal Reserve stops monetizing — massive deficits, the U.S. will experience a Greek-like economic crisis.

Despite the clear need to reduce federal spending, many Republicans are trying to cut a deal with the Democrats to increase spending. These alleged conservatives are willing to lift the “sequestration” limits on welfare spending if President Obama and congressional Democrats support lifting the “sequestration” limits on warfare spending. Even sequestration’s miniscule, and largely phony, cuts are unbearable for the military-industrial complex and the rest of the special interests that control our government.

The only positive step toward addressing our economic crisis that the Senate may take this year is finally holding a roll call vote on the Audit the Fed legislation. Even if the audit legislation lacks sufficient support to overcome an expected presidential veto, just having a Senate vote will be a major step forward.

Passage of the Audit the Fed bill would finally allow the American people to know the full truth about the Fed’s operations, including its deals with foreign central banks and Wall Street firms. Revealing the full truth about the Fed will likely increase the number of Americans demanding that Congress end the Fed’s monetary monopoly. This suspicion is confirmed by the hysterical attacks on and outright lies about the audit legislation spread by the Fed and its apologists.

Every day, the American people see evidence that, despite the phony statistics and propaganda emanating from Washington, high unemployment and rising inflation plague the economy. Economic anxiety has led many Americans to support an avowed socialist’s presidential campaign. Perhaps more disturbingly, many other Americans are supporting the campaign of an authoritarian crony capitalist. If there is a major economic collapse, many more Americans — perhaps even a majority — will embrace authoritarianism. An economic crisis could also lead to mob violence and widespread civil unrest, which will be used to justify new police state measures and crackdowns on civil liberties.

Unless the people demand an end to the warfare state, the welfare state, and fiat money, our economy will continue to deteriorate until we are faced with a major crisis. This crisis can only be avoided by rejecting the warfare state, the welfare state, and fiat money. Those of us who know the truth must redouble our efforts to spread the ideas of liberty.

© Copyright 2015 Ron Paul

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by

Big Banks Profit While Main Street Suffers

If anyone doubts that the Western world’s monetary order is rigged to enrich the banking system, the first quarter financial reports of America’s top banks should disabuse any unbelievers.

The Financial Times reported that four of the five big U.S. trading banks had a combined revenue of $19.4 billion in the first quarter of 2015. Goldman Sachs had a 14.7 percent* return on its equity in the first quarter, while J.P. Morgan, the nation’s largest bank, earned $5.91 billion (or $1.45 a share), up 3.6% from a year earlier.** Revenues for J.P. Morgan grew 4% to $24.8 billion.

The enthusiastic coverage of the big banks’ healthy first quarter proceeds and the chest-thumping of its bank executives left out, not surprisingly, the real reason for their windfall gains – the Federal Reserve. The big banks have been the chief beneficiaries of the Fed’s easy monetary policy since the start of the financial crisis.

The Fed’s “zero interest rate policy” (ZIRP) and its “quantitative easing” (QE) program have been the catalyst for the large banks’ recent record performance. Ostensibly, these policies were instituted to assist the economy in its recovery from the Great Recession; however, in actuality they have been done to save the big banks from collapse while the economy has been flooded with billions of increasingly worthless dollars causing significant price inflation.

Low interest rates have enabled the banksters and financial houses to borrow at next to nothing and invest in all sorts of ventures, many of which are highly risky. Easy money is also the cause for the huge run up in assets prices and the highs in nominal stock prices.

Worse, ZIRP has allowed the federal government to sustain its ridiculous level of spending, borrowing what it cannot raise in taxes at a near zero rate of interest. When interest rates do rise, the federal government will most likely default, bringing the banks down with them.

While the big banks and Wall Street have done quite well from the Fed’s massive money printing, everyone else has suffered and has seen their standard of living plummet even from official estimates.

The Federal Reserve reported a slowdown in hiring in March, a big drop off in industrial production, and lower housing starts in the first quarter–to mention just a few troubling statistics. Things are getting to the point that the Fed is reconsidering whether it should raise interest rates in the second half of the year as it had hoped to do. Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, admitted that “Data available for the first quarter of this year have been notably weak.”***

The first quarter sizable earnings of the big banks are an example of what a number of commentators have termed “crony capitalism.” Through government assistance, businesses earn wealth not by pleasing customers and satisfying their needs, but by currying favors from the state. In the banksters’ case, instead of making wise and prudent loans, they receive largesse in the form of billions of Federal Reserve notes.

Not only is such a system immoral, but it gives legitimate market activity – those firms that do not receive state assistance – a bad rap as profitable enterprises are lumped in with state favorites. This ultimately leads to greater regulation as calls for the government to tax “windfall profits” would affect all firms–even those who earned rightful profits.

The solution to crony capitalism and the ill-gotten gains of the banking system is not greater oversight, but instead the abolition of the Federal Reserve and a return to sound money based on gold or silver. Under such a system, banks and financial houses would profit only if they satisfied consumers’ wants.

In the banks’ case, this would mean safeguarding depositors’ money and making prudent loans with the funds they were entrusted with to lend. For those financial institutions that succeed at such tasks, profits would be their reward; those who do not and mismanage investment funds would be out of business and allowed to fail. Banks would operate under the same economic laws as any other enterprise.

The prevailing system of crony capitalism which benefits the 1% must be exposed for the grand redistribution scheme that it has long been. Only when bankers earn their wealth as Main Street does will America return to a just and sound monetary order.

*Tom Braithwaite & Ben McLannahan, “Goldman in Robust Return on Equity Showing,” Financial Times, 17 April 2015, 14

**Ciaran MCEvoy, “JPMorgan Profit Beats Wall St. Views, As Does Wells Fargo by Shrinking Less,” Investor’s Business Daily, 15 April 2015, A1.

***Jon Hilsenrath, “Fed Shies Away from June Rate Hike,”  The Wall Street Journal,  17 April 2015.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by

This post originally appeared on Western Journalism – Equipping You With The Truth

Negative Interest Rates: A Brilliant Concept!

Editor’s note: This article first appeared at

I have to admit that initially I was uninterested, even close-minded, about the negative yield being offered on a growing share of European sovereign debt. “It must be a short-term aberration,” I thought at first. “Completely nutso,” I sniffed dismissively as the phenomenon spread. “Who in their right mind would invest in a financial instrument that would guarantee a loss of principal?” Upon calmer reflection, I would shrug and think, “Well, to each his own, but none of those topsy-turvy debt instruments for me.”

More recently, I have taken a more tolerant attitude toward negative-yield debt. As I teach my Econ 101 students, the key to success in the economic marketplace is to set aside your own preconceptions and preferences and to acknowledge that the consumer is always right. If some of my fellow human beings want investment products that repay them less than their principal, who am I to find fault?

In fact, the more I think about it, I find myself attracted to the idea of offering such a service to satisfy this unfathomable consumer appetite for negative yields. Maybe I should announce that anybody out there who would like to send me money on the condition that I return less than all of it to them in the future is free to do so (as long as they include payment for any incidental transaction costs). From that perspective, negative interest rates are quite ingenious.

Actually, (I’m going to attempt to be serious now) what really got me thinking about the growing phenomenon of negative-yield debt was how to explain the concept to my 101 students. The traditional introduction to interest rates involves three basic components. The first is the “originary” rate of interest—the time preference between the present and the future. In years of teaching economics, I’ve never yet had a student express a preference for a hundred dollars next year over the same amount today; and I doubt I would get a different response if I lowered the payoff in the future to $99.90. Conclusion: The time preference of humans doesn’t account for the increasingly common negative-yield phenomenon.

Perhaps, then, we can solve the mystery by examining the second component of interest rates—the risk factor. Students readily grasp the rationality of lenders adding a risk premium to interest rates to compensate for lending to higher-risk borrowers. Traditionally, the primary function of financial intermediation has been to assess the creditworthiness of borrowers. That isn’t always the case at present, with government citing “disparate impact” and penalizing lenders who dare to consider risk before issuing loans. I can get my head around a risk premium of zero for government debt, since central banks can use QE and other techniques to ensure that governments have unlimited ability to return to its creditors however many monetary units it has borrowed. But a negative yield? One could certainly argue that nongovernmental borrowers, not having their own central banks, can’t give 100 percent guarantees that they’ll be able to repay what they borrow, while governments do; therefore, some creditors feel safer contracting for a negative yield from a government than a positive yield from a private entity. The problem with this line of thinking, though, is that creditors could lock cash in secure storage and know that they would get all of it back, rather than paying government to borrow their money.

The third component of interest rates is the inflation premium, which creditors sometimes demand to protect against currency depreciation. The late Franz Pick used to call bonds “guaranteed certificates of confiscation” because, between depreciation of the monetary unit and government taxation of interest income, bondholders’ purchasing power was systematically and ruthlessly transferred to government. Even today, in the bizarro world of central banks trying to “achieve” positive inflation (i.e., currency depreciation), one would think that creditors would insist on an inflation premium to offset the targeted depreciation. Instead, we have the spectacle of widespread acceptance of a nominally negative return on paper denominated in a currency that the relevant central bank is actively trying to depreciate.

In sum, elementary interest rate theory doesn’t solve the puzzle of why there are negative-yield instruments, so we need to look elsewhere. Perhaps the holders of negative-yield sovereign debt instruments anticipate earning capital gains due to increased demand for negative-yield securities in the future. This seems like a bet on the “greater fool theory” with central banks playing the part of the “fool.” I suppose it’s possible that in our strange new world of unlimited QE, chronic ZIRP, negative interest rates, etc., yields may become even more negative in the future, thereby rewarding those who solved earliest this counterintuitive riddle. Such a race deeper into the rabbit hole of negative yields may happen, but timid (blind?) little me won’t be on the buy side of those deals.

One other possible explanation for the phenomenon of negative interest rates is that central banks are trying to make their currency less attractive in currency exchanges. This is what makes the most sense to me—central bankers hope that negative interest rates will be an effective tool of currency manipulation in a world of competitive devaluations.

Negative interest rates are a weird and alarming symptom of profound economic dysfunction. In a healthy economy, interest rates coordinate production between the present and the future according to people’s composite time preferences. Today, those vitally important market signals are mangled, broken, shattered. Maybe negative-yield instruments will pay off in ways I don’t yet perceive, but I’m content to keep my distance from them and let others play that bizarre game. I’d rather preserve my sanity.

This post originally appeared on Western Journalism – Equipping You With The Truth

What Will You Do If Your Dollars Stop Being Accepted In America?


What will you do when the dollar no longer spends? With Obama letting in the floodgates of new immigrants from our Southern border, expect welfare rolls to explode, with trillions more in taxpayer funding triggering possible runaway inflation.

And if that happens, do you know how much a cup of coffee might be? About $500 trillion dollars per cup–and that is for old, cold bitter Java. If you want Starbucks lattes, expect to pay 2 quadrillion dollars.

Don’t laugh and don’t say it’s impossible. Rhodesia used to be the Garden of Eden of Africa. Shortly after adopting socialist money schemes, and sporting the new name of Zimbabwe, their coffee cost more than that. So did their gasoline and milk and eggs. After a while, the money stopped spending altogether.

But the United States is actually deeper in debt than Zimbabwe was before their collapse. The United States of America used to be richest nation in modern history.

So I ask you again: what will you do if your paper dollars become worthless?

Here’s one solution: Buy a few thousand dollars in gold coins as a possible hedge against runaway inflation; and if the day comes that coffee costs a trillion dollars, never fear. For your gold would likely be worth well north of several quadrillion dollars. And no matter how much higher the dollar inflates, your gold, if it follows traditional patterns, would keep ahead of the curve into quintillions of dollars and so forth.

But without gold, your entire net worth, even if you are Bill Gates, could be worthless. Totally worthless.

To learn more about investing in gold coins, you may visit the web pages of any reputable gold coin dealers. One we like is:

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom