Ron Paul Liberty Report - Weekly Update --- Ten Years After the Last Meltdown: Is Another One Around the Corner?
Aired: 2018-10-16
Duration: 04:43


=== The Housing Bubble's Legacy (04:37) ===

[00:00:06]  Hello everybody and thank you for tuning in to the weekly report.
[00:00:11]  Ten years after the last meltdown is another one around the corner.
[00:00:17]  September marked a decade since the bursting of the housing bubble which was followed by the stock market meltdown and the government bailout of the big banks and Wall Street.
[00:00:28]  Last week's frantic stock market sell-off indicates the failure to learn the lessons of 2008 makes another meltdown inevitable.
[00:00:38]  In 2001-2002, the Federal Reserve responded to the economic downturn caused by the bursting of the technology bubble by pumping money into the economy.
[00:00:52]  This new money ended up in the housing market.
[00:00:55]  This was because the so-called conservative Bush administration, like the liberal Clinton administration before it, was using the Community Reinvestment Act and government-sponsored enterprises Fannie Mae and Freddie Mac to make mortgages available to anyone who wanted one, regardless of income or credit history.
[00:01:20]  Banks and other leaders eagerly embraced this ownership society agenda with a lend-first, ask questions when foreclosing policy.
[00:01:31]  The result was the growth of subprime mortgages, the rush to invest in housing, and millions of Americans finding themselves in homes they could not afford.
[00:01:44]  When the housing bubble bursts, the government should have let the downturn run its course in order to correct the malinvestments made during the phony Fed-created boom.
[00:01:58]  This may have caused some short-term pain, but it would have ensured the recovery would be based on a solid foundation rather than a bubble of fiat currency.
[00:02:11]  Of course, Congress did exactly the opposite, bailing out Wall Street and the big banks.
[00:02:16]  The Federal Reserve cut interest rates to historic lows and embarked on a desperate attempt to inflate the economy via QE1, 2, and 3.
[00:02:28]  Low interest rates and quantitative easing have left the Fed with a dilemma.
[00:02:33]  In order to avoid a return to the 1970s era inflation, or worse, it must raise interest rates and draw down its balance sheet.
[00:02:44]  However, raising rates too much risks popping what financial writer Graham Summers calls the everything bubble.
[00:02:54]  Today, credit card debt is over a trillion dollars.
[00:02:58]  Student loan debt is at $1.5 trillion.
[00:03:01]  And there's a bubble in auto loans, and there's even a new housing bubble.
[00:03:06]  But the biggest part of the everything bubble is the government bubble.
[00:03:11]  Federal debt is over $21 trillion and expanding by tens of thousands of dollars per second.
[00:03:19]  The Fed is unlikely to significantly raise interest rates because doing so would cause large increases in federal government debt, interest payments.
[00:03:30]  Instead, the Fed will continue making small increases while moving slowly to unwind its balance sheet, hoping to gradually return to a normal monetary policy without bursting the everything bubble.
[00:03:46]  The Fed will be unsuccessful in keeping the everything bubble from exploding.
[00:03:51]  When the bubble bursts, America will experience an economic crisis much greater than the 2008 meltdown or the Great Depression.
[00:04:01]  This crisis is rooted in the failure to learn the lessons of 2008 and of every other recession since the Fed's creation.
[00:04:10]  A secretive central bank should not be allowed to manipulate interest rates and distort economic signals regarding market conditions.
[00:04:19]  Such action leads to malinvestment and an explosion of individual business and government debt.
[00:04:26]  This may cause a temporary boom, but the boom soon will be followed by a bust.
[00:04:31]  The only way this cycle can be broken without a major crisis is for Congress both to restore the people's right to use the currency of their choice and to audit and then end the Fed.