All Episodes
Previous Next
Nov. 2, 2018 - Ron Paul Liberty Report
20:44
Inflation Is Destroying The Middle Class: Blame The Fed

Two jobs to stay afloat. Shrinkflation. Record Debt. The Fed is destroying the Middle Class. Today on The Liberty Report! Two jobs to stay afloat. Shrinkflation. Record Debt. The Fed is destroying the Middle Class. Today on The Liberty Report! Two jobs to stay afloat. Shrinkflation. Record Debt. The Fed is destroying the Middle Class. Today on The Liberty Report!

|

Time Text
Prices and Inflation Pushes 00:14:57
Hello, everybody, and thank you for tuning in to the Liberty Report.
With me today is Chris Rossini, our co-host.
Good to see you, Chris.
Great to be with you in studio.
In Texas, in the studio, not off in that place.
I think it's called New Jersey or someplace.
Yes.
But it's good to have you here.
I understand you'll be attending the Mises Institute function tomorrow here in Lake Jackson, Texas.
Yes, I always look forward to Mises.
That's where I got my economic education.
Oh, good.
Okay, I guess you can stick with us for a while longer.
Absolutely.
Keep us straight.
But no, it's good to have you here.
And we want to talk about a subject that seems to be of great interest to our listeners.
And that has to do with monetary policy and the Federal Reserve.
And it's something I don't get tired of talking about.
I get a little frustrated that nobody wants to listen.
But that's not exactly true.
I feel like people are listening, and there's more people than ever, and people are looking at the Federal Reserve more than ever.
But we have a ways to go because people never give up central banking power until they destroy the dollar or the currency that they have, and then they have to start all over again.
But that doesn't mean we shouldn't stop.
So once again, we're going to be talking about the Federal Reserve.
And this time we're going to direct our attention to the subject on how the Federal Reserve comes down on the side of whether they're friends or enemies of the middle class.
And of course, we're making the very strong suggestion in our title that they're the ones who causes the elimination and the destruction and elimination of the middle class.
And the middle class is shrinking, which is a big deal.
And so there's a little bit of a challenge to what we're doing because if you just listen to the business news and to the administration, everything is perfect.
And yet, it can't be perfect if there's that many people out there that are disgruntled.
But I think there's a bifurcation.
I think there are two systems.
There are some people who are doing very well at one end of the spectrum, and there's others who are in the fixed income bracket, and they don't get the benefits.
And I think the statistic that we should sort of emphasize and concentrate on, there's a good reason for this, is the fact that the Federal Reserve and our government went totally off the gold standard in 1971.
And lo and behold, you can find a chart where real wages have stagnated.
Essentially, you never keep up with the printing of money.
And yet, some people's prices and advantages keep growing, and they have a tremendous advantage with the inflation, the creation of money by the Federal Reserve.
At the same time, the middle class can't keep up.
And I think that's where we are and why people are unhappy.
And hopefully we can contribute to the understanding of how the Federal Reserve work and understanding of how that's connected to big government and what the people ought to be doing about that.
Because ultimately, I think the people have to know what's happening in order for them to accept the necessities of changing policy in Washington.
Yes, the middle class has been shrinking for a while in the United States.
People are struggling, even though they consider themselves middle class.
But I like to describe it that we live in a vampire economy.
You know, when you have something like socialism or communism, it doesn't last very long, and you know who to blame.
Like the Soviets, they lasted 70 years and they were propped up for a lot of it.
They would have collapsed a lot sooner when you have socialism, communism.
But under our system of corporations married to government, it's a lot slower the decline and a lot harder to pinpoint where to put the blame.
So we know that it's the Federal Reserve.
We just have to keep making the case.
And you know, they say that language is very important in talking about politics or economics, and you have to destroy some language or change meanings.
And in this system, that certainly is the case, because if you talk to the average person on the street about inflation, they will think, oh, the CPI, yeah, my cost of living for my bread, it's going up.
And they say that's inflation.
Well, that's price inflation.
Prices are going up.
But inflation, a proper definition of inflation is a monetary issue.
And that is when money supply is not increased by the marketplace, like it is if you have gold and silver, you have money supply increases and adjusting.
But if you have a Federal Reserve increasing the money supply, that is inflation.
They're inflating the supply of money.
And inevitably, you know, one way or another, it will cause malinvestment and prices to go up.
But it's uneven.
You can't predict it.
But it is a big difference between it.
Because of this definition, I remember very clearly what happened in 1971 when they closed the gold win and they went off.
They had price control.
Well, there's too much inflation.
Oh, the workers are earning too much money.
The business people are making too much profit.
So we have to have a wage and price.
In my short lifetime, I saw wage and price controls in World War II, the Korean War, and the Korean War, and one other time since that.
And in a way, there's always price controls on something.
And the most significant price control is the price of money, the interest rates, which is the real culprit here for causing the economy not to function and be more fair to the middle class and direct it in one way.
But you know, Mises argued the case, in my mind, I always thought, well, this is just semantics.
Why do Austrian economists are persistent and say, well, no, no, this is money supply, it's not what prices.
Why don't you just qualify and make it a semantic thing?
And he said, he said there's, he didn't use this word, but he says it's a conspiracy.
He wants people, the establishment, want people to believe that prices come up for something other than the central bank, because then they draw their attention to the central bank.
So if you go in a different direction, wage and price controls are the answers.
And then who do you protect?
Well, the welfare system, the military system, anybody who's making money off the system, the banking system, everybody's making money because that's how it's financed.
It's financed by the Federal Reserve, seductively deceiving the people by just creating monetary units, which is the inflation, but it dilutes the value of the currency in circulation.
So he said that, and from that time on, I worked real hard to try to, after having read that in Human Action, is to make sure that people know what inflation is and not say, oh, yeah, inflation is the CPI.
No, we want them to think differently.
Because sometimes they create a lot of money.
And we just went through an example of this, the QEs.
You know, for a while, there wasn't a significant amount of price inflation in consumer goods.
But there was a considerable amount of price inflation elsewhere.
So that's the thing that we don't have control of, where the money goes.
The Fed can create the money, but they can't say they're going to buy stocks or whether medical care costs are going up or bread is going to go up.
There's too many variables.
But I think that the distortion of the market, the malinvestment, investing the money in different places because of what they do, the interest rates, is every bit as significant as the debt.
But of course, you can't ignore the debt either.
And there's a reason why, that's the reason why that we talk about the Fed so often.
It's because they're very hidden from the American public.
The American public's life style goes down.
Their economic well-being goes down.
And they have no idea that it's the Federal Reserve that's creating it.
They have to get two jobs.
They're paying the same amount of money for a less amount in the supermarket.
Bread is $5.
A bag of chips is $5.
And it's easy if you listen to the media to blame the businessman to think that he's just ripping you off.
But that's not the way it is.
It's the Federal Reserve that creates the money, lowers the value, the purchasing power of your money, which causes prices to go up.
So it's very important to constantly harp on the Fed because otherwise they stay hidden from everybody.
Yeah, it's very deceiving because right now, I understand it's Starbucks.
Not that I buy coffee there, but it's going up at about 9% per year of their cost.
But the inflation of prices is something that people can't control.
But there are other factors that put up prices because let's say there's a drought and it damages a lot of crops.
Those prices are going to go up.
But that's not inflation.
I mean, the prices have gone up.
It's dangerous to say, oh, it's inflation and it's passed on.
Or if you have, like in the 70s, they said all the inflation was due to the Saudis.
But, you know, oil back then was, you know, a couple, two, three dollars a barrel.
And they were, in a way, being cheated because there's been so much monetary inflation.
But they were able to say that.
But they can't control.
Even the time of the 20s, when the markets were doing well and the stock market was doing well, there were economists who said, don't sweat it.
The consumer products aren't doing badly.
And yet, there was a calamity in the next decade with the depression.
So it's something that they can't predict it.
And I think this idea of where this money goes is every bit as important as a debt.
But ultimately, though, the debt is the real culprit that will bring us down.
Right now, I saw a figure that if interest rates go up to 5%, which is nothing compared to where they've been in too distant past, that if it gets to 5%, the interest payment on the national debt will go up a trillion dollars a year.
See, that can't happen.
And the unfunded liabilities and the national debt is not going to be paid.
And the managers know this.
And they also know that it has to be liquidated.
So if we're not going to pay it down and work harder, that's not going to happen.
It has to be liquidated with inflation.
So that leads to this very, very weird economic understanding, which they've been preaching for years now.
Well, prices aren't going up enough.
We have to really stick it to the middle class.
And we want at least for them to lose 2% a year.
And of course, their wages aren't going up.
And then they wonder why the middle class lose.
So they aim for 2%.
And now they're admitting it's 3%.
And wages, today, they had a report of wages.
Excited.
Wages went up 3% at a rate of 3%.
Yeah, now they're even because prices are going up 3%.
And they get excited about this.
But This is a gimmick that they do, and people get fooled.
But ultimately, the only solution is looking to the cause, and the cause is the Federal Reserve.
That's right.
And I'll close, Dr. Paul, by saying, you know, I'm down here for a Mises event, and discovering the Mises Institute changed my understanding of the world.
And perhaps it could do the same for you.
So please visit Mises.org, read Ludwig von Mises, Murray Rothbard, What Has Government Done to Our Money?
Because the damage has been done.
We can't undo what the Fed has done.
The best we can do is educate ourselves, know what to do, know where to pin the blame, because there's going to be a lot of people that are going to want to take advantage of the calamity that's ahead.
But let's be the voice for sound money and free markets.
Very good.
And I want to emphasize the fact that it's the money supply, the creation of new money, which is the inflation and generally leads to higher prices and even in commodity goods.
But productivity can still change that a bit.
You have tremendous increase in productivity.
So even in the 70s, when we had this horrendous inflation, 15%, electronics, televisions, all, and they still go down in price.
So it's a trick to try to figure this out other than the fact that you have to understand that prices are not commodity prices and are not the telltale sign of what the Federal Reserve is doing.
But there are other things that pushes prices up, which are not monetary.
And just recently, we have been experiencing some expense associated with the tariff war going on.
And a lot of the tariffs haven't really gone into effect, and there's still a lot of negotiations.
And one day there's an agreement, and then they remove the agreement, and the stocks go up, and the stocks go down.
And it's a game they play.
But tariffs generally long term pushes prices up.
Take, for instance, there's no sign that they're going to back off on the tariffs on aluminum and steel.
That's a big deal.
The automobile industry right now is in trouble because there's been overproduction and it's overbought and people aren't buying cars.
They don't have any cash left in the automobile they own.
So the automobile market, as the housing market is, is getting very, very soft.
But if you add the problem the problem of rising aluminum and steel prices, you know, prices are going to go up when people are not able to buy them to begin with.
And that same thing is happening on houses.
There's an inflationary expectation on the price of houses you go into.
Some places in California, other places, you know, Texas isn't hurt as bad because we have a more market economy and productivity compensates for it and some of the prices are held down.
But, you know, ultimately it is the Federal Reserve, but it's also a policy.
And that is policy sometimes by a president, sometimes by a Congress.
But those policies add on to the prices.
Even the cost of money, which is the interest rates, that distorts the way people save and invest, but it also adds a cost to it.
Just think if tomorrow everybody had to pay, let's say the market rate of interest is 10%.
If everybody had to pay 10% on all the money they borrowed, you know, the whole thing would come apart.
But it's destined to come apart.
Done to Satisfy Some 00:03:58
But right now, the Fed is achieving what they always told me they must do to keep this together.
Anytime I sounded a warning to the Federal Reserve Board chairman, as you're doing this and this, it could lead.
And they, you know, usually didn't argue with me and say, oh, no, that's not true.
That's not true.
They say, that's true.
But as long as we keep it orderly, it's okay.
As long as we stick it to the consumer and the middle class and just orderly destroy their income.
They didn't say that, of course.
But that is what they're saying.
And I imagine they get a little bit nervous now when you see the stock market going up 400 points in the morning and drop 200 and then go up 300 and down 400 by the end of the day, which it's doing constantly.
And so I don't think they're going to have control of the orderliness of the marketplace that they want.
So it's back to the fundamentals.
And we have the Fed, they create the money, but there's something even more fundamental than that.
And why is it done?
It's done to satisfy some people.
And it's done to satisfy the military-industrial complex, the banking industries, they all get bailed out.
And anybody who wants low interest money, yes, you know, that is part of it.
But the people have something to say about this too.
The average man on the street, if you'd go and say, well, we should be spending less, and every once in a while you'll run into a Republican that says that.
But, okay, we'll put you Republicans in charge.
In the House and the Senate, the President say, are you going to cut?
No, we're going to increase it.
And then we've already taken the deficit up over a trillion dollars in the last year or so.
And they say that this is exactly what we needed to do.
But it isn't good.
The debt is going up.
It's sky high, and it won't be paid.
And yet the people who you go to and say, well, what should we cut?
We said, well, I guess we'll cut aid to public education.
Oh, my Lord, you can't do that.
No matter what you say, there's the consumer, the average American, really doesn't want the budget cut.
The average businessman doesn't want it, and they don't want to pay, not the average banker, or if you're in the military industrial.
What about the politician?
What if they had to collect enough money to pay for the things they do?
I mean, it would be a disaster.
They don't want any part of this.
And I'm going to let you in on a secret.
It's very bipartisan.
It's not those Democrats who want to spend so much money.
It's a bipartisan group of people that claim that they're fighting tooth and nails over policy, and they are not.
They're arguing tooth and nail over cultural things, and it's sincere, and there's hatred brewing with this.
But when it comes to policy of fighting wars overseas and the welfare state and bailing out everybody and having programs called government insurance, which is not insurance, it's just a welfare program.
Once they say it's government welfare.
So there's too many special interests that wants this to continue and that's why it will.
And that's why right now the Fed is between the rock and the hard place.
You know, they're trying to lower their balance sheet.
They're trying to raise interest rates a little bit.
And sometimes I'm asked, well, are they doing the right thing?
How much do you think they should raise?
I say, I'm not going to answer that question.
They shouldn't be in the business.
They don't know whether it should be raised or lowered.
They should just get out of the way.
But most likely, if we had a market rate of interest rates, it'd be a lot higher, and it would curtail some of this spending.
But anyway, if we had to nail it down to one thing, yes, it's the philosophy of government as a driving force, but you had to nail it down to the instrument on who carries out these desires of the people who want stuff for free.
It's the Federal Reserve, and they're responsible.
Fed's Dilemma 00:01:37
But we're working on it.
We're trying to get an audit so we know what they're doing.
But so far, they're keeping it secret.
They're almost as secretive, if not more so, of the CIA.
We need to change that.
The American people need to know what's going on in government.
To me, the tragedy is that the government was there and our Constitution was there to protect our privacy.
And government was not to be secret.
But we have a situation now.
Government's totally secret and they lie to us and they get away with it and the people's privacy is gone.
You know, the Fourth Amendment really isn't very well protected.
So that's very simple.
And people say, Ron, that's overwhelming.
What can we do?
It's just out of control.
Well, why don't we just start by finding a couple people who will emphasize the fact that I am going to do my best to follow the rules set down in the Constitution and cut back.
But unfortunately, they won't do it gradually.
It's going to end badly with a calamity and a collapse.
And yet, at the same time, Chris mentioned the Mises Institute and other institutes that are teaching sound economics.
And that's where the positive answers are.
There's a lot more people thinking about it.
And I say maybe we won't change it gradually.
But if the crisis comes, we have to be in the debate of how it's going to be replaced.
We have to get it where there's a lot more individuals who love liberty enough to see through the fog that we get from Washington, D.C. We're tired of the fake news.
I want to thank everybody for tuning in today to the Liberty Report.
Export Selection