The Fed's Impossible Dream Of Fine-Tuning The Economy
The Fed is raising rates in search of an arbitrary "neutral rate" that they've collectively set their sights upon. Then we can all relax, right? Wrong! The damage of the Fed's manipulation of the economy has been done, and a financial crisis is unavoidable.
The Fed is raising rates in search of an arbitrary "neutral rate" that they've collectively set their sights upon. Then we can all relax, right? Wrong! The damage of the Fed's manipulation of the economy has been done, and a financial crisis is unavoidable.
The Fed is raising rates in search of an arbitrary "neutral rate" that they've collectively set their sights upon. Then we can all relax, right? Wrong! The damage of the Fed's manipulation of the economy has been done, and a financial crisis is unavoidable.
Hello, everybody, and thank you for tuning in to the Liberty Report.
With me today is Chris Rossini, our co-host, Chris.
Welcome to our program.
Great to be with you, Dr. Paul.
Very good.
I'd like to talk about the Federal Reserve, and we want to do a little checklist here to find out how they're doing, see if they have a passing grade or whether they're flunking.
You know, not too long ago, I guess everybody was very happy, and even some must still be happy because the economy is doing so well.
Full employment, inflation's under control, nobody's worried about anything, and yet it's nearly hysterical right now about Federal Reserve policy.
Mnuchin is very much involved, and believe it or not, our president is very much involved because they're changing interest rates.
But the way I see this, Chris, is that they're micromanaging the economy.
They know there are problems out there that they don't admit to, and they have a big problem to deal with, and that is the consequence of many, many years of quantitative easing.
And that was the inflation that caused all the distortion and all the debt.
And that's where the sinister problems exist.
They know it, and they're trying to deal with it, and they're trying to anticipate it.
And so, you know, a short while ago, a year ago, they decided to inch their way up on interest rates because they're not normal interest rates.
They're not market interest rates, and they know they can't go with zero or minus interest rates forever.
So the consensus is now they have to raise interest rates.
But the president doesn't like that.
So now they're arguing over how can we do this, and they are wondering how are they going to maintain it.
And they want the Fed to be accommodated, but they don't want it to be restrictive.
And they're looking right now, Chris, for the perfect interest rate, the neutral interest rates that will allow growth without inflation.
And that is what they're looking for.
And for some reason, I don't think they're being very successful.
And I don't think automatically with what's going on at the Fed and in our government and our debt, that they're going to come up with a solution on the possibilities of us having some very serious economic problems.
Right.
And this neutral, so-called neutral rate, this magical rate that they're searching for, they're guessing is between 2.75% and 3%, as if they could even guess such a thing.
But even Fed Chairman Powell admits that they really don't know what they're doing.
He said that he compared it to being in a dark room with the lights out.
He said, what do you do?
You slow down, you stop, probably, and feel your way.
So they're really just flying blind, not knowing what to do.
But even if they get to this magical rate, it doesn't return everything to normal.
They can't undo the damage that they've done just by hitting this rate that they want.
They've messed things up really bad, worse than 2008.
So it's not, and we're not going to go back to normal until all the damage is unwound and liquidated.
And that's a toilet they don't want to swallow.
Right.
They realize that there has to be a correction from the QEs.
They don't want to admit that, but that's what the problem is.
They don't want to deal with part of that problem, of course, is this allowed a lot of debt to be accumulated in the corporate world and certainly in the government world and the government.
Our deficits going up a trillion dollars a year.
No, that's off limits.
In all these discussions that we've been reading about, and Mnuchin being concerned, the Fed is concerned, and Trump is concerned.
Nobody said, well, you know, one thing is this takes some pressure off the Fed to print all this money.
Why do we have this deficit?
That is never, never considered.
And the other thing that they never mentioned, Chris, which I think is the driving force, is this effort to maintain the stock market.
Now, Trump didn't care about any of this until there's a decrease in the stock market.
And even though these increments in interest rates are minuscule compared to what would happen if they had a free market rate of interest right now, so that all that all of a sudden got their attention.
And yet, this correction has to occur.
They cannot avoid it.
So it is locked in.
Once the inflation occurs and the malinvestment and the debt is accumulated, they can tinker all they want.
And they may delay things, they may put things off, they may find different victims.
And the good people are the insiders may be able to protect themselves and get in a position of bailouts or other ways that they can get around it.
But the people in this country are going to suffer, especially the middle class, from the system that we have today.
Yes, and there's two words that I wanted to focus on because we hear them a lot: transparency, that the Fed has to be transparent with the market and forward guidance, as if these matter or mean much, because they really don't, because the Fed shouldn't be counterfeiting or manipulating the economy or interest rates.
Because every time that they print money, they're basically stealing from us.
Counterfeiting steals purchasing power from us.
So being transparent about what you're doing and giving us guidance is really no help.
If you're walking down the street in a city and a monger comes up to you and he wants to steal from you, would it help if he was transparent with you and gave you some guidance on how he's going to rob you?
No, nobody should be robbing you, neither the monger nor the Fed.
The difference between the two is that the monger robbing you is illegal, and what the Fed does is very much legal.
Now, if they were really interested in transparency, maybe they would consider the audit the Fed bill that we've worked on for so many years.
And the large majority in this country believe that they should be audited because they know there are a lot of shenanigans going on.
Ponzi Scheme Parallels00:10:10
But the Fed hides behind this term independent.
They have to be independent and not be politicized.
Well, it's always been that way.
And this fact that Mnuchin is a little more bold than other Secretary of the Treasury, the presidents have been very bold, at least behind the scenes.
This is a little bit more apparent, and it's getting a lot of the politicians excited about this, and they're discussing it.
But they cannot come up with this.
They believe that they know what it is.
And, you know, it reminds me of Hayek.
You know, this is nothing more than the pretense of knowledge.
They can't know, and there is a system.
They have a mess.
They've created the system and they know they have to do something about it, but they do not look at what the problem was and who's really suffering.
And of course, I think what we're talking about here explains why the biggest problem this country faces economically is this whole idea that certain groups are benefiting, the others are suffering.
So in spite of all this talk about this wonderful economy, there's a lot of people, a low-middle-income and middle class, who are suffering.
And yet the wealthy are getting much wealthier and they protect themselves.
This is causing the political upheaval.
You know, who would have ever dreamed that if it's under full employment and unemployment being so low, that there would be this difficulty in politics now, a lot of anger, a big turnover in the Congress.
And usually it's the economic factors that drive it.
In this case, you know, it's a mixed bag.
On one source, on one sort, you know, the economy is doing very well, but on the other, and that is the people that are likely now to be more likely to go and go in the direction of those who actually literally say, we're socialists and we're going to take care of you, even though they're, you know, smoking something too, because some of them don't have the vaguest idea what they're talking about, but it is the system of money.
To tell you the truth, Chris, I think what's happening is this is like a Ponzi scheme, only worse than the average Ponzi scheme.
You know, tulip mania always depended on new suckers coming in and buying tulips and bidding up the price until finally somebody figured out, oh, this is a mania, and we have to stop and it collapses.
But you know, when the government does that, I think it's easy to see a Ponzi scheme approach with Social Security.
You know, the new people who have to pay income tax or Social Security tax to take care of the people who are retired.
And that worked for a long time.
It's not working so well right now.
But it's not an insurance program.
It's not supposed to work with it.
And that's going to get much worse because cost of living goes up.
The number of people retired is going up.
The number of people in the younger age group is going down.
And this is part of it.
But it's based on a Ponzi scheme image.
And I think that's what happens when things become shaky in the economy in general.
You don't get more volunteers saying, oh, well, we need to do is pump more money in to take care of these problems.
No, they go and they resort to this Ponzi scheme attitude of the Federal Reserve and say, well, we have to prop up the debt and we can't cut back.
So therefore, we have to spend money, run up the debt, and therefore we have to print the money and that is going to solve all the problems.
But unfortunately, I think they know more about the danger we're all facing than they admit, but they do reckon, I think they are recognizing this danger when they're talking a whole lot about something with theoretically, why should they be claiming?
No inflation, you know, for them.
No inflation is the consumer being gouged 2 or 3% a year.
And of course, that's a lot worse.
But when they talk about, well, there's no inflation, they will not go back to the cause of our problem.
And that's runaway government spending, welfare warfare, and the accommodation by the Federal Reserve just piling on and piling on.
And this pyramid of debt that they have created and the people have urged them to do it is not longstanding.
It will collapse.
And I think that's what they're struggling right now for is to prevent this.
And it becomes a political problem for the people in charge.
And that'll be a problem for the Fed because people know more about them.
But it'll be a political problem as well.
And that's why they don't have the solution, because Trump doesn't want the interest rates to go up.
But this whole thing that Mnuchin just did this week, Chris, he took sort of a poll with the bond dealers and said, what should we do?
I guess he was still walking around in that room with the lights out.
He said, what should we do?
Should we just raise interest rates or should we sell more of our assets from the balance sheet?
And if you think that through, that's not much of a choice.
What if you just sold all those assets?
I believe that would shrink the money, expand the money supply, and would cause a lot more problems.
So I don't think those are their options unless you look at the monetary system and look at the type of government we have and look at deficit and look at foreign involvements and foreign wars.
I think that has to be addressed.
And we're going to hear more discussions like this and more argument.
And it'll be a blame game too.
And this might be part of what we're seeing right now, Chris, is who are we going to blame?
Are we going to blame the Congress, the President, Secretary of Treasury, the Federal Reserve, or just who's going to get blamed?
And right now, I don't think they're talking much about the real source of the problem.
Oh, that's for sure.
That's why we talk about the Fed as much as possible because we know that they should be the ones to blame because they're fighting against the truth.
And that's been the center of dealing with economic laws of supply and demand and all those economic laws that exist.
You're dealing with economic truth, and they're just trying to outbox it for their own benefits.
And they try to sell the public that they're necessary.
But we're trying to appeal to the public as individuals that you do not need these people.
They do nothing but harm.
There's no convincing them.
They're already far, far away from that.
But if we can convince individuals that they prey upon, you know, if we could stop that, then they won't be able to feed upon our liberties.
Very good.
And I am going to go ahead and close out also by just refreshing the memory of a lot of people who follow our program.
And this whole principle of how is debt related to the monetary system and to the Fed?
And some people just refer to it as debt money.
In a way, this is exactly what it is.
Because when the Fed creates currency, they have to have assets.
Believe it or not, they're supposed to have assets in the bank to back the currency.
And up until recent years, even into the 70s, this was partially followed.
But since 1971, there are no assets behind the currency at all.
But at least gold and silver, there's none.
But they use debt.
So in a sense, we believe, or we're on the assumption that the more we spend, the more debt we have, the more treasury bills we have, the more money that flows into it.
And money can be used to take care of everybody and fight these wars.
So it is totally bizarre about this system, the way they think they can run up debt and turn debt into real value.
And propping up the system by just more debt won't work.
I think the thing is going to come unglued.
And unfortunately, middle class is going to suffer even more.
People right now suffer a lot more than anybody wants to admit, but they are suffering from a lot more price inflation than they want to admit.
But until we think about, number one, what should the role of government be in a free society?
That shouldn't be complicated.
If you want to live in a free society, the government's role ought to be to protect our liberties.
And that should be it.
And trust people to do what is in their own best interest, as long as nobody commits fraud or counterfeit.
But no, we have a system that endorses counterfeit.
It's run-on counterfeit.
So no, what we want is a system where the people have to wake up and say, you know, you guys over in Washington, the Federal Reserve, you've done such a lousy job.
We want to sort of just phase you out.
We need to get rid of you.
We need to turn responsibility over to individuals.
And individuals will be much more capable of taking care of each and every one if we have honesty in property rights and contract rights and sound money.
That's not very complicated, but we will be faced with that decision.
And that is why we have to really work on another generation that's coming into the fold rather than allowing the millennials and the different groups to go and move toward a socialist viewpoint where the government can take care of everybody.
That has to be reversed rather than going through another 30 years of pain and suffering and waiting till it gets as bad as Venezuela or some of these other countries.
So I think the problems are there.
I don't think they're complicated.
I think the solutions are there.
The founders were on the right track.
And it's all involved with the understanding of the value of personal liberty and rejecting the notion that collectivism with government telling us what to do and running the monetary system doesn't work.
I do want to thank everybody for tuning in today to the Liberty Report.