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Jan. 11, 2024 - Ron Paul Liberty Report
25:58
The Fed Can't Replace The Market To Find The Best Interest Rate

The failure of central planning is manifesting in our world again, this time from The Fed. There's no "right way" to plan the economy, or to manipulate interest rates, or to counterfeit money. It's all wrong and destructive! The only fix is to End The Fed and to use sound money once again.

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Policy Uncertainty Looms 00:04:15
Hello everybody and thank you for tuning in to the Liberty Report.
With us today is Chris Rossini, our co-host.
Chris, welcome to the program.
Great to be with you, Dr. Paul.
Good.
And we have lots to talk about, but it's the same old stuff again.
The people in charge of giving us sound money and following the Constitution, they're slipping on the job and they're not doing that.
So we have to address that.
Once again, the Federal Reserve is at it trying to solve our problems and the harder they try, they pretend to try, the worse things get.
And this week was a silly week on monetary policy.
The world was hanging on its hinges here because the Federal Reserve had to make a decision on interest rates.
And everybody knew what the final conclusion would be on that day.
They were going to switch from raising the interest rates to 1.5% to 1.75%, a quarter of a percent.
And this was a big deal.
What's the difference?
And overall, the difference between a market rate of interest rates versus a government manipulated interest rate, that's a different.
But this is a whole idea that the managers of the money supply, the managers of the interest rates, the subsidization of all the special interest, that that isn't the big issue.
But they decided it's one quarter of 1%, which is going to shake the markets probably and not last but a few weeks or a month, and they'll have to say, throw in the title.
Oh, I guess we misquoted on that.
But you know, it was interesting that one person voted against this from the Federal Reserve Board, and that was the president of the Kansas City's Federal Reserve Office.
And the president there is Esther George, and she's usually a hawk, which means that she would, in the past, be consistent in voting, this is bad news.
We've got to cut this off.
We've got to raise these rates and get back to normalcy and cut back on some of this printed money.
But this time she descended.
And she came out and she concluded that this could be very, very, very disruptive.
And it has caused policy uncertainty by doing this.
So she voted no.
But she's also resigning at the end of the year.
So that's where it probably might have helped her gain a little courage.
But nevertheless, that was her reasoning, and there's no reason to doubt her, but she should have been thinking about that.
I think she's been around eight or ten years.
She should have been thinking about that when she was in college, about how disruptive this would be and how much uncertainty will cause.
Because I think her description of what she's concerned about is really describing what's happening.
You talk about uncertainty.
That's what we have.
And it's uncertain to the Federal Reserve what they should do, uncertain to the President what he should do, and on and on.
But under these conditions, if you think about, well, how does this affect the markets?
Well, it's very, very difficult to make good judgment because that's what the Fed does.
They ruin the conditions and the atmosphere for making market decisions.
The most important decision that they can make if you're an entrepreneur and a businessman, an investor, what are the interest rates?
What are the real interest rates?
What are the people doing with saving?
And how much building is going on and where is this going?
You know, they can evaluate that.
But if you get rid of this very, very important item, which is what is the natural rate of interest?
What do the people think it should be?
How much should we save and how much should we send?
It involves the consumers and all these things.
So that is what they've attacked and they don't have it.
So they have this uncertainty.
But what about the person that does work on Wall Street and does deal legitimately in the stock market and trying to make these guesses about bond rates and all this?
People's Savings Uncertainty 00:04:00
It makes it very difficult.
When I talk to a business group, I usually, if they're on this, I compliment, boy, you guys have a tough job figuring this out.
But you know, it's always that it's not only tough for these big guys on Wall Street and the politicians, we've given up on the politicians, but it's always trying to figure this out.
But what about the average person?
The average person that has mutual funds and investing here and there and they decide to say, should they buy a house?
Right now, they say the youngest generation is saying, you know, that they're interested in buying houses versus stocks and on and on.
But anyway, one thing that is well known because it's been around a long time, it wasn't even invented by the Austrian economists, but they recognize that the one item that seems to live through all this for centuries has been, you know, the desire to hold and the price people are willing to pay for gold in the currency that is generally being debased.
And that is right now the dollar and the debasement.
And the Fed hasn't done well.
The Fed took over in 1913.
It was $20 an ounce.
And now it's a little bit higher than that.
But there's still a lot of people and more every day getting to recognize that gold has something to offer because you can look, the history is there.
There are other things you can do.
You know, I like the idea of property because you're holding something.
But the truth is, is, you know, if tomorrow, if I had a house or something I want to sell, I can't get it the next day.
And gold is always available.
So if people are interested in gold, if they're already investing in gold or they want to get invested in gold, I've been working with Birch Gold.
And they have people that will talk with you.
The number is on the screen.
You can look there.
If you call there, you can get somebody on the phone because it isn't like everybody buys Kruger Ans tomorrow.
Oh, no, we have American gold now.
Kruger Ans was so traditional because that was the first American coin that we were allowed to own when gold became legal again.
And the antagonism toward gold lasted.
The strong antagonism was from 34 all the way up to 75, and that is when it was illegal to own it.
It's not illegal.
And there are people who study it.
There's nobody perfect out there about the short terms.
You might say, well, we just got a money supply figure here.
That sounds to me like gold prices should jump today.
But gold prices might go down.
So this is the reason I advise people who feel like they like to get more information to look at the number on the screen.
Call, get hold of somebody at Birch Gold, and discuss what your needs are because they will be different because it can be various things that you can buy, buy ways to buy gold.
But at the same time, it's something that has to be adapted to somebody.
Because age, somebody at 18 might have a different belief than somebody that is 70 years old on how they want to buy their gold.
But the history of gold fascinated me from the very beginning.
And that's why I'm involved now and offer this opportunity for people to look at this number on the screen.
Call, get somebody on there if you want to get more involved and gold.
And that's for Birch Gold.
Chris, I imagine you know a little bit about gold.
Yes, very good, Dr. Paul.
And we do recommend people call and at least talk to somebody and they'll give you your options.
But as far as our topic for today, it's about the failure of central planning.
And this is like an iron law of economics.
You cannot plan the economy.
But, you know, they're always trying, nevertheless.
Price Fixing and Economic Mess-Up 00:15:17
And we saw this week the price fixing at the Federal Reserve.
They raised interest rates by 75 basis points.
And, you know, the first question is, well, why 75?
Why not 50?
Why not 100 basis points?
How do you know what you're doing?
And the answer is they do not know what they're doing because it's impossible to know.
It's very logical as to why.
You know, if somebody were to ask me, hey, you're the chairman of lawnmowers, what should be the price of lawnmowers right now?
My answer would be, I have absolutely no idea.
That's up to the people that are buying and selling, the specific individual that wants to buy a lawnmower and the specific individual that is selling one.
And at that moment, what are they willing to part with?
What is more valuable to them at that moment?
They could change their mind any second.
So there is no way an outside party like myself, the chairman of lawnmowers, can go to these two people and say, this right here, this is the price of lawnmowers.
If I were to do that, that would mess everything up.
It would mess up the entire market economy.
But that is what the Fed does.
They price fix interest rates and they mess up the economy big time.
Now we're going to experience the biggest one of them all.
So price fixing must stop.
You know, the Fed is only creating more problems.
They're going to keep adding to those problems and they're only going to make everything much, much worse.
You know, and a basic flaw in this whole system that we've been messing around with now for a good many years, but the climactic end to a relatively usable item and a soundness to our currency, it ended in 1971.
And even before that, it was not in good shape because where the real movement away from sound money and defining a unit of account occurred in 1913.
And then by 1971, it was gone because the unit of account is a Federal Reserve node.
And that is totally arbitrary.
And yet, the price of something that is totally arbitrary is not easily done.
It's difficult.
And there's a lot of special interests that move in.
And they take advantage of this.
Whoever controls the Federal Reserve, they get the benefits.
And right now, to me, it's really very, very scary because the people who are getting the dollars to use right now go to the wealthy, the banks and the big corporations, the military-industrial complex, the pharmaceuticals.
And by the time this money circulates, it gets down to the people.
It's not being distributed through the principles of the free market and interest rates.
It's being divided by federal regulation and all the rules and regulations.
And this causes a lot more trouble.
And the people that are being really hurt are the poor and the middle class.
So yes, what we're doing right now is we're trying to sort out the problem of working without an interest rate being devised by the furry market.
But especially since 2008, that last recession that we had in 2008 was a big one and it's still around.
And that's when QE came in.
That's when they got serious about the creation of new money.
And people say, well, you know, well, I'm looking at the money supply every day.
I looked last month and last week it did this.
But you know what?
It doesn't get discounted.
It doesn't get worked into the system immediately.
Sometimes it gets worked in the system immediately, and sometimes there's a psychological and subjective reaction to what the federal government is doing.
So from 2008 on, they had, and we've had to suffer through the QE, and it's continuing because what they say, we're going to raise interest rates, but they're not actually saying, well, what we're going to do is shrink the money supply.
They're able to do it.
They are able to fudge the figures and do things in secret where they can literally rig the interest rates at the same time not always increase the money supply.
Right now, they finally got to the point where the people in the market are saying, hey, you guys better watch out.
You're going too much too fast, and you better back off.
And that's why the big argument's been going on now is how can we do this?
How can we raise the interest rates without destroying the economy?
Well, they can't.
And the other factor that they have to deal with, which they're not capable of doing, is the timing.
Some of that QE stuff from 2008 and the next 20 years after that, it hasn't all been, it has been all disseminated and worked in the economy and discounted.
So it comes in.
So the timing is tough.
In Austrian economics, you can figure out and you can get a lot of help in understanding what the economic laws are.
And one basic economic law is if you take a sound currency, turn it into a fiat currency, and you create a lot of new digits and new money, the value of that currency, the dollar, is going to go down.
People say, well, that sounds logical and logical.
But they don't follow through and say, well, what does that do?
It sets the standard for paying for the debt that we accumulated, which we shouldn't have.
So who's going to pay?
Well, nobody's going to step forward and say, cut my budget.
No, it is going to be passed on to the middle class and the poor.
The rich get the money first.
They get the benefits.
They can buy gold and different things that they get away with.
And then the people in the middle class, when the prices go up, that means the dollar is getting weaker.
And believe me, it isn't like occasionally, you know, over the years you'd see, oh, energy prices are, you know, $50.
It might go up to $55 at the end of the year.
Now every day they report the price of gasoline going up.
And then, to compound it all, you have to listen to our president explain the policy how he's going to get the prices down by manipulation of regulations and dictates.
And I fear most that is what he is hinting at is putting on price controls, and that will really devastate our economy.
Chris?
It will, Dr. Paul.
And you have been saying for so many years that the Fed is going to hurt the middle class ultimately.
We are in the middle of it.
Absolutely.
Those who watch our show here, Daniel, talking about gas prices, I'm in the same boat.
I'm paying $5.29 for gas, which is the most I've ever paid in my life.
And I was talking to the attendant.
I said, you noticing a lot of people aren't filling up anymore?
He goes, oh, yeah, absolutely.
He goes, they'll put in $20, $40.
So who has the money to fill up their tank anymore?
But this is like what Dr. Paul just said.
They're destroying the value of the dollar.
That's what is happening here.
And now it's showing up.
But on top of this, they raised 75 basis points.
But the interest rates are still way too low.
It's inflationary.
And I noticed on Twitter yesterday, actually, the Fed is still inflating.
They expanded their balance sheet by $14 billion last week.
So they're still pumping new money into the system.
And others will say, oh, yeah, but it's less than before, less than before.
But inflation, no matter how much it is, is destructive, no matter what, whether it's less than before, more than before.
It's all destructive all the time.
What needs to happen is they have to stop destroying the value of the dollar.
But apparently, in their minds, they can't.
But what we know is that once the pain is too great, even just by raising interest rates a little bit, they're going to most likely run back and just start pumping huge amounts of money again.
They did it during COVID, or right before COVID, they were tapering.
They were tapering, tapering.
Once COVID hit, all that tapering went out the window and they printed like gangbusters.
So they never stop doing the wrong thing.
And that is the big problem that we face.
You know, I was mentioning about the rules and the laws of economics.
If you put a lot of money, the value is going down, but you can't time it and you don't know.
Sometimes governments get away with printing the money and other conditions give a reassurance that things are okay.
If you're a very wealthy country, if you have a powerful military, and the country is still freer than the others, you can print money for a long, long time, and productivity helps to hide this.
But eventually that ends and it has to be discounted.
And people, you know, start seeing that, well, now the prices are going up.
And they don't see the connection that maybe 10, 20 years ago, the system that we have was setting the stage for this, which most people who understand economics, Austrian economics, has made these predictions.
But the basic thing that individuals have to consider is that this is not a technical problem.
It's caused technical complications that, and Chris has addressed that very clearly already.
Where do these people come and where do they get the knowledge?
And assuming they know what the interest rate should be, and they can't do that.
And they say, well, we need a more technical group of people, you know, and they'll go looking around or a new policy and kick one Fed chairman out and put another one in.
It's not, the technical stuff is a complication from a philosophic position.
The philosophic position is what they don't want to talk about because that would be the nature of the money.
This is one reason why if they talk about the CPI and the CPI is going up and it's going up at 10%.
Now, actually, I think it's more than that.
It's the CPI is going up.
It's the profiteering.
It's the labor unions.
It's all of this and artificial shortages and all this.
They never bring up on regular television and say, you know what?
This is a Federal Reserve policy.
That's the problem.
And then if you say, well, Fed creates the inflation, all of a sudden everybody in this country is going to look at that.
And believe me, throughout history, people do catch on and they're starting to catch on right now that inflation doesn't come from people wanting to make profits.
And the profits and all that activity that's going on where prices and labor and costs are going up, that's a result of the inflation as a result of the devaluation of the currency.
So this to me is a big issue that we have to address.
That is the philosophy of money and how it has come about and how it should be handled versus this whole thing that it's a technical problem.
And the Federal Reserve typically are this way.
They can do this, this, and this, and this, and they create a problem.
Oh, yeah, that can happen, but we'll regulate that.
Something is distorted.
And one of the things that happens under these conditions that not as much is talked about as it should be, and that is malinvestment.
Because when you're getting this lousy information saying interest rates are real low, people must be saving money, you know, and there must be a need to invest and build stuff, which is exactly the opposite because interest rates are low artificially.
So this is what really is a big problem.
And there's always going to be mistakes made, but massive malinvestment.
I think we're going to see it now because just even within the last couple years, you know, housing prices soared.
And now the conditions are such that housing prices are starting to drop and rents are dropping in some places.
So sometimes, not sometimes, but there's an overproduction in so many things.
And that has to be dealt with.
But it always goes back to people who manipulate money for their special interests.
And it started with a special treatment of banks and big corporations and military-industrial complex.
It usually comes about with a collusion between big government and also big corporations.
And that is what has to be addressed.
Very good, Dr. Paul.
I will make my closing statement now.
And I'll start by saying there is no right way to do what the Fed attempts to do.
And when you turn on the media or the television, which I hope you don't, but if you do, you'll be greeted with, you know, well, what the Fed got wrong, you know, what could they do?
What should they do?
This all implies that there's a right way to do these things.
And there is none.
Its entire existence is wrong.
There is no right way to centrally plan the economy.
There's no right way to manipulate interest rates, to price fix, to counterfeit money.
It's all wrong.
Every single move that they make is wrong.
And once you get this, you know, you just see the world much differently.
It's like, you know, it just shouldn't exist.
Kind of like when you find out there's no Easter bunny and people try to convince you otherwise, you can't be convinced otherwise.
You know, the only right thing to do, and who knows if we're going to ever see it happen, is to end the Fed and to once again adopt sound money, free markets, and voluntary exchanges.
Very, very good, Chris.
You know, the odds of the people in the near future wake up and say, well, I think these guys over there at the Liberty Report know what they're talking about.
So therefore, what we should be doing is cutting back, cutting back on government.
We shouldn't be passing out tens of billions of dollars to Ukraine and all this activity and having a welfare state which causes problems, spending billions and billions of dollars to subsidize illegal immigration and taking care of everybody who wants and needs.
And then when the problem comes and people say, well, the prices are going up and what do we do?
When they come to government, their first idea is, well, I can't afford that.
And it happened certainly during COVID.
So what was the answer?
Give us more money.
And what happened?
Government did.
Happened to be a Republican government at that time to start off.
Just pass out more money, and that is the solution.
So if the problem is too much money and distortion and malinvestment and the artificial interest rates, how is more of it going to help?
More Money Isn't the Solution 00:02:24
But they do continue to do that.
But there's one other thing we could add to that that It seems like it would be a problem, and it is this adjustment of trying to find that rate of interest.
And Chris has just explained why you can't do it that way.
The market can do that.
But what they do is they try to find that out and they look for the right interest rates, and they can't do it.
But what about this manipulation of interest rates?
Well, they finally come around.
Volcker had it.
He gave us interest rates at 21% and a recession, and we survived.
Well, I think this isn't going to be as easily survived.
And they're just tinkering with interest rates now.
You know, it's still way, way too low.
So that's going to continue to last.
But even this little bit, the distortion is when interest rates go up, who pays it?
Well, the consumer pays it.
It's another burden.
That's prices.
You're out there.
Well, the prices are going up too fast.
So if you're buying a house, let's push the price of houses up more because we'll dictate and control this interest rate.
We'll raise the interest rates.
And it's this whole thing that you're supposed to believe that something has caused the problem, that all we need is more of that same thing that caused the problem.
And it goes on and on.
Governments inevitably are like that.
They go back and they're locked into it because they don't care about it, they don't understand, and they're not fighting for what we fight for here, and that is for the cause of liberty.
Because free markets, property rights, voluntary contracts, volunteerism in the international and also interpersonal relationship, believe me, that is great stuff.
And it's very, very cost-sensitive.
That means it doesn't cost a whole lot to be free.
Matter of fact, it decreases the effort to steal from people in order to survive all the mistakes that government continues to make.
So as bad as things are, the answers are out there.
They're not complex.
And more and more people are waking up and say, I think Liberty Report has it right.
What we need is more liberty, not more government.
I want to thank everybody for tuning in today to the Liberty Report.
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