The Federal Reserve recently announced it will keep interest rates at or near zero until the economy recovers from the government-imposed shutdown. Following this announcement, Federal Reserve Chairman Jerome Powell urged Congress and the Trump administration to put aside any concerns about the deficit and spend whatever it takes to stimulate the economy and combat coronavirus.
The Fed previously announced it would make unlimited purchases of Treasury securities, thus encouraging Congress and the president to increase spending and debt. With some members of Congress talking about another multitrillion-dollar stimulus bill, and with President Trump proposing a $2 trillion infrastructure plan as a way to get Americans back to work, it is obvious, and not surprising, that Congress and President Trump gleefully agree with Powell’s advice.
Increasing the purchase of federal debt is not the only action the Fed has taken in a desperate attempt to keep the economy afloat. Since the coronavirus lockdowns began in early March, the Fed has greatly expanded its balance sheet. The Federal Reserve has also launched an unprecedented program to “loan” money directly to businesses.
While some states are beginning to end the lockdowns, it may be months or even another year before all the lockdowns are finally ended. It is unlikely that the economy will completely recover after the shutdown ends.
The economy was teetering on the brink of a recession months before anyone heard of coronavirus.
The economy was teetering on the brink of a recession months before anyone heard of coronavirus.
Last September, a panicked Fed began emergency infusions of cash into the repurchasing market, which is where banks make short-term loans to each other. The Fed’s balance sheet expansion also began in September. The Fed was also pushing interest rates down before the coronavirus panic, and it will likely keep rates at or even below zero long after the crisis related to the shutdown subsides.
Economic stagnation combined with zero or negative interest rates remove incentive for people to save. This depletes the supply of private capital available to invest in businesses and jobs. The lack of private capital will put pressure on the Federal Reserve to maintain, and even expand, its new lending programs indefinitely.
Each of the Federal Reserve’s responses to the coronavirus shutdown increases the distortions of the market caused by the Federal Reserve’s meddling with the money supply and interest rates. These increased distortions guarantee the inevitable crash will be much more severe than the current downturn. The one upside is that the next meltdown will likely lead to the end of the fiat money system and thus the end of the welfare-warfare state.
In the meantime, there is one thing we can be sure of: the “experts” will blame this recession or depression on a virus they will claim has shut down world commerce. There are two problems with this… First, the bursting of the bubble has been inevitable since the economic malpractice in responding to the 2008 economic collapse. And it is absolutely fallacious to blame this economic collapse on a virus. Viruses appear every year and kill sometimes hundreds of thousands of people worldwide.
In reality, this economic collapse was caused by the disastrous monetary policy pursued by the Fed and hastened by the absolutely wrong-headed response to the virus: lockdown!
The government-imposed lockdown has rendered a desperate situation even more catastrophic. Billions of dollars have been lost by government’s unnecessary interference in the right of people to earn a living. As more data becomes available, there’s little proof it has had anything to do with saving lives. The truth is that many in the medical field believe that a significant number of people may have lost their lives because of the shutdown. These efforts are more characteristic of authoritarianism than they are of a free society. The mandates for the lockdown should be discontinued as quickly as possible.
We are losing our country. Authoritarian government officials are sending small business owners like Dallas hairdresser Shelley Luther to jail for daring to open their businesses without “permission” from the state. This is as un-American as you can get.
But we should not permit the coronavirus debacle to distract from the bigger issue of how the Federal Reserve has created the largest economic bubble in history. If one concludes that our government is too big and intrusive, one must also realize that it could not have occurred without the Fed being able to finance it with fiat money. The key to ending this crisis and keeping it from spreading is to end the Fed.
Indeed, the only way to minimize the coming crisis is to begin immediately unwinding the current system…
The first step is to end the lockdown and let businesses reopen and people go back to work.
Congress must then begin challenging monetary policy by passing the Audit the Fed bill.
Congress should also cut spending, starting with ending our hyper-interventionist foreign policy and bringing the troops home.
Ending the welfare-warfare state and the fiat money system may cause some short-term pain, but that pain will be dwarfed by the long-term gains in liberty, peace, and prosperity.
But there is more that must be done. The American people must address a very important question in order to bring about the change in direction needed if we expect to renew our free society, which is now hanging by a thread. The question is: what is the role of government in a free society?
It’s not to make us safe and secure and financially equal. Governments have always failed in these efforts even when well-intended. The role is clear cut: promote liberty. Free people can take care of themselves.
Dr. Ron Paul is a 12-term member of Congress and three-time presidential candidate. While in Washington, D.C., he was one of the few voices advocating for limited government, individual liberty, and sound fiscal principles. He is the author of the No. 1 New York Times bestselling books The Revolution: A Manifesto and End the Fed.
