Congress and the Federal Reserve have created a massive stock market bubble that risks plunging the world into a complete economic collapse in 2016. At least, that’s the opinion of former Congressman Ron Paul.
“Socialism fails always because you have wage and price controls,” the three-time presidential candidate explained to Newsmax on Tuesday. “But we in the West have control of the economy and economic planning by pricing money.” (Source: Ron Paul: Federal Reserve, Congress to Blame for Market Bubble, August 26, 2015.)
“One-half of the economy, which is the money, is fixed so you have currency transactions and currency competition and then you have the supply of money and interest rates, and it’s a gross distortion because people have been fooled into thinking they’re saving.”
In his conversation with The Hard Line host Ed Berliner, Paul argued the Federal Reserve and Congress are responsible for “99%” of the recent volatility in the stock market. The central bank’s distortion of interest rates creates bubbles in financial markets while excessive regulations from the government hold back growth. The combination is toxic for investors.
“You know it’s there because the Federal Reserve creates the bubbles, and many times on purpose,” Paul explained. “They go from NASDAQ bubbles to housing bubbles to whatever they need to bail out the economy.”
To avoid the consequences of its actions, the Fed is prone to creating new bubbles and delaying the day of reckoning further. But, as Paul explains, the economic planners in Washington would be better off if they simply allowed the market to correct itself and carry out the liquidation of debt.
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How will it all play out? Paul remains “very concerned” about the gross distortions throughout the economy, particularly in the bond market.
“We’re still at zero percent [interest rates],” he explained to Berliner. “Eventually, the people will reject this and already you see some companies and debt like in Greece and some of our own municipalities turn sovereign debt, government debt, into junk and that eventually will happen.”
“That will be the Big One,” he added. “That will play havoc” on investors and the U.S. economy.