Ron Paul, the renowned Libertarian politician, is warning investors not to get confused by any stock market rallies over the next few months and think the worst is over.
“Remember that after Black Tuesday in 1929 the Dow Jones rallied over the next year before it began slowly and steadily to sink again,” Paul wrote in his weekly column posted on the Ron Paul Institute web site on Sunday. (Source: “What Markets Are Telling Us,” Ron Paul Institute, February 14, 2016.)
“The central bankers will do everything they can to delay the inevitable,” he argued.
Concerns about an economic slowdown have rattled investors this year. The S&P 500 and the 30-member Dow Jones Industrial Average have lost six percent each; the NASDAQ Composite is down 10%.
All three major U.S. indices have been rallying since the beginning of the short week, as some analysts say the panic has been overdone. The U.S. stock market was closed on Monday for the Presidents’ Day holiday.
Although Paul likens the current economic situation to that of the 1920s, he said that unlike the “Roaring 20s,” the economy isn’t quite as strong today.
“It’s more of a gasp than a roar,” he said.
Paul said he believes that printing money is the cause, not the cure, of recessions and depressions.
He blasted the Federal Reserve not only for committing the mistake of providing easy money, but also—and most of all—for failing to let prices drop.
“They [the Fed] didn’t realize that prices needed to drop in order to clear all the bad debt and mal-investments out of the system,” the 81-year-old ex-congressman said. “Because they don’t realize that, we are on the verge of yet another financial crisis.”
Paul, the author of End the Fed (2009), said that if the central bank had allowed housing prices to decline in 2008 and hadn’t bailed out the big Wall Street banks, the world’s largest economy would have corrected itself.
“Yes, it would have been a severe correction, but it would have been nothing compared to the inevitable correction that will present itself when the Fed runs out of easy money options,” he wrote. “The Fed may try to cut interest rates again, maybe even going negative, or it will do more quantitative easing, but that won’t work.”
“The more money the Federal Reserve creates, the more ordinary Americans will end up suffering,” Ron Paul concludes.