Dr. Ron Paul, former Congressman from Texas, Presidential candidate, and libertarian spokesman, declared on CNBC recently that he sees a stock market crash coming. Paul traces back what he believes is a stock market bubble to inflationary policies conducted by the Federal Reserve:
I think there’s plenty of inflation, but my definition of inflation is a little different than the rest, because I think prices going up in the different areas is a consequence of inflation. “There’s a lot of inflation in the stock market. I think there’s a bubble there.”
Paul is a student of the Austrian School of Economics, which contains Ludwig von Mises and Friedrich Hayek as a couple of its most brilliant thinkers. The Austrian School has long been critical of central banking; and Paul is no exception, having authored his own book called “End the Fed.” Dr. Paul thinks that the current interest rates are faulty and artificial, caused by the Fed. In turn, says Paul, investors make bad decisions based on the artificial interest rates, resulting in bubbles:
“One thing we have to remember is that when you get false information from artificially low interest rates, that mistakes are made, they’re inevitable. You make mistakes even when you have market rates of interest. But when the market rate of interest is so low for everybody, there’s a lot of mistakes, and that’s why you have the bubbles, and that’s why you go through the catastrophe we had in ’08 and ’09, and I think the conditions are every bit as bad as they were in ’08 and ’09.”
Paul remains steadfast in his belief that an America without a Federal Reserve would be a brighter America. He described the way investors are forced to hang on to every word of the Fed in the current environment:
“One thing you have to do is get rid of the Fed, because, you know, we’re anticipating what word, what phrase, what hyphen is going to be said, so that they can spin, you know, spin that, and the markets will go one way or the other, shifting values of tens of billions of dollars within minutes. That is just a very, very inefficient way to operate a market, to have one individual make one statement, and put so much weight on it. In short term, it’s very, very real, because people are going to make it or break it, you know, on this interpretation. But that has nothing to do with the free market, nothing to do with building capitalism, and savings, and the things necessary to have a growing economy.”
What do you think? Is Ron Paul right to think that a crash will be forthcoming? Or will the stock market continue to plow ahead as it has done since 2009?
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