Everything’s Subprime

Ron Paul talked about bubbles during his Liberty Report last week, noting our articles on the subprime auto bubble, along with housing bubble 2.0.

As Ron pointed out, it’s hard to keep up with all of the distortions in the marketplace thanks to a decade of Federal Reserve easy money.

How do you cover all the bubbles? The nature of what the Fed does by manipulating interest rates to lower than the market rate, everything has to be affected to some degree by a bubble and a distortion and a malinvestment, and excessive debt.”

Ron pointed out that bubbles are inevitable when central banks tinker with interest rates. They destroy the market signals we need to guide economic decision-making.

Once you get involved in destroying the most important measuring rod for people to make decisions in business and investment, and that is the real interest rates. The market rate of interest tells you a whole lot, at least in a free market economy.”

Of course, we don’t really have a free market. As Ron put it, you pretty much just have to guess what the Fed is going to do.

Liberty Report cohost Daniel McAdams said the fact that the powers-that-be have managed to pump up subprime bubbles in both autos and housing makes you “wonder where their heads are.”

But they are addicted to creating new money into credit and this is what it looks like.”

Ron said it’s not only the central bankers who haven’t learned the lessons of the past. Politicians in DC never learn either.

They try to say, ‘Yes, you’re right. There’s mistakes,’ and they acknowledge that, even when we dealt with the bailouts before. Yes. But the answer is not going to free markets and reining in the Fed. It’s to take the mistakes of the Fed and take all the mistakes that business people make and ‘solve’ the problem with more regulation.”

Ron noted that Congress has created its own bubble – a giant debt bubble.

That’s probably the biggest bubble we’re going to be dealing with.”

Ron said eventually, the whole fiat system will collapse when the world decides to give up on the dollar. He said he doesn’t believe we’re on the verge of that yet, but that’s what the current course of things will eventually lead us to.

Ron didn’t just focus on the problems. He pointed out a solution. Get rid of the fiat money system and go back to real money – gold and silver.

In my stint in Congress, I always introduced a bill that legalized competing currency  – not dictating and saying, ‘This is what you must use,’ but legalizing the choices that could be made. Because gold and silver was not picked by government, but it was developed in the marketplace.”

As long as the Fed maintains its monopoly on money, “everything is subprime!”

Reprinted with permission from SchiffGold.com.

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