A long-time critic of America’s central banking establishment, former Congressman Ron Paul published a piece at the Ron Paul Institute on June 22, 2020 where he asserted that Federal Reserve is getting desperate.
Paul highlights the allegedly desperate attempt to jump-start the economy by the Fed:
In a sign that the Federal Reserve is growing increasingly desperate to jump-start the economy, the Fed’s Secondary Market Credit Facility has begun purchasing individual corporate bonds. The Secondary Market Credit Facility was created by Congress as part of a coronavirus stimulus bill to purchase as much as 750 billion dollars of corporate credit. Until last week, the Secondary Market Credit Facility had limited its purchases to exchange-traded funds, which are bundled groups of stocks or bonds.
In the former congressman’s view, the “bond purchasing initiative, like all Fed initiatives, will fail to produce long-term prosperity.” These types of purchases create distortions throughout the economy through the increase of the money supply and the subsequent fall in interest rates. The latter is the price of money.
Paul highlights how such moves create misallocations in the general economy:
In this case, the Fed’s purchase of individual corporate bonds enables select corporations to pursue projects for which they could not otherwise have obtained funding. This distorts signals sent by the market, making these companies seem like better investments than they actually are and thus allowing these companies to attract more private investment. This will cause these companies to experience a Fed-created bubble.
Similar to other bubbles generated by the Fed, the corporate bond bubble will eventually pop, which causes “businesses to collapse, investors to lose their money (unless they receive a government bailout), and workers to lose their jobs.”
Because of how the Fed does not have to reveal the purchases that these new facilities made, Paul has called on Congress to immediately pass the Audit Fed bill “so people can know whether a company is flush with cash because private investors determined it is a sound investment or because the Fed chose to ‘invest’ in its bonds.”
Paul broke down some of the political implications of the Fed’s monetary actions:
The Fed could, and likely will, use this bond buying program to advance political goals. The Fed could fulfill Chairman Jerome Powell’s stated desire to do something about climate change by supporting ‘green energy’ companies. The Fed could also use its power to reward businesses that, for example, support politically correct causes, refuse to sell guns, require their employees and customers to wear masks, or promote unquestioning obedience to the warfare state.
The former congressman added how such actions could influence local governments:
Another of the new lending facilities is charged with purchasing the bonds of cash-strapped state and local governments. This could allow the Fed to influence the policies of these governments. It is not wise to reward spendthrift politicians with a federal bailout — whether through Congress or through the Fed.
Paul did note what the overall endgame of the Fed’s lending activities will look like:
With lending facilities providing to the Federal Reserve the ability to give money directly to businesses and governments, the Fed is now just one step away from implementing Ben Bernanke’s infamous suggestion that, if all else fails, the Fed can drop money from a helicopter. These interventions will not save the economy. Instead, they will make the inevitable crash more painful. The next crash can bring about the end of the fiat monetary system. The question is not if the current monetary system ends, but when.
In conclusion, Paul argued that “Congress can avoid the Fed causing another great depression is to begin transitioning to a free-market monetary system by auditing, then ending, the Fed.”
Paul has distinguished himself for his multiple decades of calling out the Federal Reserve and central bank shenanigans.
Unfortunately, many politicians have ignored this Elephant in the Living Room and America will end up paying a major price for it. Hopefully, when the smoke clears, Americans will then have a sound money alternative to turn to.