Be Prepared for the Worst, The large-scale government intervention in the economy is going to end badly- Ron Paul

Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.

A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.

Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.

This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve's balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?

What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.

Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury's program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person's pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.

The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.

Ron Paul is a Republican congressman from Texas.

http://www.forbes.com/forbes/2009/1116/opinions-great-depression-ec...

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Comment by Anti Oligarch on November 8, 2009 at 6:02pm
The future they're planing for us is worse than that of the Jews in Hitler's Germany.
Look at the army and police, look at the FEMA camps all over the place, look at the communications interception technology.
They control all of the above.
We are under surveillance 24/7 and they can arrest any number of us without notice at any time.
Once they feel ready (according to Ron Paul we're going through very dangerous times) they'll let the zombified forces loose on us and millions of unsuspecting innocent people are going to be crushed in the camps.
I wish everybody good luck.
Take good care of yourselves and help your fellow human beings when you can.
Comment by Wonder Woman on October 31, 2009 at 12:01am
Ron Paul seems to be the one common sense politician we have. He's become my hero since I found him after the elections. Food storage is a key, but I try to have some precious metals as well. What if your food was confiscated? Could we have a little silver (still affordable ad overlooked) stashed away in order to buy more food? Heirloom seeds should hold value as well.
Comment by youhavetoforgiveme on October 30, 2009 at 10:40am
A good read...rather convincing without a "cattle call" approach to (for example) buy gold (or vote for Ron Paul, or whatever) like so many other politicians. Soon, I will start buying canned food...I just have to figure out how to get it past my wife (who still believes in paying the mortgage ahead of everything else)....
Comment by Tara on October 30, 2009 at 10:26am
I hear ya Keisha, I think that food and commodities will be much more valuable than gold in the future. I can't afford gold but even if I could I'd probably stock up on supplies instead.

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