In an On My Mind segment of Forbes Ron Paul says Be Prepared for the Worst

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.

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.

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.

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.

Fake Recovery

I agree with most of what Ron Paul says except for the likelihood of hyperinflation. While theoretically possible, concern should be more over what legislation Barney Frank and Congress comes up with rather than what Bernanke is going to do next.

On every other point I agree.

  • This is a fake recovery that will die as soon as stimulus stops. It will die eventually whether stimulus stops or not.
  • The policies of Hoover and Roosevelt certainly caused the Depression to worsen.
  • Government intervention cannot lead to economic growth and the policy responses out of the Fed and Congress are simply making matters worse.

Ron Paul vs Michael Moore on Larry King CNN 10/29/2009

Inquiring minds are listening to Ron Paul on Larry king.

Partial Transcript

I dislike the health care system as much as Michael Moore does. But he is complaining about this being a part of capitalism. It has nothing to do with capitalism. This is corporatism. … Pumping money into as system does not improve quality; it increases prices.

When a country embarks on deficit financing and inflationism you wipe out the middle class ad wealth is transferred from the middle class and the poor to the rich.

The problem isn’t the fact that we don’t have enough government, we have way too much government. Government crated this monster. If he [Moore] doesn’t like what we have, he has to look at what we have been doing for 30 or 40 years. It’s called interventionism; it’s called Keynesianism; it’s called inflationism, and it’s called big government. That’s the problem.

[On Afghanistan and Iraq] My position is we shouldn’t have gone in and we should just come home. There has been a token effort at bringing some troops home from Iraq. Iraq is a mess. But at the same time we are sending in contractors to replace the troops, paying them a lot more money, subsidizing the military industrial complex and Obama ought to be condemned for that.

We just marched in we can just march home. Besides, I will win this argument. We are bankrupt and cannot afford it.

Let’s quit this militarism around the world. We are in 130 countries and 700 bases around the world and we cannot sustain these. It’s pumped out by the left and the right. There is conservative Keynesianism and liberal Keynesianism which always fails and gives us the financial crisis we are in.

I have no quibbles with what Ron Paul says in that interview. Please listen to it. Moore is also criticizing our policy in Iraq.

Mike “Mish” Shedlock
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