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As the Federal Reserve prepares to raise interest rates in the face of what it called “transitory” inflation only months ago, former congressman and presidential candidate, Ron Paul, explains that the policies will likely tip the economy into recession. He writes at the Ron Paul Institute (abridged):
The Fed is planning to try to tame prices by increasing interest rates and reducing its balance sheet.
This will likely tip the economy into a recession. Increasing interest rates will also cause the federal government’s debt payments to increase, which is a reason the Fed will not increase rates to anywhere near where they would be in a free market.
The best-case scenario may be a return to 70s-style “stagflation.”
The worst-case scenario is that the Fed’s failure to rein in inflation, fueled by Congress’s failure to stop spending, combined with the continued resentment over the US’s hyper-interventionist foreign policy, will cause a rejection of the dollar’s reserve currency status and lead to a major financial crisis. Such a crisis could result in widespread poverty, as well as violence, crackdowns on liberties, and even the rise of a totalitarian government.
The crisis could still be avoided, but only if Congress becomes serious about cutting spending, starting with the military industrial complex.
Congress should also start to reform monetary policy by auditing the Fed, legalizing alternative currencies, and exempting precious metals and cryptocurrencies from all capital gains taxes. The welfare-warfare-fiat money system will end. What is not known is when it will end and whether it will be replaced by an even more authoritarian government or by a return to limited, constitutional government.
Dr. Ron Paul is a former member of Congress and Distinguished Counselor to the Mises Institute.
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