Former Senator Ron Paul is the guy that made being a libertarian cool. Although he ran as a Republican there is no doubt he was a libertarian. As one of the most fiscally conservative and socially liberal folks to hold a seat in congress he was loved by many. Although he said some of the wall things he is usually pretty spot on when it comes to the economy.
In a recent interview Ron Paul is warning negative interest rates will crush the global economy. Sending it downward with way more impact than the 2008 crisis that rocked the banks and the housing market around the globe.
The former Republican congressman from Texas believes the U.S. won’t be saved on this one.
“We will join the rest of them and go to total negative rates in hopes that that will be the solution, We’ve never had as many currencies in negative interest rates. $17 trillion worth of bonds [are] in negative interest rates. It’s never existed before. And, that’s a bubble. So, we’re in the biggest bond bubble in history, and it’s going to burst.”Ron Paul on Thursday
Paul, a former presidential candidate who ran is a Republican but is more of a libertarian known for his economic and stock market bubble warnings since even before he ran for office, contends the Federal Reserve’s policies are powerless in this environment. He doesn’t believe this week’s Fed meeting will provide any kind of relief and cutting rates will not be the answer.
Paul has always been a critic of the Fed as well as our country leaving the gold standard. He has always considered the US dollar “fiat currency”. He believes for a currency to be strong it needs to be backed with a tangible asset. Many people feel the same way.
“You can’t predict exactly where the creation of credit goes, We have a ton of inflation with all that quantitative easing. And, every time you lower interest rates below market levels and create new credit, that’s a bubble.”Ron Paul
Paul has been waving the red flag for years, warning that a once in a lifetime market drop of 50% or more will strike stocks. Although Paul has always been an alarmist many economists believe the same as he does. Even though many write is beliefs off as a “sky is falling’ and him crying wolf too many times, there is a lot of truth to Paul’s statements. With bonds yielding negative rates now in focus, he suggests the danger is ballooning to unseen levels. The market is not really reacting to his warning yet. He does believe when the correction comes it will be fast and swift.
Yet, he’s unsure of the timing of a collapse. Although he usually indicates it will be sooner than later and when it does hit it will hit hard. That is always the case with the market though. Anyone that follows the market knows this. Especially big corrections. There is always one big day set it off. Then charts start flashing signals and it is a self perpetuating downward spiral.
“You don’t know this precise time. But you know it can happen, How do you sell a bond that pays a negative rate? Who’s going to jump up and down?”Ron Paul
This is not the first time Paul has made this warning. The most recent was when Paul was worried about the other extreme last October — when the 10-year Treasury note yield rallied to seven year highs and hit 3.26%, creating inflation jitters. Inflation has always been a concern of Senator Paul and why he has always been so critical of the Fed.
“It can be pretty well validated by looking at monetary history that when you inflate the currency, distort interest rates and live beyond your means and spend too much, there has to be an adjustment, Futures Now” last October. “We have the biggest bubble in the history of mankind.”Ron Paul
On Friday, the 10-year yield closed at 1.9%, its highest level since August 2.
So, why is Paul still warning an epic bond bubble will burst an create chaos if rates are no longer above 3%?
According to Paul and other fiscally conservative economists, central banks which drastically lower interest rates destroy the pricing mechanism in financial markets. Basically it bumps up markets with imaginary money with nothing to back it. It would be about the same as the government saying “people are too poor. Let’s give them all a million dollars we just printed for them”. That just isn’t how the economy works. It is why it wouldn’t work To just raise minimum wage. The economy is much more fragile than people understand.
“I don’t think anything even existed coming close to what we’re facing today,”Ron Paul