Far far too simplistic. There are a multitude of things wrong with that analysis. First of all, he is right that the Fed shouldn't be in the business of setting interest rates. But that's the only thing he's correct about in that article. 1) The housing bubble was set in motion in the thirties, when Hoover started the Federal Home Loan Banks to back mortgages, designing them in somewhat the same way as the Federal Reserve. Hoover was actually an excellent engineer, and in tribute to his technical excellence, the FHLB's went about their business in 2008 and 2009 quietly and efficiently, saving the FDIC the trouble of winding up a lot more banks than they would have had to had this agency not been in place. 2) Equally as important, FDR put in place Fannie Mae, which was followed by LBJ creating Freddie Mac to give them a little competition. These two provided a secondary market for mortgages. 3) The effects of these two actions could be seen immediately that WWII was over: the suburbs were built en masse for the masses, creating huge demand for appliances, furniture, and other home accessories, and of course cars, as the new residents of these developments had no other practical way to get to work. 4) This produced the first in this long series of bubbles: cars. Recall that even in 2008, part of the bailouts went to the car companies. During the sixties and seventies, the US economy was hugely overdependent on cars and their offshoot industries. 5) Meantime, the tax code was doing its thing: the longstanding deductions for mortgage interest and property taxes funneled huge amounts of money into the pockets of real estate developers and agents, creating out of thin air a huge pro-housing lobby. 6) Time did its thing: as time went on, and more suburbs got built, it became absolutely required that if you made a decent salary, you had to own a house, because otherwise you got stuck paying the taxes your friends didn't because they had those deductions. So more and more people got sucked in, and in the eighties and nineties overdependence on housing replaced overdependence on the car industry for the American economy. 7) The Fed only got involved in the very last stage, and not in the way Paul thinks: after Greenspan weirdly brought rates way down after the dot-com boom and bust, they then proceeded to bring them all the way back again. It was that second part that did the trick: no one remembers this anymore, but in the mid 2000s we went through the longest period EVER of a flat to inverted yield curve. It was screaming huge recession and possible depression. Which of course is what we got. 8) The mechanism for that recession/depression was a massive hunt for yield among banks that had been almost totally deregulated. Unable to make money off the curve as they normally do, they took up the new financial instruments being churned out by their rocket scientists in a desperate attempt to juice their earnings. As an example, even though Citi was probably in the worst shape when all was said and done, they actually only got involved at the very end, probably because Chuck Prince was under huge pressure to match everyone else's earnings performance. So everyone succeeded in getting their earnings juiced, shareholders were happy, and then of course it all blew up. That's how it really happened. I'm actually seriously disappointed in Paul's article, since he could easily have pointed out that each step in the above was a direct consequence of government interference in the markets, except for the part where the banks got deregulated, a huge mistake that should never have happened. The Fed only played a minor role at the very end in that long sequence of epic half-baked socialism.
You've got to be kidding. An obstetrician alleging that somehow a group of academic economists are confused about monetary principles? He may be one of Rand's biggest fans, but he should leave the heavy intellectual lifting to someone else and concentrate on some other niche. I know it was an op-ed piece, but the WSJ should be embarrassed. If he wasn't a politician, his rant would have been dismissed as if it'd come from a grad student who knows just enough to be dangerous.
Ron Paul doesn't understand basic differences between US and EU money creation and some people want him to run this country? http://pragcap.com/debunking-ron-pauls-talking-points P.S. I agree with some of his points, like the need for a strong dollar.
Ditto. We'll try every "easy-to-do... hoped-for-fix" before we get down to reality... likely too late by then.
I believe its a structural disorder. the founding fathers were brilliant men. Senators were picked by legislators who suffered a lot of turnover. they had tariffs and no income taxes or thefts of property. When "progressives" were allowed to make structural changes they sowed the seeds of todays blowup. We now have too many free loaders voting for the party of the freeloaders. Our only hope is that enough freeloaders realize the pie is shrinking too fast. We also have far too much control of the legislature by the wealthy. We need structural reform I believe that ron paul is one of the few guys stating this. gingrich knows it, but does not really promote it. most of the others up on that stage are too full of shit just like all the democrats in power.
thanks ronblack, that's good stuff. Amazing how ignorant I am about fiat currency, especially since I'm tryng to trade forex. I'm working my way through the videos. Not much interest, only 500 views. But it explains the difference between kitchen table budgeting and what the fed is supposed to be trying to do. http://www.youtube.com/watch?v=QNE5t39XUYU&feature=related
Paul is lucky. He is a good man. If he becomes POTUS, he will become the enemy of the big bankers. Like JFK.