1984: Thread

[grarpamp]

Ron Paul: Mother Of All Economic Crisis Will Lead To "Social Unrest & Violence"

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Nouriel Roubini, a former advisor to the International Monetary Fund
and member of President Clinton’s Council of Economic Advisors, was
one of the few “mainstream” economists to predict the collapse of the
housing bubble. Now Roubini is warning that the staggering amounts of
debt held by individuals, businesses, and the government will soon
lead to the “mother of all economic crises.”

Roubini properly blames the creation of a debt-based economy on the
near-or-at-zero interest rate and quantitative easing policies pursued
by the Federal Reserve and other central banks. The inevitable result
of the zero-interest and quantitative easing policies is price
inflation wreaking havoc on the American people.

The Fed has been trying to eliminate price inflation with a series of
interest rate increases. So far, these rate increases have not
significantly reduced price inflation. This is because rates remain at
historic lows. Yet the rate increases have had negative economic
effects, including a decline in the demand for new homes. Increasing
interest rates make it impossible for many middle- and working-class
Americans to afford a monthly mortgage payment for even a relatively
inexpensive home.

The main reason the Fed cannot raise rates to anywhere near what they
would be in a free market is the effect it would have on the federal
government’s ability to manage its debt. According to the
Congressional Budget Office (CBO), interest on the national debt is
already on track to consume 40 percent of the federal budget by 2052
and will surpass defense spending by 2029! A small interest rate
increase can raise yearly federal debt interest rate payments by many
billions of dollars, increasing the amount of the federal budget
devoted solely to servicing the debt.

The federal government’s fiscal picture is made worse by the fact that
the Social Security “Trust Fund” will begin to run deficits by 2035
while the Medicare Trust Fund will run deficits by 2028. The looming
bankruptcy of the two major entitlement programs, combined with the
unwillingness of most in Congress to reduce either welfare or warfare
spending, puts the Fed in a bind. If it raises rates to the levels
needed to really combat price inflation, the increase in interest
payments will impose hardships on individuals and businesses, as well
as raise federal interest payments to unsustainable levels. This will
cause a major economic crisis including a government default on its
debt causing a rejection of the dollar’s world reserve currency
status. Also, if the Fed continues to facilitate federal deficits by
monetizing the debt, the result will be an economic crisis caused by a
collapse in the dollar’s value and rejection of the dollar’s world
reserve status.

The crisis will lead to social unrest and violence, as well as
increased popularity of authoritarian movements on both the left and
the right. This will lead to government crackdowns on civil liberties
and increased government control of our economy. The only bright spot
is this crisis will also fuel interest in the ideas of liberty and
could even help bring about a return to limited, constitutional
government, free markets, individual liberty, and a foreign policy of
peaceful trade with all. Those of us who know the truth have two
responsibilities. The first is to make the necessary plans to ensure
our families can survive the forthcoming turmoil. The second is to do
all we can to introduce as many people as possible to the ideas of
liberty.