Ron Paul Podcast: The Fed’s New Boss Thinks She Can Spot Bubbles

After eight years as head of the Fed, Ben Bernanke is out and Janet Yellen is in. Is Ben Bernanke getting out just before the consequences of his policies hit home, much as when Alan Greenspan left the Fed just before the mortgage bubble he created popped? And does Yellen have any idea what is in store for the economy on her watch?

In this week’s podcast, Ron Paul discusses these questions and more. What follows are the highlights of our conversation.

Goyette: They may have some uncanny luck at the top of the Fed, Dr. Paul. Alan Greenspan got out just before an ugly confrontation with the mortgage bubble that he blew up. And now Ben Bernanke’s gone before all the damage is suffered from his quantitative easing.

Paul: I think they were pretty lucky . . . (but) they believe in themselves so strongly, that if the president came to Bernanke and said “please stay with us,” I think he would have been staying.  …

We’re still in the midst of a big bubble that’s been pervasive in the ups and downs, and that’s the bubble in the bond market. And they’re oblivious to it, they don’t think it’s a problem, and their creating new money is always the answer. But if you look at what Bernanke did, to me the numbers are astounding. He’s leaving with a balance sheet of over $4 trillion, and it was under $1 trillion when he took over eight years ago.  …

Now the stock market’s not doing so well because there’s this pretense that they’re actually going to cut back, which is called taper, but that is just buying a few less bonds per month. They’re still buying a huge amount.  …

It was always building an economy on a false pretense that they knew what interest rates should be. You know in a true free market, interest rates are crucial. You have to get an idea about what the true market rate of interest is to help people make decisions. … But the thing is, you put it in the hands of one person, like a Greenspan or a Bernanke or a Yellen, they don’t have any idea. And when they make a mistake, it’s horrendous.  …

But one of the great deceptions of this system is that they are all reassured because, well, the CPI is not going up. Exactly what they said in the 1920s: There is no inflation. Well, we want inflation (they say). We are obligated to destroy the value of the dollar at least by 2 percent a year, and that is good for the economy (they say). Of course the dollar is being destroyed at a more rapid rate than that. But they actually believe this is the very best thing that they can do, and yet the other part of the inflation of the currency and the distortion of interest rates, what it does, it causes something called malinvestment, and they never talk about this. … You know, Yellen sort of brags about her, you know, knowing about bubbles, and she will detect them and do something about them. But never once would she admit that the Fed had something to do with it. It’s all a result of the market place.  …

So today you have to look around: Where are the bubbles right now? I think they are in bonds. That’s a bubble and that’s all orchestrated by the Fed. But there’s also money that goes into other areas. Money goes into the medical industry, and what happens? Prices go up and quality goes down. And then they come in with regulations, and we have Obamacare, pretending that he can correct those problems.

And then also the Congress has directed money going into education, so we have all this money going into education and prices skyrocketing, and the quality of education going down. So those are the things that people don’t look at.  …

And now we’re starting to realize how destructive Obamacare is going to be to new jobs. It’s another burden on the economy.

Probably what we’re going to get on top of all of this is an increase in the rate of prices going up, and when that happens at the same time that there’s an economic slump, believe me, if there was ever an example of being between a rock and a hard place, it’ll be Janet Yellen, because there’s only one tool she has, and that is to print more money and lower the interest rate. But once you get interest rates below 1 percent … what’s Yellen going to do?

Goyette: So, Dr. Paul, a 7 percent drop in stocks in the first few weeks of the new year — how about the devotion of the Fed once investors and Wall Street start calling their regional Federal Reserve Bank presidents and congressmen and so on. I suppose the pressure comes on from places on high for them to start cranking it up again.

Paul: Yeah, I’m sure they’ll hear about it, and of course Yellen, that’s a part of her philosophy. She’s a bigger inflationist than either Greenspan or Bernanke. So that will come. They say January is an important month for the traders, the people who are in and out of the market all day. And they look at short term and not the fundamentals. But they look at January as being very important. If the first day is down, that’s significant. If the first month is down, that’s significant. If the first week in February’s down, that is significant. But you know, technically, in reality, it shouldn’t make a difference, if we have a free market. But because so many people have looked at this, and it’s happening, it does have a significance.

How long this lasts, we don’t know. It might last for a few more months. Only time will tell. But I cannot see how more people jumping into the stock market and buying stocks at this time — it’s sort of like I was worried about the housing market in 2002. Well, I’ve been worried about or at least aware that the stock market was not going to be a good place to be long term.

For your Freedom and Prosperity,

Charles Goyette