Saturday Book Review: Liberty Defined by Ron Paul: Business Cycle
If I can stomach it, I intend to review Liberty Defined chapter-by-chapter so that you never have to read it.
When interest rates fall below their market rate, a false signal is sent out that there are more saved funds available for lending, so naturally, everyone starts to do more business and expand production. They feel they are getting a good deal. The mere process of simple lending acts to create new forms of money in the economy and thus create an economic boom.
Low interest rates? Economic booms? So what’s not to like, Dr. Paul?
Dr. (Kook) Paul is describing what happens in an economic boom fueled by “easy money” monetary policies of the Federal Reserve (such as QE1, 2, 3, 4, ∞). Such policies keep interest rates low and, in the incorrect opinion of Austrian economics-believing kooks, this will lead to poor capital investment decisions because artificially low interest rates will force the money to go “somewhere” other than what the market would have decided.
But this is all nonsense of course. Our Fed Chairman, Ben Bernanke, only creates out of thin air the correct amount of dollars needed to keep the US economy chugging along. How many booms and busts have we seen in our lifetime? We have only really had two this century (2000 internet, 2008 housing). That’s not too bad! And in between, lots of bankers made money by selling “tech” stocks in IPOs and selling mortgage debt.
When things cooled and some banks needed more government funds to avoid going bankrupt, it is just part of life. We can’t let the banking system collapse!
This boom is usually worsened by government promising bailouts to banks, loan guarantors, and enterprises, thereby encouraging bad investment and business.
So what is your alternative, Dr. Paul? To let the free market decide interest rates based on market factors such as the creditworthiness of the borrower and their ability to repay the loan? Nonsense. Such decisions are too important to be left to the market. We need the government to dictate the terms of such important business.
We are currently at a crossroads, deciding which political and economic path to take. It all boils down to two choices: either more government or less.
The choice is obvious to us non-kooks: MORE.