By Ron Paul
The constant economic booms and busts that we've been experiencing have a very specific origin or starting point: the Federal Reserve. A common question that I receive is: "Wouldn't there also be booms and busts in a free market system where people use free market money?" And the answer to that question is "Yes". However, the corrections would be nothing like the crushing economy-wide busts that we're now used to.
Businessmen, because they are human, are susceptible to making mistakes, whether there's a central bank or not. The big difference is the scope of the mistakes. Without a central bank, mistakes and malinvestments would be localized. In other words, you might hear of an "auto depression" or "farming depression," but the mistakes and liquidations would be localized and related to those specific sectors and any closely-related sectors. Businessmen can and do misread the market sometimes. But everyone would not be swept up into a false hysteria that must be followed by a punishing bust.
With the Federal Reserve, however, booms and busts are experienced economy-wide. There is a general cluster of business errors. How can it be that astute entrepreneurs from such diverse businesses all make drastic errors at the same time? Well, there's one common variable that all businessmen use: money. That's where the Fed comes in. It manipulates the money supply which then brings about investment errors on an economy-wide scale.
To make matter even worse, the Fed then comes in and props up the bad mistakes! Businesses that should go out of business are kept alive. In other words, scarce resources are wasted away. Resources should flow to profitable companies that are satisfying consumers' most urgent wants. Instead, the Fed perpetuates zombie companies and industries.
Liquidation of bad investments is necessary! This is the reason that Japan is still a mess after several decades. Our markets in the U.S. are also not very stable or healthy either. I think we're in for many more painful corrections that are unavoidable in order to liquidate the bad debts and investments.
The Federal Reserve is the source of all this mischief. It's a tragic error to believe that a group of individuals can centrally plan the economy by monetary manipulation. They can't do it. The sooner they get around to admitting that the better.
The Federal Reserve will self-destruct.
Let's work diligently to bring about free markets, sound money, and liberty.