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The Fed Plans for the Next Crisis – Article by Ron Paul

The Fed Plans for the Next Crisis – Article by Ron Paul

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The New Renaissance HatRon Paul
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In her recent address at the Jackson Hole monetary policy conference, Federal Reserve Chair Janet Yellen suggested that the Federal Reserve would raise interest rates by the end of the year. Markets reacted favorably to Yellen’s suggested rate increase. This is surprising, as, except for one small increase last year, the Federal Reserve has not followed through on the numerous suggestions of rate increases that Yellen and other Fed officials have made over the past several years.

Much more significant than Yellen’s latest suggestion of a rate increase was her call for the Fed to think outside the box in developing responses to the next financial crisis. One of the outside-the-box ideas suggested by Yellen is increasing the Fed’s ability to intervene in markets by purchasing assets of private companies. Yellen also mentioned that the Fed could modify its inflation target.

Increasing the Federal Reserve’s ability to purchase private assets will negatively impact economic growth and consumers’ well-being. This is because the Fed will use this power to keep failing companies alive, thus preventing the companies’ assets from being used to produce a good or service more highly valued by consumers.

Investors may seek out companies whose assets have been purchased by the Federal Reserve, since it is likely that Congress and federal regulators would treat these companies as “too big to fail.” Federal Reserve ownership of private companies could also strengthen the movement to force businesses to base their decisions on political, rather than economic, considerations.

Yellen’s suggestion of modifying the Fed’s inflation target means that the Fed would increase the inflation tax just when Americans are trying to cope with a major recession or even a depression. The inflation tax is the most insidious of all taxes because it is both hidden and regressive.

The failure of the Federal Reserve’s eight-year spree of money creation via quantitative easing and historically low interest rates to reflate the bubble economy suggests that the fiat currency system may soon be coming to an end. Yellen’s outside-the-box proposals will only hasten that collapse.

The collapse of the fiat system will not only cause a major economic crisis, but also the collapse of the welfare-warfare state. Yet, Congress not only refuses to consider meaningful spending cuts, it will not even pass legislation to audit the Fed.

Passing Audit the Fed would allow the American people to know the full truth about the Federal Reserve’s conduct of monetary policy, including the complete details of the Fed’s plans to respond to the next economic crash. An audit will also likely uncover some very interesting details regarding the Federal Reserve’s dealings with foreign central banks.

The large number of Americans embracing authoritarianism — whether of the left or right-wing variety — is a sign of mass discontent with the current system. There is a great danger that, as the economic situation worsens, there will be an increase in violence and growing restrictions on liberty. However, public discontent also presents a great opportunity for those who understand free-market economics to show our fellow citizens that our problems are not caused by immigrants, imports, or the one percent, but by the Federal Reserve.

Politicians will never restore sound money or limited government unless forced to do so by either an economic crisis or a shift in public option. It is up to us who know the truth to make sure the welfare-warfare state and the system of fiat money ends because the people have demanded it, not because a crisis left Congress with no other choice.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

Americans Are Going to be Disappointed in Election Outcome – Article by Ron Paul

Americans Are Going to be Disappointed in Election Outcome – Article by Ron Paul

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The New Renaissance HatRon Paul
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It is a sad commentary on the state of political life in the United States that our political conventions have become more like rock music festivals than competitions of ideas. There has been a great deal of bombast, of insults, of name-calling, and of chest-beating at both party conventions, but what is disturbingly absent is any mention of how we got to this crisis and how we can get out. From the current foreign-policy mess to the looming economic collapse, all we hear is both party candidates saying they will fix it, no problem.

In her convention speech Hillary Clinton promised that she would “fight terrorism” and defeat ISIS by doing more of what we have been doing all along: bombing. In fact we have dropped more than 50,000 bombs on ISIS in Iraq and Syria over the past two years and all she can say is that she will drop more. How many more bombs will defeat ISIS? How many more years will she keep us in our longest war, Afghanistan? She doesn’t say.

In fact, the New York Times – certainly not hostile to the Clintons – wrote that it was almost impossible to fact-check Hillary’s speech because, “she delivered a speech that was remarkably without hard facts.”

Clinton’s top foreign policy advisor said just a day after her convention speech that her big plan for Syria was to go back to square one and concentrate on overthrowing its secular president. How many more thousands more will die if she gets her way? And won’t she eventually be forced to launch a massive US ground invasion that will also kill more Americans?

Clinton does not understand that a policy of endless interventionism has brought us to our knees and made us far weaker. Does she really expect us to be the policemen of the world with $20 trillion in debt?

Likewise, Republican candidate Donald Trump misses the point. He promises to bring back jobs to America without any understanding of the policies that led to their departure in the first place. Yes, he is correct that the middle class is in worse shape than when Obama took office, but not once did he mention how it happened: the destructive policies of the Federal Reserve; the financing of our warfare/welfare state through the printing of phony money; distorted interest rates that encourage consumption and discourage saving and investment.

Trump tweeted this week that home ownership is at its lowest rate in 51 years. He promised that if elected he will bring back “the American dream.” He seems to have no idea that home ownership is so low because the Fed-created housing bubble exploded in 2007-2008, forcing millions of Americans who did not have the means to actually purchase a home to lose their homes. Not a word about the Fed from Trump.

How are these candidates going to fix the problems we face in America if they have absolutely no idea what caused the problems? No matter who is elected, Americans are going to be very disappointed in the outcome. The warfare/welfare state is going to proceed until we are bankrupt. There is hope, however. It is up to us to focus on the issues, to focus on educating ourselves and others, and to demand that politicians listen.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

One of the Greatest Entrepreneurs in American History – Article by Daniel Oliver and Lawrence W. Reed

One of the Greatest Entrepreneurs in American History – Article by Daniel Oliver and Lawrence W. Reed

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The New Renaissance HatDaniel Oliver and Lawrence W. Reed
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Introduction by Lawrence W. Reed
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One hundred years ago this May, James J. Hill, the subject of this fine 2001 essay by Daniel Oliver, passed away. Hill was 77 when he died on May 29, 1916, leaving a legacy of achievement surpassed only by a handful of the many great entrepreneurs in American history. He defied the now-infamous epithet, “You didn’t build that.”

James J. Hill was a “1 percenter” of his day who improved the lives of others not by giving speeches but by creating wealth.  

Hill was no Leland Stanford, who used his political connections to get the California legislature to ban competition with his Central Pacific Railroad. Hill was happy to compete because he knew he could. Perhaps he also had the conscience and good character that political entrepreneurs often lack. He built the only privately funded transcontinental railroad in American history. Unlike the ones that he competed with and that were government subsidized, his operation never went bankrupt.

Thirty years ago, I wrote a newspaper column about Hill. One of the papers that published it was the Havre Daily News in northern Montana. It turned out that the little town of Havre was the headquarters of the western division of the Burlington Northern, the successor railroad to Hill’s Great Northern. The division’s president contacted me to express appreciation and to invite me to give a couple of speeches in town. If I accepted, he promised to put me up in an old but restored executive rail car that Hill had built himself. How could I say no?!

For two nights, I lodged on the tracks in that beautiful car, marveling at its turn-of-the-19th-century fixtures and thinking how cool it was that all around me were vestiges of Hill himself. Only two other people were housed in the car during my stay — the cook who prepared my breakfasts and a security guard. After my speeches, Burlington Northern workers hooked the car to a locomotive. Accompanied by the division president and the local newspaper editor, I then experienced one of the most memorable rides of my life — west across northern Montana, through the Marias Pass that Hill himself chose as the best route for his tracks, ultimately arriving and disembarking at the town of Whitefish.

As Oliver explains, Hill deserves to be remembered as a builder, a risk-taker, and an innovator. He was a “1 percenter” of his day who immeasurably improved the lives of others not by giving speeches but by creating wealth.

— Lawrence W. Reed
President, Foundation for Economic Education

In 1962, Ayn Rand gave a lecture titled “America’s Persecuted Minority: Big Business” (collected in Capitalism: The Unknown Ideal), in which she identified two types of businessmen. Burton W. Folsom Jr. later called these “economic and political businessmen.” The first were self-made men who earned their wealth through hard work and free trade; the second were men with political connections who made their fortunes through privileges from the government.

Never before had someone tried to build a railroad without government land and grants. 

James Jerome Hill, builder of the Great Northern Railroad, was the only 19th century railroad entrepreneur who received no federal subsidies to build his railroads. All other builders, such as Cornelius Vanderbilt, received aid. Perhaps more than any other American, Hill helped to transform the American Northwest by opening it to widespread settlement, farming, and commercial development. In the process, he became one of the wealthiest men of the Gilded Age, amassing a fortune estimated at $63 million.

Some critics have charged that Hill did indeed receive federal subsidies to construct the Great Northern. But this charge confuses federal subsidies with land grants. Unlike a taxpayer subsidy, a land grant is the ceding of unimproved government land to a private developer. Critics wrongly assume that government has the power to acquire land by non-Lockean means — that is, by simply claiming to own it without “mixing one’s labor with the land.”

Early Career

Hill was born in the small town of Rockwood in southern Ontario, on September 16, 1838. Because his father died when Hill was young, he had to temporarily forgo formal education to help with family finances. Showing academic ability, however, he received free tuition at Rockwood Academy. Hill later lost an eye to an accidental arrow shot, which prevented him from pursuing the career in medicine that his parents had hoped for.

At age 18, Hill became interested in the Far East and decided on a career in trade. He headed west in hopes of joining a team of trappers, arriving by steamboat in St. Paul, a major fur-trading center, on July 21, 1856. However, Hill missed the last brigade of the year and had to stay in the city. Nonetheless, he grew to like St. Paul and decided to remain there.

Hill’s first job was as a forwarding agent for the Mississippi River Steamboat Company. He set freight and passenger rates and learned about steamboat operations. Unable to fight in the War between the States because of his eye, Hill organized the First Minnesota Volunteers. He also worked as a warehouseman, pressing and selling hay for the troops’ horses. It was there that he learned how to buy and sell goods at a profit and use the least expensive method to ship goods.

After the war, Hill became an agent for the First Division of the St. Paul & Pacific Railroad. At the time, the line used wood for fuel. Hill believed rightly that coal would be cheaper, so he made a contract with the company to supply it. He also formed a business with Chauncey W. Griggs, a Connecticut man in the wholesale grocery business. Together, they created Hill, Griggs & Company, a fuel, freighting, merchandising, and warehouse company.

Hill later became interested in the Red River of the North that flows north to Lake Winnipeg. Since Fort Garry (now Winnipeg) was an important Hudson’s Bay Company trading post, Hill began transporting personal belongings there. Later, Hudson’s Bay employee Norman Kittson left the company to join Hill in forming the Red River Transportation Company.

In 1870, Hill traveled up the Red River to investigate a French and Indian mob that had captured Fort Garry. During that trip and others, Hill saw the region’s rich soil while observing the St. Paul & Pacific’s steady decline. He became convinced that he could make the line profitable by extending it to Fort Garry. When the panic of 1873 put the railroad under receivership, he saw his chance to buy it and other lines in crisis.

Hill and Kittson went to Donald Smith of the Hudson’s Bay Company and told him their plan. Smith offered money and approached George Stephen, president of the Bank of Montreal. Together, the four bought the St. Paul & Pacific for $280,000 (millions in today’s dollars), which Hill estimated as only 20 percent of its real value.

Hill purchased rails, rolling stock, and locomotives and hired laborers who laid more than a mile of track a day. In 1879, the tracks were connected at St. Vincent, Minnesota, to a Canadian Pacific branch from Fort Garry. Since the Canadian Pacific’s transcontinental route was not yet completed, all traffic through Fort Garry had to use Hill’s route. He received two million acres of land through the Minnesota Land Grant for completing the rail line on time. He also renamed his railroad the St. Paul, Minneapolis, & Manitoba. His timing was perfect since the area experienced two exceptional harvests that brought extra business. In addition, a major increase of immigrants from Norway and Sweden allowed Hill to sell homesteads from the land grant for $2.50 to $5.00 an acre.

Expanding the Line

While planning the St. Paul, Minneapolis, & Manitoba, Hill was also involved in constructing the Canadian Pacific Railway. While Donald Smith and George Stephen led this transcontinental route, Hill gave advice about selecting routes and construction techniques. But because the Canadian Pacific would soon compete with his own planned transcontinental route, Hill resigned from the business and sold all his stock in 1882.

Only a year after purchasing the St. Paul & Pacific, Hill decided to extend his railroad to the Pacific. Many thought that he could never do it. Never before had someone tried to build a railroad without government land and grants. Railroads like the Union Pacific, Central Pacific, and Northern Pacific were all given millions of acres of government land to build their transcontinental routes. People thought that even if Hill could achieve his dream, he wouldn’t be able to compete with government-funded lines. His quest came to be known as “Hill’s Folly.”

The St. Paul, Minneapolis, & Manitoba reached Minot, North Dakota, in 1886. Because the Northern Pacific had steep grades and high interest charges and was saddled by high property taxes, the new railroad resulted in a much more profitable route.

A railroad line would obviously help the economy of any town it passed, so Hill was able to get good rights of way. However, one town, Fort Benton, Montana, rejected Hill’s request for a right of way. He decided to cut the town off by building around it. Showing his attitude toward those who tried to stand in his way, Hill left Fort Benton one mile from the railroad.

After speedy construction using 8,000 men and 3,300 teams of horses, the St. Paul, Minneapolis, & Manitoba reached Great Falls in October 1887. Hill connected it there with the Montana Central Railroad, which went on to Helena, bringing lots of new business. In 1890, he consolidated his railroad into the Great Northern Railroad Company.

Hill also encouraged settlement along the lines by letting immigrants travel halfway across the country for $10. In addition, he rented cheap freight cars to entire families. These strategies, rarely used by other railroads, encouraged even more business.

People thought Hill wouldn’t be able to compete with government-funded lines.

In 1893, the St. Paul, Minneapolis, & Manitoba reached Puget Sound at Everett, Washington. However, during the same year, a panic put the Northern Pacific as well as the Santa Fe and Union Pacific into receivership. Hill made an agreement with businessman Edward Tuck and Bank of Montreal associate Lord Mount Stephen to buy the Northern Pacific. A stockholder objected, however, arguing the deal would violate Minnesota law, and the agreement was stopped. But Hill got around this by having his associates help buy Northern Pacific stock as individuals instead of as a company. The Northern Pacific became part of the Great Northern in 1896. The lines came to be widely known as the “Hill Lines.”

Hill realized that the only eastbound traffic for the first few years would be lumber, and this limitation would make the line less profitable than it might be. Wishing to acquire a line to Chicago and St. Louis, where he could deliver the lumber, Hill researched the Chicago, Burlington, & Quincy railroad that stretched from the Great Lakes to the Rocky Mountains. This acquisition would also give him a line that could haul cotton to St. Louis and Kansas City and connect to the smelters of Denver and the Black Hills. The trains would be kept full at all times. Working with J.P. Morgan, Hill purchased the Chicago, Burlington, & Quincy.

Hill began to expand his shipping empire internationally via Seattle. He supplied Japan with cotton from the south and shipped New England cotton goods to China. He also shipped northern goods such as Minnesota flour and Colorado metals to Asia.

Hill continued to expand his railroads in the early 20th century. He bought the Spokane, Portland, & Seattle Railway and added a 165-mile line from Columbia along the Deschutes River to the town of Bend. He also purchased several electric rail lines to compete with the Southern Pacific, and an ocean terminal at the mouth of the Columbia River near Astoria. He had two large steamships that operated between the terminal and San Francisco. This proved to be good competition for the Southern Pacific.

Conservation

Hill had many other business interests, including coal and iron-ore mining, shipping on the Great Lakes, finance, and milling. A major related interest was farmland conservation. Hill was widely known in his day as a leader in this area. Unlike most environmentalists today, Hill believed that natural resources should be privately owned and locally controlled, although in some cases he believed state-level ownership was justifiable. He considered the federal government too distant to competently manage resources. Indeed, he once criticized the US Forest Service, saying that “The worst scandals of state land misappropriation, and there were many, are insignificant when compared with the record of the nation.”

His interest in conservation stemmed both from his concern for the nation’s food supply, a popular philanthropic cause at the time, and from business concerns. Since his railroads largely transported agricultural products, Hill paid close attention to fluctuations in the grain markets. Falling grain yields in the Great Plains would mean fewer goods to transport.

Believing that better farming methods would both increase yields and conserve soil quality, Hill used his own resources for agricultural research and for the dissemination of findings to farmers. He even had his own greenhouse that served as a laboratory. He hired agronomy professor Frederick Crane to do soil analyses in Minnesota, Montana, and North and South Dakota. Farmers were paid to cultivate experimental plots on their land according to Crane’s instructions. These were a tremendous success, yielding 60 to 90 percent more than the conventional acreage of the time.

In a speech, Hill once said,

Out of the conservation movement in its practical application to our common life may come wealth greater than could be won by the overthrow of kingdoms and the annexation of provinces; national prestige and individual well-being; the gift of broader mental horizons, and best and most necessary of all, the quality of a national citizenship which has learned to rule its own spirit and to rise by the control of its desires.

In 1908, President Theodore Roosevelt invited Hill to a governors’ conference on conservation and appointed him to a lands commission. Hill was never pleased with the position, preferring action to talking, but he did make his views known.

Hill was also a major philanthropist. He supported the Roman Catholic seminary in St. Paul and endowed the Hill Reference Library, which operates to this day.

Views on Government

Hill was a great champion of free markets. He was particularly critical of tariffs, calling them “a great enemy of conservation” and pointing out that by prohibiting imports of such products as timber from other countries, the United States was accelerating the depletion of its own. Regarding the federal government’s ability to conserve resources, he once said, “The machine is too big and too distant, its operation is slow, cumbrous and costly.”

A 1910 speech to the National Conservation Congress in St. Paul summarizes Hill’s views on government. He remarked,

Shall we abandon everything to centralized authority, going the way of every lost and ruined government in the history of the world, or meet our personal duty by personal labor through the organs of local self-government, not yet wholly atrophied by disuse…? Shall we permit the continued increase of public expenditure and public debt until capital and credit have suffered in the same conflict that overthrew prosperous and happy nations in the past, or insist upon a return to honest and practical economy?

Hill once said, “The wealth of the country, its capital, its credit, must be saved from the predatory poor as well as the predatory rich, but above all from the predatory politician.”

A Classic Entrepreneur

In 1907, at the age of 69, Hill turned over leadership of the Great Northern to his son, Louis W. Hill. But he remained active in running his railroads and went to his office in St. Paul every day.

In May 1916, Hill became ill with an infection that quickly spread. He went into a coma and died on May 29 at the age of 77. At 2:00 p.m. on May 31, the time of his funeral, every train and steamship of the Great Northern came to a stop for five minutes to honor him.

“Shall we abandon everything to centralized authority, going the way of every lost and ruined government in the history of the world?” — James J. Hill  

Hill exhibited the classic traits of a successful entrepreneur. He diligently studied all aspects of his businesses, such as which mode of transport was best for carrying track to be laid: caboose, handcar, horse, locomotive, or passenger coach. He did all the analyses of grades and curves himself and often argued with his engineers and track foremen, demanding changes that he felt necessary. He insisted on building strong bridges made with thick granite and on using the biggest locomotives and the best quality steel.

At the end of his life, a reporter asked Hill to explain the reason for his success. He replied simply that it was due to hard work. His hard work earned him the title “the Empire Builder,” and at the 1915 Panama-Pacific Exposition in San Francisco, he was named Minnesota’s greatest living citizen.

Hill was remarkable because he developed an area that most people thought never could be developed. His railroads made Minnesota and the Dakotas major destinations for huge waves of immigrants. In fact, Hill sent employees to Europe to show slides of western farming in efforts to urge Scotsmen, Englishmen, Norwegians, and Swedes to settle in the Pacific Northwest. As a result, more than six million acres of Montana were settled in two years. And because of Hill, the small town of Seattle, Washington, became a major international shipping port.

James Jerome Hill has rightly earned a place as one of the greatest entrepreneurs in American history.


Daniel Oliver

Daniel Oliver is a research associate at the Washington, DC-based Capital Research Center and a freelance writer. 

Lawrence W. Reed

Lawrence W. Reed is President of the Foundation for Economic Education and the author of the forthcoming book, Real Heroes: Inspiring True Stories of Courage, Character and Conviction. Follow on Twitter and Like on Facebook.

This article was originally published on FEE.org. Read the original article.

Yes, We Still Make Stuff, and It Wouldn’t Matter if We Didn’t – Article by Steven Horwitz

Yes, We Still Make Stuff, and It Wouldn’t Matter if We Didn’t – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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One of the perennial complaints about the US economy is that we don’t “make stuff” anymore. You hear this from candidates from both major parties, but especially from Donald Trump and Bernie Sanders. The argument seems to be that our manufacturing sector has collapsed and that all US workers do is to provide services, rather than manufacturing tangible goods.

It turns out that this perception is wrong, as the US manufacturing sector continues to grow and in 2014 manufacturing output was higher than at any point in US history. But even if the perception were correct, it does not matter. The measure of an economy’s health isn’t the quantity of physical stuff it produces, but rather the value that it produces. And value comes in a variety of forms.

Manufacturing is Up

The path to economic growth is not to freeze into place the US economy of the 1950s. Let’s deal with the myth of manufacturing decline first. The one piece of evidence in favor of that perception is that there are fewer manufacturing jobs today than in the past. Total manufacturing employment peaked at around 19 million jobs in the late 1970s. Today, there are about 12.5 million manufacturing jobs in the US.

However, manufacturing output has never been higher. The real value of US manufacturing output in 2014 was over $2 trillion. The real story of the US manufacturing sector is that we have become so much more efficient, that we can produce more and more manufactured goods with less and less labor. These efficiency gains are largely the result of computer technology and automation, especially in the last fifteen years.

The labor that we no longer need in order to produce an ever-increasing amount of stuff is now available to produce a whole variety of other things we value, from phone apps to entertainment to the expanded number and variety of grocery stores and restaurants, to the data analyses that makes all of this growth possible.

Just as the workers in those factories we are so nostalgic for were labor freed from growing food thanks to the growth in agricultural productivity, so are today’s web designers, chefs at the newest hipster café, and digital editors in Hollywood the labor that has been freed from producing “stuff” thanks to greater technological productivity.

Or, put differently: those agricultural, industrial, and computer revolutions collectively have enabled us to have more food, more stuff, and more entertainment, apps, services, and cage-free chicken salads served with kale. The list of human wants is endless, and the less labor we use to satisfy some of them, the more we have to start working on other ones.

But notice something: all of the things that we produce have something in common. Whether it’s food or footwear, or automobiles or apps, or manicures or massages, the point of production is to rearrange capital and labor in ways that better satisfy wants. In the language of economics, the point of production (and exchange) is to increase utility.

When we produce more cars that people wish to buy, it increases utility. When we open a new Asian fusion street food taco stand, it increases utility. When Uber more effectively uses the existing stock of cars, it increases utility. When we exchange dollars for manicures, it increases utility.

Adam Smith helped us to understand that the wealth of nations is not measured by how much gold a country possesses. Modern economics helps us understand that such wealth is not measured by how much physical stuff we manufacture. Increases in wealth happen because we arrange the physical world in ways that people value more.

Neither producing cars nor providing manicures changes the number of atoms in the universe. Both activities just rearrange existing matter in ways that people value more. That is what economic growth is about.

Misplaced Nostalgia

We’re richer because we have allowed markets to produce with fewer workers. When we are fooled into believing that “growth” is synonymous with “stuff,” we are likely to make two serious errors. First, we ignore the fact that the production of services is value-creating and therefore adds to wealth.

Second, we can easily believe that we need to “protect” manufacturing jobs. We don’t. And if we try to do so, we will not only stifle economic growth and thereby impoverish the citizenry, we will be engaging in precisely the sort of special-interest politics that those who buy the myth of manufacturing often rightly complain about in other sectors.

The path to economic growth is not to freeze into place the US economy of the 1950s. We are far richer today than we were back then, and that’s due to the remaining dynamism of an economy that can still shed jobs it no longer needs and create new ones to meet the ever-changing wants of the consumer.

The US still makes plenty of stuff, but we’re richer precisely because we have allowed markets to do so with fewer workers, freeing those people to provide us a whole cornucopia of new things to improve our lives in endless ways. We can only hope that the forces of misplaced nostalgia do not win out over the forces of progress.

Steven_Horwitz

Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

This article was originally published on FEE.org. Read the original article.

The War on Cars Is a War on Workers and the Poor – Article by Gary M. Galles

The War on Cars Is a War on Workers and the Poor – Article by Gary M. Galles

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The New Renaissance Hat
Gary M. Galles
November 6, 2015
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A just-released poll of Los Angeles residents found that 55 percent of respondents indicated their greatest concern was “traffic and congestion,” far ahead of “personal safety” — the next highest area of concern — at 35 percent. So if their city government was working in their best interests, it would be doing something about automobile congestion.

It is. Unfortunately, it will make things worse.

Los Angeles’s recently adopted Mobility Plan 2035 would replace auto lanes in America’s congestion capital with bus and protected bike lanes, as well as pedestrian enhancements, despite heightening congestion for the vast majority who will continue to drive. Even the City’s Environmental Impact Report admitted “unavoidable significant adverse impacts” on congestion, doubling the number of heavily congested (graded F) intersections to 36 percent during evening rush hours.

Driving Saves Time and Offers More Opportunity

Such an effort to ration driving by worsening gridlock purgatory begs asking a central, but largely ignored, question. Why do planners’ attempts to force residents into walking, cycling, and mass transit — supposedly improving their quality of life — attract so few away from driving?

The reason it takes a coercive crowbar to get most people out of their cars is that automobile users have concluded cars are vastly superior to the alternatives.

Why is automobile use so desirable:

  • Automobiles have far greater and more flexible passenger — and cargo-carrying capacities.
  • They allow direct, point-to-point service.
  • They allow self-scheduling rather than requiring advance planning.
  • They save time.
  • They have far better multi-stop trip capability (this is why restrictions on auto use punish working mothers most).
  • They offer a safer, more comfortable, more controllable environment, from the seats to the temperature to the music to the company.

Those massive advantages explain why even substantial new restrictions on automobiles or improvements in alternatives leave driving the dominant choice. However, they also reveal that a policy that will punish the vast majority who will continue to drive cannot serve residents effectively.

How Restrictions on Automobiles Punish the Working Poor the Most

The superiority of automobiles doesn’t stop at the obvious, either. They expand workers’ access to jobs, increasing productivity and incomes, improve purchasing choices, lower consumer prices and widen social options. Reducing roads’ car-carrying capacity undermines those major benefits.

Cars offer a decrease in commuting times (if not hamstrung by city-government planning), providing workers access to many more potential employers and job markets. This improves worker-employer matches, with expanded productivity both benefiting employers and raising workers’ incomes.

One study found that a 10-percent improvement in travel time raised worker productivity 3 percent. And increasing from a 3 mph walking speed to 30 mph driving speed is a 900-percent increase. In a similar vein, a Harvard analysis found that for those lacking high-school diplomas, owning a car increased monthly earnings by $1,100.

Cars are also the only means of assembling enough customers to sustain large stores with highly diverse offerings. Similarly, “automobility” dramatically expands the menu of social opportunities that are accessible.

Supporters like Los Angeles Mayor Eric Garcetti may dismiss the serious adverse effects of the “road diets” they propose (a term whose negative implications were too obvious, getting it benched in favor of the better-sounding “complete streets”). But by demeaning cars as “the old model” and insisting “we have to have neighborhoods that are more self-contained,” the opponents of auto use do nothing to lessen the huge costs or increase the very limited benefits they plan to impose on those they supposedly represent.

Further, the “new model” of curtailing road capacity to force people out of cars is really a recycled old far-inferior model. As urban policy expert Randal O’Toole noted in The Best-Laid Plans:

Anyone who prefers not to drive can find neighborhood … where they can walk to stores that offer a limited selection of high-priced goods, enjoy limited recreation and social opportunities, and take slow public transit vehicles to some but not all regional employment centers, the same as many Americans did in 1920. But the automobile provides people with far more benefits and opportunities than they could ever have without it.

Gary M. Galles is a professor of economics at Pepperdine University. He is the author of The Apostle of Peace: The Radical Mind of Leonard Read. Send him mail. See Gary Galles’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

The Fed Desperately Tries to Maintain the Status Quo – Article by Ronald-Peter Stöferle

The Fed Desperately Tries to Maintain the Status Quo – Article by Ronald-Peter Stöferle

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The New Renaissance HatRonald-Peter Stöferle
November 5, 2015
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During the press conferences of recent FOMC meetings, millions of well-educated investment professionals have been sitting in front of their screens, chewing their fingernails, listening as if spellbound to what Janet Yellen has to tell them. Will she finally raise the federal funds rate that has been zero bound for over six years?

Obviously, each decision is accompanied by nervousness on the markets. Investors are fixated by a fidgety curiosity ahead of each Fed decision and never fail to meticulously observe Janet Yellen and the FOMC, and engage in monetary ornithology on doves (growth- and employment-oriented FOMC members) and hawks (inflation-oriented FOMC members).

Fed watchers also hope for some enlightening information from Ben Bernanke. According to Reuters, some market participants paid some $250,000 just to join one of several dinners, where the ex-chairman spilled the beans. Apparently, he does not expect the federal funds rate to return to its long-term average of about 4 percent during his lifetime.

In a conversation with Jim Rickards, Bernanke stated that a rate hike would only be possible in an environment in which “the U.S. economy is growing strongly enough to bear the costs of higher rates.” Moreover, a rate increase would have to be clearly communicated and anticipated by the markets — not to protect individual investors from losses, Bernanke assures us, but rather to prevent jeopardizing the stability of the “system as a whole.”

It is axiomatic that zero-interest-rate-policy (ZIRP) cannot be a permanent fixture. Indeed, Janet Yellen has been going on about increasing rates for almost two years now. But, how much more lead time will it require to “prepare” the markets? In both September and October the FOMC chickened out, even though we are not talking about hiking the rate back to “monetary normalcy” in one blow. The decision on the table is whether or not to increase the rate by a trifling quarter point!

The Fed’s quandary can be understood a little better by examining what “monetary normalcy,” or a “normal interest rate,” is supposed to be. Or, even more fundamentally: what is an interest rate?

We “Austrians” understand an interest rate as an expression of market participants’ time preference. The underlying assumption is that people are inclined to consume a certain product sooner rather than later. Hence, if savers restrict their current consumption and provide the resources for investment instead, they do so only on condition that they will be compensated by increased opportunities for consumption in the future. In free markets, the interest rate can be regarded as a measure of the compensation payment, where people are willing to trade present goods for future goods. Such an interest rate is commonly referred to as the “natural interest rate.” Consequently, the FOMC bureaucrats would ideally set as a goal a “normal interest rate” that equals the “natural” one.This, however, remains unlikely.

Six Years of “Unconventional” Monetary Policy
ZIRP was introduced six years ago in response to the financial crisis, and three QE programs have been conducted. This so-called “unconventional monetary policy” is supposed to be abandoned as soon as the economy has gathered pace. Despite the tremendous magnitude of these market interventions, the momentum in the US economy is rather lame. Weak Q1 data, which probably resulted from a weak trade balance due to a 15 percent rise of the US dollar, shocked even the most pessimistic of analysts; the OECD and the IMF have revised down their 2015 growth estimates. A long-lasting, self-sustaining growth is out of the question. This confirms the assumption that ZIRP fuels everything under the sun — see “The Unseen Consequences of Zero-Interest-Rate Policy” — except long-term productive investment.And what about unemployment and inflation that are key elements of the Fed’s mandate? The conventional unemployment rate (U3) has returned to its long-run normal level, so the view prevails that things are developing well. However, those figures conceal a workforce participation rate that has fallen by more than 3 percent since 2008, indicating that some 2.5 million Americans are currently no longer actively looking for a new job. However, should the economic situation improve, they would likely rejoin the labor force. Furthermore, the proportion of those only working part-time due to a lack of full-time positions is much higher now than before the crisis. “True” unemployment currently stands rather at about 7.25 percent.

A Weak Economy and Weak Inflation
With regard to inflation, the Fed’s target is 2 percent, as measured by growth of the PCE-index. This aims to buffer the fiat money system against the threat of price deflation. In a deflationary environment, it is believed, the debt-servicing capacity of market participants (e.g., governments, private enterprises, financial institutions, and private households) would come under intense pressure and likely trigger a chain reaction in which loans collapse and the monetary system implodes.

In many countries, and among them the US, inflation is remarkably low — partly due to transitory effects of lower energy and import prices — while low interest rates have merely weaved their way to asset price inflation so far. But, as price reactions to monetary policy maneuvers may occur with a lag of a few years, we should expect that sooner or later inflation will also spill over to normal markets.

As a response to anything short of massive improvement of economic and employment data, a rate hike is scarcely likely, and inflation in the short-term is also unlikely. Moreover, the current composition of the FOMC — which is extremely dovish — implies inflation-sensitive voices are relatively underrepresented. This gives rise to the suspicion that rate hikes are not very likely at all in the scenario in the short-term.

What Will the Fed Do If There’s Real Economic Trouble?
One is concerned about economic development, which has a shaky foundation and headwinds from other parts of the world; it appears that growth has cooled down substantially in the BRICS countries. Meanwhile, China might be on the brink of a severe recession. (Indeed, China was possibly the most decisive factor to nudge the Fed away from raising rates in September and October.) This implies that world-wide interest rates will remain at very low levels and a significant rate hike in the US would represent a sharp deviation in this environment, bringing with it massive competitive disadvantages.

The markets are noticeably pricing out a significant rate hike. The production structure has long since adapted to ZIRP and “short-term gambling, punting on momentum-driven moves, on levered buybacks” are further lifting the opportunity costs of abandoning it. In order to try to rescue its credibility, the Fed may decide to try some timid, quarter-point increases.

But what will they do if markets really crash? Indeed, they are terrified of the avalanche that they might trigger. If there are any symptoms that portend calamity, the Fed will inevitably return to ZIRP, launch a QE4, or might even introduce negative interest rates. Hence, there does not seem to be a considerable degree of latitude such that a return to conventional monetary policy could seriously be expected.

“The Fed is raising rates!” — This has become a running gag.

Ronald-Peter Stöferle is a Chartered Market Technician (CMT) and a Certified Financial Technician (CFTe). During his studies in business administration and finance at the Vienna University of Economics and the University of Illinois at Urbana-Champaign, he worked for Raiffeisen Zentralbank (RZB) in the field of Fixed Income/Credit Investments. In 2006 he began writing reports on gold. His six benchmark reports called “In GOLD we TRUST” drew international coverage on CNBC, Bloomberg, the Wall Street Journal, The Economist and the Financial Times. He was awarded “2nd most accurate gold analyst” by Bloomberg in 2011.

This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

3 Stock-Market Tips from an Economist – Article by Robert P. Murphy

3 Stock-Market Tips from an Economist – Article by Robert P. Murphy

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The New Renaissance Hat
Robert P. Murphy
September 11, 2015
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Recent volatility has Americans talking about the stock market — and getting a lot of things wrong in the process. Let’s discuss some general principles to help clear things up.

(Let me say up front that I won’t be disclosing which stocks are going to go up next month. Even if I knew, it would ruin my advantage to tell everybody.)

1. Money doesn’t go “into” or “out of” the stock market in the way most people think.

On NPR’s Marketplace, after the recent big selloff, host Kai Ryssdal said, “That money has to go somewhere, right?”

This language is misleading. Let me illustrate with a simple example.

Suppose there are 100 people who each own 1,000 shares of ABC stock. Currently, ABC has a share price of $5. Thus, the community collectively owns $500,000 worth of ABC stock. Further, suppose that each person has $200 in a checking account at the local bank. Thus, the community owns $20,000 worth of checking account balances at the bank.

Now, Alice decides she wants to increase her holdings of cash and reduce her holdings of ABC stock. So she sells a single share to Bob, who buys it for $4. There is no other market action.

In this scenario, when the share price drops from $5 to $4, the community suddenly owns only $400,000 worth of ABC stock. And yet, there is no flow of $100,000 someplace else — certainly not into the local bank. It still has exactly $20,000 in various checking accounts. All that happened is Alice’s account went up by $4 while Bob’s went down by $4.

2. Simple strategies can’t be guaranteed to make money.

Suppose your brother-in-law says: “I’ve got a great stock tip! I found this company, Acme, that makes fireworks. Let’s wait until the end of June, and then load up on as many shares as we can. Once the company reports its sales for July, we’ll make a fortune because of the holiday numbers.”

Clearly, your brother-in-law would be speaking foolishness. Just about everybody knows that fireworks companies do a lot of business around July 4, and so the price of Acme stock in late June would already reflect that obvious information.

More generally, the different versions of the efficient market hypothesis (EMH) claim — with varying degrees of strength — that an investor can’t “beat the market” without access to private information. The reason is that any publicly available information is already incorporated into the current stock price.

Not all economists agree with the EMH, especially the stronger versions of it. If two investors have different theories of how the economy works, then to them, the same “information” regarding Federal Reserve intentions may imply different forecasts, leading one to feel bullish while the other is bearish. Yet, even this discussion shows that it can’t be obvious that a stock price will move in a certain direction. If it were, then the first traders to notice the mispricing would pounce, arbitraging the discrepancy into oblivion.

3. An investor’s “track record” can be misleading because of risk and luck.

Suppose hedge fund A earns 10 percent three years in a row, while hedge fund Bearns only 4 percent those same three years in a row. Can we conclude that fundA’s management is more competent?

No, not unless we get more information. It could be that fund A is highly leveraged (meaning that it borrowed money and used it to buy assets), while fund B invests only the owners’ equity. Even if A and B have the same portfolios, A will outperform so long as the portfolio has a positive return.

However, in this scenario, fund A has taken on more risk. If the assets in the portfolio happen to go down in market value, then fund A loses a bigger proportion of its capital than fund B.

More generally, a fund manager could have a great year simply because of (what we consider to be) dumb luck. For example, suppose there are 500 different fund managers, and each picks a single stock from the S&P 500 to exclude from their portfolio; they own appropriately weighted amounts of the remaining 499 stocks. Further, suppose that each manager picks his pariah company by throwing a dart at the stock listing taped to his conference room wall.

If the dart throws are random over the possible stocks, then we expect one manager to exclude the worst-performing stock, another to exclude the second worst-performing stock, and so on. In any event, we can be very confident that of the 500 fund managers, at least many dozens of them will beat the S&P 500 with their own truncated version of it, and the same number will underperform it.

Would we conclude that the managers with excess returns were more skilled at analyzing companies, or had better money-management protocols in place at their firms? Of course not. In this example, they just got lucky. What relevance our hypothetical scenario has for the real world of investments is not as clear, but the tale at least demonstrates that past performance alone does not necessarily indicate skill or predict future performance.

Studying economics won’t show you how to become rich, but it will spare you from making a fool of yourself at the next cocktail party.

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism, The Politically Incorrect Guide to The Great Depression and the New Deal, and  Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

This article was originally published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Blame the Federal Reserve, Not China, for Stock-Market Crash – Article by Ron Paul

Blame the Federal Reserve, Not China, for Stock-Market Crash – Article by Ron Paul

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The New Renaissance HatRon Paul
September 6, 2015
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Following the historic stock-market downturn two weeks ago, many politicians and so-called economic experts rushed to the microphones to explain why the market crashed and to propose “solutions” to our economic woes. Not surprisingly, most of those commenting not only failed to give the right answers, they failed to ask the right questions.

Many blamed the crash on China’s recent currency devaluation. It is true that the crash was caused by a flawed monetary policy. However, the fault lies not with China’s central bank but with the US Federal Reserve. The Federal Reserve’s inflationary policies distort the economy, creating bubbles, which in turn create a booming stock market and the illusion of widespread prosperity. Inevitably, the bubble bursts, the market crashes, and the economy sinks into a recession.

An increasing number of politicians have acknowledged the flaws in our monetary system. Unfortunately, some members of Congress think the solution is to force the Fed to follow a “rules-based” monetary policy. Forcing the Fed to “follow a rule” does not change the fact that giving a secretive central bank the power to set interest rates is a recipe for economic chaos. Interest rates are the price of money, and, like all prices, they should be set by the market, not by a central bank and certainly not by Congress.

Instead of trying to “fix” the Federal Reserve, Congress should start restoring a free-market monetary system. The first step is to pass the Audit the Fed legislation so the people can finally learn the full truth about the Fed. Congress should also pass legislation ensuring individuals can use alternative currencies free of federal-government harassment.

When bubbles burst and recessions hit, Congress and the Federal Reserve should refrain from trying to “stimulate” the economy via increased spending, corporate bailouts, and inflation. The only way the economy will ever fully recover is if Congress and the Fed allow the recession to run its course.

Of course, Congress and the Fed are unlikely to “just stand there” if the economy further deteriorates. There have already been reports that the Fed will use last week’s crash as an excuse to once again delay raising interest rates. Increased spending and money creation may temporally boost the economy, but eventually they will lead to a collapse in the dollar’s value and an economic crisis more severe than the Great Depression.

Ironically, considering how popular China-bashing has become, China’s large purchase of US Treasury notes has helped the US postpone the day of reckoning. The main reason countries like China are eager to help finance our debt is the dollar’s world reserve currency status. However, there are signs that concerns over the US government’s fiscal irresponsibility and resentment of our foreign policy will cause another currency (or currencies) to replace the dollar as the world reserve currency. If this occurs, the US will face a major dollar crisis.

Congress will not adopt sensible economic policies until the people demand it. Unfortunately, while an ever-increasing number of Americans are embracing Austrian economics, too many Americans still believe they must sacrifice their liberties in order to obtain economic and personal security. This is why many are embracing a charismatic crony capitalist who is peddling a snake oil composed of protectionism, nationalism, and authoritarianism.

Eventually the United States will have to abandon the warfare state, the welfare state, and the fiat money system that fuels leviathan’s growth. Hopefully the change will happen because the ideas of liberty have triumphed, not because a major economic crisis leaves the US government with no other choice.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

Why Do We Celebrate Rising Home Prices? – Article by Ryan McMaken

Why Do We Celebrate Rising Home Prices? – Article by Ryan McMaken

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Ryan McMaken
May 26, 2015
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In recent years, home price indices have seemed to proliferate. Case-Shiller, of course, has been around for a long time, but over the past decade, additional measures have been marketed aggressively by Trulia, CoreLogic, and Zillow, just to name a few.

Measuring home prices has taken on an urgency beyond the real estate industry because for many, home price growth has become something of an indicator of the economy as a whole. If home prices are going up, it is assumed, “the economy” must be doing well. Indeed, we are encouraged to relax when home prices are increasing or holding steady, and we’re supposed to become concerned if home prices are going down.

This is a rather odd way of looking at the price of a basic necessity. If the price of food were going upward at the rate of 7 or 8 percent each year (as has been the case with houses in many markets in recent years) would we all be patting ourselves on the back and telling ourselves how wonderful economic conditions are? Or would we be rightly concerned if incomes were not also going up at a similar rate? Would we do the same with shoes and clothing? How about with education?

With housing, though, increases in prices are to be lauded, we are told, even if they outpace wage growth.

We’re Told to Want High Home Prices

But in today’s economy, if home prices are outpacing wage growth, then housing is becoming less affordable. This is grudgingly admitted even by the supporters of ginning up home prices, but the affordability of housing takes a back seat to the insistence that home prices be preserved at all costs.

Behind all of this is the philosophy that even if the home-price/household-income relationship gets out of whack, most problems will nevertheless be solved if we can just get people into a house. Once someone becomes a homeowner, the theory goes, he’ll be sitting on a huge asset that (almost) always goes up in price, meaning that any homeowner will increase in net worth as the equity in his home increases.

Then, the homeowner can use that equity to buy furniture, appliances, and a host of other consumer goods. With all that consumer spending, the economy takes off and we all win. Rising home prices are just a bump in the road, we are told, because if we can just get everyone into a home, the overall benefit to the economy will be immense.

Making Homes Affordable with More Cheap Debt

Not surprisingly, we find a sort of crude Keynesianism behind this philosophy. In this way of thinking, the point of homeownership is not to have shelter, but to acquire something that will encourage more consumer spending. In other words, the purpose of homeownership is to increase aggregate demand. The fact that you can live in the house is just a fringe benefit. This macro-obsession is part of the reason why the government has pushed homeownership so aggressively in recent decades.

The fly in the ointment, of course, is if home prices keep going up faster than wages — ceteris paribus — fewer people will be able to save enough money to come up with either the full amount or even a sizable down payment on a loan.

Not to worry, the experts tell us. We’ll just make it easier, with the help of inflationary fiat money, to get an enormous loan that will allow you to buy a house. Thus, rock-bottom interest rates and low down payments have been the name of the game since the late 1980s.

We started to see the end game at work during the last housing bubble when Fannie Mae introduced the 40-year mortgage in 2005, which just emphasized that when it comes to being a homeowner, the idea is not to pay off the mortgage, but to “buy” a house and just pay the monthly payment until one moves to another house and gets a new thirty- or forty-year loan.

It Pays To Be in Debt

On the surface of it, it’s hard to see how this scenario is fundamentally different from just paying rent every month. If the homeowner stops paying the monthly payment, he’s out on the street, and the bank keeps the house, which is very similar to the scenario in which a renter stops paying a landlord. There’s (at least) one big difference here, however. It makes sense for the homeowner to get a home loan rather than rent an apartment because — if it’s a fixed-rate loan — price inflation ensures the real monthly payment will go down every month. Residential rents, on the other hand, tend to keep up with inflation.

But why would any lending institution make these sorts of long-term loans if the payment in real terms keeps getting smaller? After all, thirty years is a long time for something to go wrong.

Lenders are willing and able to do this because the loans are subsidized and underwritten through government creations like Fannie Mae (which buys up these loans on the secondary market), through bailouts, and through a myriad of other federal programs such as FHA. Naturally, in an unhampered market, a loan of such a long term would require high interest rates to cover the risk. But, Congress and the Fed have come to the rescue with promises of bailouts and easy money, meaning cheap thirty-year loans continue to live on.

So, what we end up with is a complex system of subsidies and favoritism on the part of lenders, homeowners, government agencies, and the Fed. The price of homes keeps going up, increasing the net worth of homeowners, and banks can make long-term loans on fairly risky terms because they know bailouts of various sorts will come if things go wrong.

But problems begin to arise when increases in home prices begin to outpace access to easy money and cheap loans. Indeed, we’re now seeing that homeownership rates are going down in spite of low interest rates, and vacancy rates in rental housing are at a twenty-year low. Meanwhile, new production in housing units is at 1992 levels, offering little relief from rising prices and rents. Obviously, something isn’t going according to plan.

Who Loses?

The old debt-based tricks that once kept homeownership climbing and accessible in the face of rising home prices are no longer working.

From a free market’s perspective, renting a home is neither good nor bad, but American policymakers long ago decided to favor homeowners over renters. Consequently, we’re faced with an economic system that pushes renters toward homeownership — price inflation and the tax code punishes renters more than owners — while simultaneously pushing home prices higher and higher.

During the last housing bubble, however, as homeownership levels climbed, few noticed or cared about this. So many renters became homeowners that rental vacancies climbed to record highs from 2004 to 2009. But in our current economy, one cannot avoid rising rents or hedge against inflation by easily leaving rental housing behind.

This time around, the cost of purchasing housing is going up by 6 to 10 percent per year, but few renters can join the ranks of the homeowners to enjoy the windfall. Instead, they just face record-high rent increases and a record-low inventory in for-sale houses.

There once was a time when rising home prices and rising homeownership rates could happen at the same time; it was possible for the government to stick to its unofficial policy of propping up home prices while also claiming to be pushing homeownership. We no longer live in such a time.

Ryan W. McMaken is the editor of Mises Daily and The Free Market. He has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre. 

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Janet Yellen is Right: She Can’t Predict the Future – Article by Ron Paul

Janet Yellen is Right: She Can’t Predict the Future – Article by Ron Paul

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The New Renaissance Hat
Ron Paul
May 25, 2015
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This week I found myself in rare agreement with Janet Yellen when she admitted that her economic predictions are likely to be wrong. Sadly, Yellen did not follow up her admission by handing in her resignation and joining efforts to end the Fed. An honest examination of the Federal Reserve’s record over the past seven years clearly shows that the American people would be better off without it.

Following the bursting of the Federal Reserve-created housing bubble, the Fed embarked on an unprecedented program of bailouts and money creation via quantitative easing (QE) 1, 2, 3, etc. Not only has QE failed to revive the economy, it has further damaged the average American’s standard of living while benefiting the financial elites. None other than Donald Trump has called QE “a great deal for guys like me.”

The failure of quantitative easing to improve the economy has left the Fed reluctant to raise interest rates. Yet the Fed does not want to appear oblivious to the dangers posed by keeping rates artificially low. This is why the Fed regularly announces that the economy will soon be strong enough to handle a rate increase.

There are signs that investors are beginning to realize that the Fed’s constant talk of raising rates is just talk, so they are looking for investments that will protect them from a Fed-caused collapse in the dollar’s value. For example, the price of gold recently increased following reports of stagnant retail sales. An increased gold price in response to economic sluggishness may appear counterintuitive, but it is a sign that investors are realizing quantitative easing is not ending anytime soon.

The increase in the gold price is not the only sign that investors are interested in hard assets to protect themselves from inflation. Recently a Picasso painting sold for a record 180 million dollars. This record may not last long, as an additional two billion dollars worth of art is expected to go on the market in the next few weeks.

Another sign of the increasing concerns about the dollar’s stability is the growing interest in alternative currencies. Investing and using alternative currencies can help average Americans, who do not have millions to spend on Picasso paintings, protect themselves from a currency crisis.

Congress should ensure that all Americans can protect themselves from a dollar crisis by repealing the legal tender laws.

Congress should also take the first step toward monetary reform by passing the Audit the Fed bill. Unfortunately, Audit the Fed is not a part of the Federal Reserve “reform” bill that was passed by the Senate Banking Committee. Instead, the bill makes some minor changes in the Fed’s governance structure. These “reforms” are the equivalent of rearranging deck chairs as the Titanic crashes into the iceberg. Hopefully, the Senate will vote on, and pass, Audit the Fed this year.

The skyrocketing federal debt is also a major factor in the coming economic collapse. The Federal Reserve facilitates deficit spending by monetizing debt. Congress should make real cuts, not just reductions in the “rate of growth,” in all areas. But it should prioritize cutting the billions spent on the military-industrial complex.

Some say that eliminating the welfare-warfare state and the fiat currency system that props it up will cause the people pain. The truth is the only people who will feel any long-term pain from returning to limited, constitutional government are the special interests that profit from the current system. A return to a true free-market economy will greatly improve the lives of the vast majority of Americans.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.