Author Archive for Mark Thornton

Bank of Japan: Trick or Treat?

The Bank of Japan announced an unexpected major increase in its Quantitative Easing policy increasing its purchases from 50 to 80 trillion Yen sending US stock markets to all time highs and Japanese markets to multi-year highs. Some people made a bundle because of the move, others lost a bundle.

BOJ Chairman Kuroda

NEW YORK (MarketWatch) — U.S. investors scored a Halloween treat.

An unexpected everything-but-the-kitchen-sink stimulus plan by the Bank of Japan on Friday triggered some sizeable global market moves, across assets from currencies to stocks.

Considering the trillions of yen being bandied about, the market moves aren’t surprising— ¥80 trillion (roughly the equivalent of $714 billion), from 50 trillion. The central bank increased its purchases by ¥30 trillion from the prior pace, and markets went to town. The Nikkei 225 index NIK, +4.83% NIK, +4.83% got the ball rolling by rallying to a seven-year high.

It’s a coordinated global relay race where the central banks are passing the baton,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.

“The problem with all this global currency devaluation is that nothing is based on fundamentals only intervention. It becomes a dangerous game over time as I believe overall risk assets have the propensity to be mispriced,” said Tom Tucci, head of Treasury trading at CIBC World Markets Corp., in a note.

Forbes Takes Another Look Through the Austrian Lens

Michael Pollaro writing at reexamines the implilcations of the ending of Quantitative Easing policy by the Federal Reserve: “The lion’s share of the supposed economic strength we see today is both artificial and unsustainable because it is built on malinvestments born out of the monetary largesse underwritten by the Federal Reserve’s policies. Normalize those policies; i.e., end QE and raise interest rates, and sooner or later those malinvestments will be liquidated. The supposed economic boom will turn to economic bust, and with that, a bust in the publicly traded equities that lay claim to those malinvestments.”

Looking through the lens of ABCT, the dynamics here can be explained thus… For the past five-plus years, emboldened by the near zero interest (discount) rates fostered by the Federal Reserves, continually cashed-up investors and speculators have been bidding up the price/value of all financial assets, driving a wedge between the value of those assets as priced in their respective markets and their true value based on properly discounted, expected future cash flows.

Now, in our minds, nowhere is this wedge greater than in the equity market. You might say wait a minute. Where’s the wedge? Don’t most broad-based market PE multiples – like the roughly 16 handle on the 12-month forward multiple of the S&P 500 – say otherwise? Have not company per share earnings been growing, especially recently, right along with equity share prices? Yes, but what strikes us is the reason for a good portion of that earnings growth; namely, it’s a function of the same swathe of money that has inflated equity share prices. We point to the unprecedented deluge of financial engineering programs orchestrated by company CEOs – refinancing tactics, stock buybacks, dividend hikes and of course M&A – financed off the back of the Federal Reserve’s QE purchases and ZIRP policies.

So, when might this wedge in the equity markets be filled? Well, in accordance with ABCT, it will begin when the monetary largesse that is currently feeding the equity market boom (and financial engineering boom) abates. Could that be when the last vestiges of QE3 work their way through the financial markets? Or will it have to wait until the Federal Reserve begins raising rates? Perhaps the banking system will fill the void being left by the Federal Reserve with its own swathe of money creation? Maybe some cross-border capital flows coming from European investors could help fill that void too? Indeed, could the Federal Reserve fill the void itself with QE4. These are tough questions, ones we will be examining in future posts.

GDP Up 3.5%

Gross Domestic Product has been reported to be an unexpectedly high 3.5% in the third quarter (on an annual basis). However the growth was led by a “surprisingly” high increase in defense spending and a reduction in the trade deficit (which accounts for 2% of the 3.5%). The last time defense spending had a surprising increase was the third quarter of 2012 (also a quarter leading up to an election) there was a sharp fall off in defense spending the next quarter. The GDP deflator was 1.3% for the quarter on an annual basis.

The End of QE3, Trouble Ahead for the Bulls?

Austrian economist Micheal Pollaro writes that with the end of QE3 coming that stock market bulls need to take a note of caution because the Austrian measure of the money supply is already falling. This is typically a sign of trouble for stock markets.

The Federal Reserve’s latest asset purchase program, QE3, is coming to an end. What was once an $85 billion a month program, one in which at its peak had been goosing the financial markets and economy at an annual rate of $1.0 trillion – and over its 27 month life will have pumped $1.7 trillion of money into the economy – is going to zero. Given the outsized impact QE has had on the growth of U.S. money supply and thus the U.S. economy, we say investors take note, especially those furthest out on the risk curve, because what was once your primary tailwind could soon become your greatest headwind, maybe even a gale force.

Thus, when an economy is subjected to a bout of monetary inflation, investors can enhance their performance by correctly positioning their portfolios on the right side of the boom-bust cycle. Though easier said than done, one should buy claims to the malinvestments of the boom; i.e., when the money supply is surging; then sell those same claims after the growth in the money supply peaks and begins to head down. Importantly, the bigger the bout of monetary inflation, the more important it is to be positioned on the correct side of the boom-bust cycle. The reason is simple – lots of monetary inflation means lots of malinvestments in the economy and financial markets. Indeed, correct positioning is even more important on the downside of the boom-bust cycle. You see, booms tend to develop slowly. Busts, complicated by the distortions created during the boom, more often than not do anything but.

Now you know why we call this current monetary cycle the Bernanke Risk-On Boom – Bust-to-Be! Unlike in past monetary cycles where money was largely injected into the real economy via bank asset purchases and loans, this inflation cycle is all about huge swathes of money being injected directly into the financial markets via Federal Reserve’s QE asset purchase programs. The banking system, at least to this point, has had a minor role.

Unless the Federal Reserve changes its mind, the last installment of QE is ending next month. That means that if the banking system, the other and more traditional source of monetary inflation, does not step up and fill the inflationary void being vacated by the Federal Reserve, the money supply is set to fall, and fall substantially in the coming months.

In other words, bulls take heed – our yellow light could be tuning red.

The Fed as Stock Market Manipulator

The notion that the Federal Reserve has been acting to manipulate stock markets has been active for decades, but rarely has that notion been openly discussed in the mainstream media. In this article by Howard Gold the Fed is praised for its “market timing” as Fed official quickly responded to recent volatility in the stock market with promises of more quantitative easing if necessary.

Investors got the message. The S&P 500 Index advanced for three straight days and the VIX fell under 20 again.

Bullard was only the latest Fed official whose words or actions “just happened” to boost the stock market when it was down.

“They are definitely in the market-manipulation business, and nothing has changed,” said James Bianco, president of Bianco Research LLC in Chicago and a longtime student, and critic, of the Fed.

Called the “Greenspan/Bernanke put,” the Fed’s willingness to jump in when stocks fall dates back a quarter-century.

“The put option is back. If the market sells off enough, they will give us QE4,” Bianco told me.

Conspiracy theorists have pinned it on a government “Plunge Protection Team” that wants to keep stocks from crashing at all costs.

But conspiracy or no, consider these actions:

Aug. 31, 2012: In his annual speech in Jackson Hole, Wyo., Fed Chairman Ben S. Bernanke all but announced the third round of QE, extraordinary bond buying of $85 billion a month. The S&P 500, which had languished after a nearly 10% decline, rallied from 1,399 points and hasn’t corrected substantially until now.

Sept. 22, 2011: Following a 19.4% stock sell-off amid a debt crisis in Europe and the U.S., the Fed launched Operation Twist, in which it sold short-term and bought long-term securities to push down long rates. After first slipping, the S&P 500 resumed a multiyear take-off that, with a little help from the Fed, ultimately drove it 80% higher.

Obama Care Update

I have previously reported about a friend of mine and her experience with Obama Care. Earlier this year her catastrophic health insurance was canceled as insufficient under Obama Care regulations. Her monthly premiums would have increased by several hundred percent to get the cheapest available qualifying coverage. Instead she was given a “better” plan that cut her premiums by more than 90% of what she was paying for her catastrophic coverage.

Update: My friend has not been able to use her “better” health insurance coverage over the last 6 months. All the health related providers have turned her insurance down and she has had to pay cash for everything. She inquired about a BCBS plan that she had been previously offered and was told that it had increased by over 100%. She was told that they were no longer able to qualify people by risk factors and that several new coverages were made mandatory under Obama Care. The silver lining for her is that she will probably qualify for a 50% subsidy under Obama Care, leaving tax payers to pick up the other half.

There is more to health care insurance than affordability.

Making Money by Making Money

It was reported today that Federal Reserve Chairwoman Janet Yellen earns over $200,000 as head of the world’s biggest central bank. Amazingly, there are at least 113 employees at the Fed’s Washington DC headquarters that earns more than she does!

MADRID (MarketWatch) — $201,700 a year doesn’t seem like chump change. That’s what the Federal Reserve Chairwoman Janet Yellen earns as head of the world’s biggest central bank.

But at least 113 other staffers at the Fed’s Washington headquarters earning more than she does, according to Reuters, which asked for details of central-bank pay under a Freedom of Information Act request.

Reuters sought information on all salaries on the central bank’s board that are above $130,810, generally the top of the government’s pay scale. The Fed responded with a list of those who make more than $225,000, with some exceptions, Reuters said.

The average of those 113 earners at the Fed is $246,506 per year, not counting bonuses and other benefits. The top earner is the Fed’s inspector general, with an annual salary of $312,000, according to Reuters. Yellen’s salary is set by Congress.

By comparison, the average salary at the Securities and Exchange Commission was $157,946 in 2013, while at the Commodities Futures Trading Commission it was $146,323, Reuters pointed out.

International Conference of Prices & Markets Coming Soon

Reflective of the growing international participation at the Toronto Austrian Scholars Conference, the event will be rebranded as the International Conference of Prices & Markets in concert with the Mises Canada published Journal of Prices & Markets.

The 3rd iteration of the conference will be held on November 8th, with an opening reception the evening before, and the event continuing throughout the weekend.

Read the 2013 conference Papers & Proceedings here.

This year’s featured speakers are Dr. Jordan Peterson, filmmaker Jimmy Morrison, and Douglas French.

The International Conference of Prices & Markets is designed to combine the opportunities of a professional meeting, with the added attraction of hearing and presenting new and innovative research, engaging in vigorous debate, and interacting with like-minded scholars who share research interests.

Dutch Treat Pension System

In the US, many pension plans are hopelessly underwater as the economy heads into troubled times. State employee pension plan are $1 trillion in the red, local government employee pensions are nearly $500 billion in deficit, and even employer-funded pensions (buoyed by rising stock and bond markets) are showing problems. Of course the Social Security, Medicaid and Medicare fiasco is showing red ink for as far as the eye can see. The combination of overly generous benefits and demographically declining tax bases means that there will have to be severe benefit cuts down the road.

In the Netherlands the pension system seems to work much better. Employee contributions are high, employer contributions are low, and each generation is expected to pay for its own benefits. The pensions themselves are required to faithfully assess the status of their financial conditions and if shortfalls arise, as they did in the 2008 financial crisis, then benefits are cut and contributions are raised to keep the system solvent on an ongoing financial basis. The payout is approximately 70% of your earned income rather than the 40% that Social Security pays.

According to Mary Williams Walsh:

The Dutch say their approach is, in fact, supposed to prevent a crisis — the crisis that will ensue if the boomer generation retires without fully funded benefits. Their $1.05 minimum is really just a minimum; pension funds are encouraged to keep an even bigger surplus, to help them weather market shocks. The Dutch sailed into the global collapse of 2008 with $1.45 for every dollar of benefits owed, far more than they appeared to need. But when the dust settled, they were down to just 90 cents. The damage was so bad that the central bank gave them a breather: They had five years to get back to the $1.05 minimum, instead of the usual three.

American public plans emerged from the crisis in worse shape, on the whole, and many allowed themselves 30 years to recover. But 30 years is so long that the boomer generation will have retired by then, and the losses will have been pushed far into the future for others to repay.

It’s a recipe for disaster if the employer happens to be a city like Detroit. The city’s pension system used a 30-year schedule to cover losses but reset it at “Year 1” every year, a tactic employed in a surprising number of places. In Detroit, it meant the city never replaced the money that the pension system lost. When Detroit finally declared bankruptcy last year, an outside review found a $3.5 billion shortfall, one of the biggest claims of the bankruptcy. Manipulating the 30-year funding schedule had helped to hide it.

Austrian Calls Central Bankers Incredible

Michael Pollaro writes in that the all-time high credibility that central bankers currently enjoy is about to change.

Central bank credibility is at all-time highs. As a consequence, we suggest, equities are near all-time highs too while gold is scraping multi-year lows. A change though may be in the offing with all three. Not today, nor tomorrow. But perhaps sooner than most think.

Here’s how we see it…

Pollaro shows that the monetary policy approach pursued by Keynesian central bankers is both wrong and dangerous.

We reject this unwavering belief in central banks and their policies, outright. As the Austrians teach, easy monetary policies sow the seeds of their own demise. Flooding the economy and financial markets with money (and credit) created out of thin air – thereby distorting interest rates and price signals and, in so doing, creating malinvestments – is no way to create sustainable, economic growth and ever rising equity prices. Sure, at first glance, the malinvestments and attendant booming equity prices look like genuine growth and wealth creation. But they are not. As we explored here, they are instead unsustainable bubbles that turn to bust when the growth in those money supply (and credit) footings decelerate; i.e., when the easy money abates.

Today we posit some questions we think every equity investor needs to answer. What if the Austrians are right? What if unconventional, all-in easy money policies do not produce sustainable, economic growth? Contrary to the expectations of nearly everyone, what if the next big event is in fact a bust? What will that mean to the equity markets going forward? And then, what will that say about the credibility of central banks?

Well, if the Austrians are right, as we wrote here, given the size of this monetary experiment, one can expect a pretty big swoon in equity prices if not an ugly crash. More important though is the very real possibility that a bust could put a dagger in central bank credibility, severely damaging if not destroying the belief that unconventional, all-in easy money policies can goose the economy and equity markets anywhere near as effectively as in the past. Maybe, in real terms, not at all. Truly a problematic situation the next time central banks step in to “save” us. This we think is especially true if a bust occurs right here in America. Consider this: The former Federal Reserve Chairperson Ben Bernanke (and world renowned expert on the Great Depression) and his closest adviser current Chairperson Janet Yellen birthed the largest, most heralded, monetary support apparatus in world history and it was found unable to produce sustainable, economic growth, unable to float equity prices ever higher. Instead, it did the exact opposite. How many investors/speculators will then put their unswerving faith in any central bank, at least for the foreseeable future? We’re thinking a lot, lot less than today.

Pollaro suggests that as events play out that central bankers will lose their credibility and will be considered “incredible” in the proper sense of the word.

China Overtakes US

The IMF announced that the GDP of China has now exceeded the GDP of the USA. In this interview I explain some of the “back story” on this topic and also alert listeners of the implications of the current world currency war and looming economic crisis.

“In the US, the GDP growth has been driven largely through a process of large government deficits and the burgeoning national debt,” he said.

“An unprecedented radical monetary policy of keeping interest rates very low” also contributed to an unsustainable economic growth, Thornton told Press TV on Wednesday.

The American economist said China’s growth policies are also questionable and will not be sustainable in the future.

“They (China) have a lot of planned investment in infrastructure, housing, office space and the building of giant skyscrapers and they have a lot of inventory of all those products and under utilization of infrastructure investment,” he noted.

China remains the biggest foreign holder of US government debt, holding an estimated $1.27 trillion in US Treasury bonds.

The United States accuses China of lowering the price of its exports by manipulating its currency.

“Growth is a good thing, but in the case of China and the US, we have to question whether it’s natural, sustainable,” Thornton said.

First Trickle Through the Dam

The United Kingdom has announced that it will be the first government outside of China to issue bonds denominated in the Chinese currency, the Renminbi. Forbes reports that the bond sale will be tiny. For the UK it represents another attempt to become the eminent world financial center. For the US it represent another small blow to the status of the Dollar and US financial markets. The US Dollar has already lost its near monopoly position as a reserve currency and medium of international trade. The competitive position of the Chinese Renminbi continues to improve in small ways. The question is whether this will be a multiple decade competition between the Dollar and the Renminbi, or whether the “dam will break” like it did in WWI when the eminent currency status changed from the British Pound to the US Dollar.

“Depenalizing” Marijuana Reduces Crime

A recent paper published in the prestigious Journal of Political Economy, “Crime and the Depenalization of Cannabis Possession: Evidence from a Policing Experiment,” reports on experimental policing in the city of London. In the experiment, police depenalized the possession of small quantities of cannabis in the London borough of Lambeth. Researchers found that the offense rate for total non-drug crime in Lambeth fell significantly by 9.4% The offense rate declined in all crime categories. The declines in robbery, burglary, theft and handling, fraud and forgery and criminal damage were statistical significant, but the offense rate for violence, sexual offenses and robbery was not. Researchers found that police reallocated their resources which led to more arrests and “clear ups.”

Newsflash: Central Banks Elevate Asset Prices

220px-BankIntZahlungsausgleichThe Bank of International Settlements has issued a warning that central bank monetary policy has elevated asset prices and reduced market volatility to abnormally low levels.

In its quarterly review, the BIS said financial market volatility spiked higher in August on the back of geopolitical concerns and worries over economic growth, but quickly returned to “exceptional lows” across most asset classes.

“By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to contribute to an environment of elevated asset price valuations and exceptionally subdued volatility,” the BIS said.

From the BIS website:

The mission of the Bank for International Settlements (BIS) is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.

In broad outline, the BIS pursues its mission by:

* promoting discussion and facilitating collaboration among central banks;
* supporting dialogue with other authorities that are responsible for promoting financial stability;
* conducting research on policy issues confronting central banks and financial supervisory authorities;
* acting as a prime counterparty for central banks in their financial transactions; and
* serving as an agent or trustee in connection with international financial operations.

The head office is in Basel, Switzerland and there are two representative offices: in the Hong Kong Special Administrative Region of the People’s Republic of China and in Mexico City.

Another Excuse for More ZIRP and QE?

The August jobs report is out and its not pretty. Instead of a faster pace of jobs growth the report was disappointing and past reports were revised downward. This is just the ammunition that Janet Yellen and the Fed need to possibly extend Quantitative Easing and their Zero Interest Rate Policy.

The liberal Center for Economic and Policy Research that regularly comments on the jobs reports concludes:

The remarkably weak GDP growth in this recovery is consistent with the extraordinarily weak job growth. While many have tried to explain the weakness on demographics, even if we restrict the focus to prime age men, employment is performing far worse than in prior recoveries.

Could it be that the “remarkable” weakness has something to do with the “remarkable” policies of the Fed and the Central government?

Trouble at Jackson Hole

Central bankers and their economists had their annual retreat to Jackson Hole Wyoming this past week. Given all of their self-proclaimed success in curing the economic crisis with their Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE). You would think that the event would have been a big celebration.

However, as we got closer and closer to the Fed’s target unemployment rate of 6.5% the more we have been hearing from Janet Yellen about “labor market imperfections.” She has changed her tune and instead of touting the decreases in the unemployment rate, she is talking about all the people working part-time when they would prefer to work full time and the decline in the labor participation rate. In truth the Fed did not fix the economy. In other words, she is searching for a justification to continue the money printing if the bubbles start leaking again. Several papers were presented about the problems of labor markets.

In contrast, others were concerned about the emerging price inflation:

• Martin Feldstein, Harvard economics professor, chairman of the Council of Economic Advisers under President Ronald Reagan:

“I wish the Fed would be more explicit about being concerned about inflation. They were slow to communicate about inflation. Yellen gave a speech at the (International Monetary Fund) a few weeks ago in which she acknowledged that there were risks of financial instabilities but said that’s not going to change our monetary policy.

“My sense is there’s probably more inflation in the pipeline and closer (than Yellen thinks).

MORE: Yellen talks labor market slack at Jackson Hole

“Her eyes are on the underutilized labor resources. She’d like to be able to continue to bring that down.

“We may see inflation sooner than she thinks we’re going to see, and I think if that happens, then I think they’ll move the date (to raise rates) forward.”

Others, like Yellen, were less concerned with price inflation and more concerned with unemployment:

• William Spriggs, chief economist for the AFL-CIO, Howard University economics professor, former assistant labor secretary under President Barack Obama:

“I think (the Fed is) still thinking too much in the framework of, ‘We’re waiting for inflation.’ I think they have to re-configure this. The cost of unemployment has gone up, and so in making that choice between whether I raise interest rates to stir the economy or whether I pursue full employment, we just have to say: ‘You know what? Inflation doesn’t cost as much as unemployment.’

“(Yellen) is forcing them to be nuanced, so they can’t get out of talking about this in a more nuanced way.

“If, for a little while, you have 3% or 4% inflation or maybe even 4.5% inflation, that’s fine. Because we are so far away from full unemployment.

“But if you (raise interest rates), it’s going to be arbitrary. It’s going to be very broad. It’s going to hurt managers, it’s going to hurt professionals, it’s going to hurt everyone.”

“This is real damage to real people. You have to factor that cost. This is not free.”

It would seem that the rosy picture of the Fed fixing the economy does not look as rosy to central bankers themselves once they have supposedly fixed the economy!

As quotes in the USA Today.

Colorado’s Illegal Pot Market Thrives

Not unexpectedly, Colorado’s illegal marijuana market has been reported as thriving. The reasons for this are pretty straightforward. First, it is a new and highly regulated market making it difficult to supply products and keeping legal marijuana prices high. Also, steep taxes on legal marijuana exceeding 30% also are keeping prices high.

Camouflaged amid the legal medicinal and recreational marijuana market, the underground market thrives. Some in law enforcement and on the street say it may be as strong as it’s ever been, so great is the unmet local and visitor demand.

That the black market bustles in the emerging days of legalisation is not unexpected. By some reckonings, it will continue as long as residents of other states look to Colorado – and now Washington state – as the nation’s giant cannabis cookie jar. And, they add, as long as its legal retail competition keeps prices high and is taxed by state and local government at rates surpassing 30%.

Insanonomics Failing in Japan

Bush_Abe,_Camp_DavidAbenomics–the “new economic policy” in Japan is failing badly. It is a policy of inflation targeting, quantitative easing, government spending and higher taxes. Initially, it seemed to work in that the Japanese stock market rose significantly. However more recent reports find the real economy still stagnating and shrinking. The latest reports indicating the impact of the recent increase in the sales tax reducing production, consumption, and investment.

Japan is facing a crucial period as the government presses ahead with its much-ballyhooed Abenomics revival strategy.

The country has been mired in a malaise brought on by falling prices and a strong yen for years. But the economy’s prospects have brightened since Prime Minister Shinzo Abe announced fresh spending by the government and encouraged the central bank to unleash a wave of asset purchases.

Under his leadership, the yen has fallen sharply and stocks have risen dramatically. The IMF has endorsed the plan and Japan has largely avoided charges of currency manipulation.

Related: Japan debt tops 1 quadrillion yen

But the third pillar of the Abenomics plan — structural reforms — has been tougher to implement.

Abe’s government has proposed reforms that would make the labor market more flexible, encourage immigration, bring nuclear power plants back online and draw more Japanese women into the workforce.

Many of those proposals have foundered, or have been slow to develop.

Look for a new Mises Weekends show this Friday, with our guest Mark Abela in Tokyo discussing failed Abenomics and Japanese monetary policy- ed.  

HT: Mish’s GETA

The Costs of Unions

International_Broom_and_Whisk_Makers'_UnionThe economic performance of states that supports unions has lagged the economic performance of states with “Right to Work” laws. Over the last 10 years manufacturing output was stagnant in union states but increased by more than double digits in the Right to Work states, even when you exclude Michigan and Indiana which have recently passed Right to Work laws. Right to Work states continue to gain jobs and higher wages relative to union states.

A new report finds that unions cost individuals as much as $10,000 each in the strongest union states.

In “The Unintended Consequences of Collective Bargaining,” authors Lowell Gallaway and Jonathan Robe rank the states according to the negative impact unionization has had on each state’s economy over the last 50 years.

Similarly, when looking at overall state economies over this period, the authors show a reduction in state economic growth as high as 10-12 percentage points in some states.

The top five “worst” states were: Michigan, Alaska, Nevada, New York, and Hawaii. The five states that fared best were: South Carolina, North Carolina, Mississippi, South Dakota, and Texas.

Ron Paul Poll: Economics, Not Political

The Haven has posted the following poll question:

What do you think? Is Ron Paul right to think that a crash will be forthcoming? Or will the stock market continue to plow ahead as it has done since 2009?

“If Ron Paul Is Right, Then It’s Only A Matter Of Time Before This Happens… Again”

Paul is a student of the Austrian School of Economics, which contains Ludwig von Mises and Friedrich Hayek as a couple of its most brilliant thinkers. The Austrian School has long been critical of central banking; and Paul is no exception, having authored his own book called “End the Fed.” Dr. Paul thinks that the current interest rates are faulty and artificial, caused by the Fed. In turn, says Paul, investors make bad decisions based on the artificial interest rates, resulting in bubbles:

“One thing we have to remember is that when you get false information from artificially low interest rates, that mistakes are made, they’re inevitable. You make mistakes even when you have market rates of interest. But when the market rate of interest is so low for everybody, there’s a lot of mistakes, and that’s why you have the bubbles, and that’s why you go through the catastrophe we had in ’08 and ’09, and I think the conditions are every bit as bad as they were in ’08 and ’09.”
Paul remains steadfast in his belief that an America without a Federal Reserve would be a brighter America. He described the way investors are forced to hang on to every word of the Fed in the current environment: