Federal Reserve Chair Janet Yellen announced Wednesday that interest rates will remain near zero for a while, but hinted that they might increase once the central bank’s quantitative easing measures come to an end, which many expect will take place by the end of the year or at the start of next year.
Whether the Fed’s hike in interest rates is a positive or not, one former Republican presidential candidate says the Fed should just stop manipulating interest rates and the money supply because that’s the market’s function, a function that been part of the central bank’s mandate for a century.
Former Texas Republican Congressman Ron Paul spoke to CNBC on Wednesday making the libertarian, Austrian Economics case for a market interest rate as opposed to an artificial one dictated by Yellen and both her predecessors and successors.
“It's an illusion. I don't think any one individual knows how to plan the economy by manipulating interest rates. Interest rates are so important that if you give this power to one small group or one individual, there will be distortion,” said Paul. “So sometimes you have housing bubbles and sometimes you have housing busts, then you have housing bubbles and bond bubbles that's all [the] result of the manipulation of interest rates, which is my real objection to it."
The ardent critic of the Fed and author of “End the Fed” made the case that no one person should have the power to influence interest rates because it’s a very powerful tool to maintain. The Fed’s policy consists of monitoring and controlling interest rates – many libertarians make the case that it was the manipulation of the money supply and interest rates which led to the Great Crash of 1929 and the Great Depression.
“I think it's the invisible hand that we lack, not the wisdom of a few people. Few people can't be wise enough to dictate the market. That's why socialism always fails. So one half of our economy is socialized, because it's the control of the money supply, the control of the interest rates," Paul added. “We don't believe they're capable of doing it and I think history shows that the record is pretty bad."
Paul further purported that the United States economy continues to struggle and affect the American people through large unemployment levels and stagnant wage growth, though he did concede that the stock market has performed well as of late.
“The economy on the surface looks good, but if you look at hardcore unemployment and standard of living of the middle class, there's still a lot of problems out there," Paul said. "So if we look only at the stock market, then we're in denial."
Despite the intentions of Yellen, it is still widely believed by contrarian investors that the Fed will taper the taper talk and start to increase QE once they realize how the market desperately relies on its monthly multi-billion-dollar injections.