Ted Cruz slams Federal Reserve for asset bubble; calls for reform
ECONOMYNEXT – US Presidential hopeful Ted Cruz slammed the Federal Reserve, whose rate manipulations have triggered two global crises since it was set up, asking for it to be audited and restrained.
After triggering a housing bubble through artificially low interest rates while the US was fighting a war in the gulf, the Fed then printed more money to prop up asset prices.
"On Wall Street, the Fed is doing great. It’s driving up stock prices," Cruz said Wednesday during a Republican presidential debate.
"I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound monetary and monetary stability, ideally tied to gold."
The US Fed which was created in 1913 amid controversy, generated the 1930s global depression by trying to pump up the economy and help the Bank of England avoid balance of payments trouble undermining the gold standard, generating the bubble now known as the ‘roaring 20s’.
The collapse of the bubble led to the great depression, which eventually led to the depreciation of the US dollar from 20 to 35 dollars an ounce.
In 1971, the Fed again printed money and amid the Vietnam War leading to the final collapse of the gold standard as it lost gold reserves, generating the high inflation fully fiat money found today.
Fiat money has been restrained to some extent though inflation targeting laws, but some economists say manipulated inflation indices, targeting core inflation and the generally positive inflation targets which leads to cumulative inflation, generates bubbles.
The mainly housing bubble which collapsed in 2008/2009 generating a massive run on banks and other financial institutions was triggered by post 2001 super low interests rates amid a war in the gulf, which economists now call the ‘mother of all liquidity bubbles’.
There have been growing calls to audit the Fed, which is generating bubbles, inflation and economic collapses with low interest rates.
Another US legislator Rand Paul on Wednesday bashed former Fed Chairman Ben Bernanke.
"I think it’s precisely because of the arrogance of someone like Ben Bernanke, who now calls us all know-nothings, that’s precisely why we need (to) audit the Fed," Paul said.
When the Fed act was pushed through congress at the beginning of the last century, Charles Lindberg gave the Congress some prophetic warnings, all of which came true not may years later.
"This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed," Lindberg warned.
"It can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by a greater rate variation and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down.
"To cause high prices, all the Federal Reserve Board will do will be to lower the rediscount rate…, producing an expansion of credit and a rising stock market." (Colombo/Oct29/2015 – Update II)