Fed Cuts Rates: We Think of Ron Paul and Negative Rates

18 Sep

Fed Cuts Rates: We Think of Ron Paul and Negative Rates

The Federal Reserve Open Market Committee ended its September meeting with a decision to lower interest rates again.  The policy cuts the Fed funds rate by 25 basis points to a new target range of 1.75  to 2 percent.  The announcement on Wednesday afternoon (9/18) was accompanied by a broad hint that rates may be cut again before the end of the year.

As we watched the Chairman Powell’s announcement – which amounted to not much more than reading and repeating well-worn talking points — our thoughts turned to Ron Paul’s recent comments about negative interest rates.  

We’ll get to that in a moment, but first, we recently wrote (here) about Ron Paul’s prediction that gold would double by the end of 2020.  

We don’t mention it because we think it is a particularly bullish prediction.  Quite the contrary.  We could highlight many economic observers and technical analysts whose price target for gold are higher.  

Some are much higher.  

We thought you should see Dr. Paul’s prediction because it is unusual for the former congressman and Presidential candidate to voice such a specific prediction to begin with.

The suggestion that gold could reach $3,000 by the end of next year is not overstated in the least.  It is a cautiously moderate forecast.  As we would expect from Dr. Paul.

Indeed, Dr. Paul himself acknowledges that when the monetary crisis strikes, his call may prove to substantially understate the case.

Ron Paul Stock Market Bubble

We agree.  In fact, alert market watchers are already feeling the hot breath of the approaching monetary crisis breathing down their neck.  After all, we are now in an era of Quantitative Easing, trillion-dollar deficits, and hundreds of trillions of dollars in unfunded US government liabilities.  

Not to mention an era of negative interest rates.

Negative rates are such a profound anomaly that they remind us of every catastrophic economic scheme that has ever gone before.  Things like the South Sea Bubble and John Law’s Mississippi Bubble, both schemes of the 18th century.  Only this is the biggest bubble of all time.

Dr. Paul thinks that the US government and Federal Reserve will have us following much of the rest of the world into the negative interest rate abyss.  

“We will join the rest of them and go to total negative rates in hopes that that will be the solution,” Paul said on CNBC last week.  “We’ve never had as many currencies in negative interest rates. $17 trillion worth of bonds [are] in negative interest rates. It’s never existed before. And, that’s a bubble.”

“So, we’re in the biggest bond bubble in history, and it’s going to burst.” 

When confronted with the choice between real money – gold – and paying the government a fee to let it use your money, like Dr. Paul we believe that in a crisis rational people will opt for gold.  After all, as Dr. Paul asks, “How do you sell a bond that pays a negative rate? Who’s going to jump up and down?”

The long-term consequences of negative interest rates are incredibly destructive and immeasurable bullish for gold and silver.  

Stay tuned.