This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Ron Paul: Federal Reserve's Addiction

NEW YORK (TheStreet) -- The Federal Reserve is like a drug addict, according to presidential candidate and Congressman Ron Paul, notorious for his hatred of the Fed and love of gold.

In a recent interview with TheStreet, Dr. Paul likened the Fed to a drug addict unable to stop printing money as no one wanted to go through the pain of withdrawal. The libertarian Congressman, however, believes that Congress will raise the debt ceiling before August 2nd despite that fact that the U.S. is more than $14 trillion in debt, with $275 billion of interest payments due in 2011 alone, according to TreasuryDirect.gov.

According to Erik Oja, U.S. banks analyst at Standard & Poor's Equity Research, the Federal Reserve has committed, not necessarily spent, $14 trillion through its two rounds of quantitative easing programs, plus TARP and TALF, life lines for the financial system during the recession. Banks are holding excess reserves of $1.55 trillion and including their required reserves, their lending capacity is more than $1.58 trillion. As a result, if that money is loaned out then potential inflation is much higher than what is reported currently.

The Consumer Price Index for May rose 3.6%, which is substantially down from the 5.6% level seen in 2008, and specific areas of the economy are not seeing big increases. Housing prices are up just 1.2% year over year, wages rose just 0.3% in May, while apparel prices have climbed just 1%, leading many experts to believe, despite high food and energy prices, that inflation is in check.

Economists would refer to the types of inflation as cost pull versus cost push. Cost pull refers to the second round effects of inflation, like higher wages, when inflation really seeps into the economy, versus cost push which describes an inflation due solely to high commodity prices, which have resulted from high demand, and from which, there is no escape.

Dr. Paul doesn't believe in any of those theories but argues "that's the way inflation works. Inflation is the increase in the supply of money. Sometimes it pushes some prices up and other prices can drop. So for a while it was the inflation that pushed housing prices up too high and then there is a collapse ... Where there are more market forces like in computers and technology those prices actually can drop in the midst of inflation."

Dr. Paul sees inflation now in food and services but believes it will feed into the labor market imminently. Big-time price inflation will be the next shoe to drop for the U.S. economy, he says, as the Fed stays rooted in its money-printing-addiction. The result would be a "downturn much worse than the stagflation of the 70's."

The way to fix this financial disaster is to stop spending money and go back on a gold standard. Dr. Paul reveals the logistics of how to do this in his next one-on-one with TheStreet.

--Written by Alix Steel in New York.



>To contact the writer of this article, click here: Alix Steel.

>To follow the writer on Twitter, go to http://twitter.com/adsteel.

READERS ALSO LIKE:




Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,563.30 -317.06 -1.88%
S&P 500 1,930.67 -39.40 -2.00%
NASDAQ 4,369.7730 -93.1290 -2.09%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs