The Federal Reserve and Congress are "99 percent" responsible for the stock market swings this week because the Fed constantly creates "bubbles" to try to help the economy and Congress overregulates, former Texas Rep. Ron Paul tells Newsmax TV.
Federal Reserve board chairmen on numerous occasions have said it isn't aware bubbles in the economy exist until they burst, but that isn't true, Paul told "Hard Line" host Ed Berliner on Tuesday.
"You know it's there because the Federal Reserve creates the bubbles, and many times on purpose," Paul said. "They go from NASDAQ bubbles to housing bubbles to whatever they need to bail out the economy."
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The Fed would do better to simply allow the market to correct itself and allow the liquidation of debt so prices return to normal, he said.
"But no, we bail everybody out and it's temporary, but eventually the Big One comes, and they can't stop it," Paul said.
Whatever in the economy isn't being hurt by Fed policy is being hurt by Congress for overtaxing and overregulating, he added.
"Socialism fails always because you have wage and price controls, but we in the West have control of the economy and economic planning by pricing money," he said. "So one-half of the economy, which is the money, is fixed so you have currency transactions and currency competition and then you have the supply of money and interest rates, and it's a gross distortion because people have been fooled into thinking they're saving."
Paul said he remains "very concerned" about what he calls the "gross distortion" of the bond market that has been going on since the early 1980s.
"We’re still at zero percent," he told Berliner. "But eventually, the people will reject this and already you see some companies and debt like in Greece and some of our own municipalities turn sovereign debt, government debt, into junk and that eventually will happen.
"That will be the Big One, and then we will lose the status maybe at the same time as the reserve currency of the world," he added. "That will play havoc not only with us and with China."
But, rather, "it's the manipulation of the reserve currency of the world, where we had tremendous benefits for dozens and dozens of years," the former congressman said. "This is just a hint that there's disequilibrium there and the market is demanding a correction.
"You get rid of the malinvestment and get rid of the debt."
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