The Ron Paul Institute for Peace and Prosperity : Congress and the Fed Refuse to Learn From Their Mistakes

The Ron Paul Institute for Peace and Prosperity : Congress and the Fed Refuse to Learn From Their Mistakes




This month marks the seventh anniversary of the bursting of the housing bubble and the subsequent economic meltdown. The mood in Congress following the meltdown resembled the panicked atmosphere that followed the September 11th attacks. As was the case after September 11th, Congress rushed to pass hastily written legislation that, instead of dealing with the real causes of the crisis, simply gave the government more power.

Just as few understood the role our interventionist foreign policy played in the September 11th attacks, few in Congress understood that the 2008 meltdown was caused by the Federal Reserve and Congress, not by unregulated capitalism. Not surprising to anyone familiar with economic history, the story of the 2008 meltdown starts with the bursting of the Fed-created tech bubble.

Following the collapse of the tech bubble, the Fed began aggressively pumping money into the economy. This money flooded into the housing market, creating the housing bubble. The Bush Administration and the Republican Congress also added fuel to the housing bubble. These so-called “free-market” conservatives expanded federal housing programs in hopes of creating an “ownership society.”

If Congress understood the Austrian theory of the business cycle, it would have allowed the recession that followed the housing bubble’s inevitable collapse to run its course. Recessions are the economy’s way of eliminating the distortions caused by the Federal Reserve. Attempts by Congress and the Fed to end a recession via inflation and government spending will only lead to future, and more severe, economic downturns.



Cont.....