Paul's warning comes as a growing number on Wall Street have turned pessimistic on the economy. This week, Citigroup analysts cautioned in a note that the risk of the global economy sinking into a full-fledged recession is on the rise, amid a "tightening in financial conditions everywhere."
Dragging down the economy is a massive load of personal and sovereign debt, Paul said. A 2015 analysis by the McKinsey Global Institute said that global debt had grown by $57 trillion in the last several years, while no major economy has successfully de-leveraged since 2007.
According to Paul, the Fed has played a large role in that accumulation of debt by implementing artificially low interest rates for years. This has pushed individuals and companies to spend beyond their means, he added.
"When things get out of kilter from artificially low interest rates...the only correction is the liquidation of the debt, but that is not permissible," Paul said. Now, Paul warned that the government may be losing control of markets, which will lead to more volatility in stocks.
"Everything is designed to keep the stock market alive. At the same time, the employment numbers when you look at them closely aren't all that great," he said.
In January, the U.S. economy added 151,000 jobs, missing economist expectations and falling well short from the previous month. From here, Paul said growth will continue to deteriorate.
"I think that the conditions will get a lot worse," he said. "The slope is going to be down, for economic growth and prosperity."