Ron Paul warns that market dangers are 'bigger than ever,' even if Trump backs away from tariff threat

The situation facing stocks may appear more ominous with the addition of President Donald Trump's tariff threat.

But libertarian Ron Paul suggests Wall Street is missing the bigger picture.

The real trouble stems from Federal Reserve policy and easy money, according to the former presidential candidate.

"If the Fed continues on the things that they are sort of planning on doing, it's going to be a calamity," he said Monday on CNBC's "Trading Nation." "I think we have a greater distortion and a financial danger sitting out there bigger than ever before."

Paul, who has also served as a Texas congressman, says the Fed has made critical policy errors that have helped caused a "rigged economy." They range from keeping interest rates low for too long, the rounds of quantitative easing and timing of selling its financial-crisis era assets.

A growing budget deficit, he says, is also part of the problem.

"Everything is just very burdened with debt, and there's no stopping it," added Paul.

He says investors should not be shocked by a stock market plunge as deep as 50 percent.

"It's going to be a calamity"

This isn't the first time Paul has warned Wall Street about an epic correction.

On "Trading Nation" last spring, he said a correction was "inevitable" despite a string of recent Nasdaq highs. The broader market correction hit about 10 months later on Feb. 2.

For now, the markets seem to breathing a sigh of relief.The Dow rallied 336 points to close at 24,875 on Monday on the notion that Trump may back down from the steel and aluminum tariff threat. The Dow needs to rise 5 percent to break-even.

According to Paul's latest prediction, the February pullback may be just a blip compared to what's ahead.

"The correction is going to be huge, and I don't think anybody can predict. But I think this correction we had in '08 and '09 wasn't allowed to really go its course and restore some sensibility to the market. I think that'll be a mild correction to what could happen," Paul said.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect