Abolishing the Fed might not be as crazy as it sounds
By jagermeister330 Posted in Archived — Comments (139) / Email this page » / Leave a comment »
Ron Paul's idea of abolishing the Federal Reserve is generally met with derision. The idea is denounced as radical, impractical, kooky, etc. But I would suggest it's not quite as crazy as it might sound for a couple of reasons.
1) Article 1, Section 8 of the Constitution says that Congress has the power to "coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures."
2) The power to "coin money" clearly does not mean that they can only use actual coins, since the various American colonies were using paper money almost exclusively already by that time.
The Federal Reserve (a private bank) is wholly unnecessary for the monetary process. Congress has a clearly enumerated right to both 'coin' (create) money and regulate its value. However, Congress has ceded its authority to a private bank which charges interest on loans it makes to the government, paid for by taxpayer dollars. In fact the vast majority of total personal income tax receipts goes towards paying interest on the federal debt, most of which is owned by the Federal Reserve.
Is it an entirely crazy, kooky, nutty idea for Congress to take back the power it rightfully retains under the Constitution from a private bank?
Apologies in advance if this appears rambling or incoherent...it's past 4 in the morning and for some reason I'm still up drinking...
Abolishing the Fed is not a plan. Abolishing the fed and replacing it with gold-backed money is a plan, and it is a terribly bad plan.
Some people even call it crazy because so many of the supporters of that plan claim that support for non-Fed money was the reason for JFK's assassination.
But no, talking about abolishing the Fed (an FDR creation) isn't inherently a bad idea. Howeve we can't judge any particular proposal unless we find out what exactly is to replace the Fed as the regulator of money.
Consider how the Fed operates: It buys and sells things. Do we want the government directly operating in the markets that way, as the Fed does? If not, what tools will the government have to control the value of the dollar instead?
come up with a solution that hasn't been a proven failure, they will just create chaos by abolishing it.
Using gold and silver has caused it's own problems, especially when there have been fixed exchange values between them and the supply of one or the other changes.... (IE: a 20 dollar gold piece with a 1 dollar silver piece causes problems when you discover something like the Comstock Load that greatly increases the supply).
But there are other things the Ronulans have wrong.
1. Congress has a right to delegate its authority to other agencies. They have a right to regulate the value of the currency and have chosen to use the Fed systems as their method of regulating the value. Or do they REALLY want congress deciding when to raise or lower interest rates by political means?
2. The have a right to coin money in any form they choose. The current form is our paper currency backed by the full faith and credit of the US.
3. They fail to realize is that our money is backed by the combine goods and services that our country produces. It's not tied to the vagaries of a single commodity, but is instead able to grow to match our total production.
4. The primary job of the Fed is to match the growth of money to the growth of our economy. This is not an easy task and requires a bit of guesswork. Sometimes (often?) they're wrong. Sometimes they overshoot and need to correct this condition and will change their targets to match.
Except for that little problem of creating the great depression, they've done a pretty good job. They made serious mistakes early in the life of the Fed. They still make mistakes, but we have learned a bit and they correct their errors sooner and the consequences of their mistakes have been smaller.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
"...paper currency backed by the full faith and credit of the US."
hahahahahha....oh....crap...that's not funny. that's sad.
"Except for that little problem of creating the great depression, they've done a pretty good job"
i'm glad you have acknowledged that the great depression was a result of fed policy and not the free market. but to say they have done a pretty good job is to overlook the many other recessions and bubbles (like the housing bubble today); the overall redistribution of wealth from the poor and middle class to the wealthy businessmen who receive the freshly counterfeited money; disproportionate inflation; and the devastating long term effects that future generations will have to deal with.
these aren't just mistakes that the fed has made, these are fundamental problems with a system that attempts to predict the impossibly complex actions of humanity. though not perfect, the free market is the best mechanism for predicting these actions and regulating money. it is no different then other areas of economics where the unregulated market operates better than any other system. anything else is immoral and inefficient...and typically disastrous.
______________________________
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
- i'm glad you have acknowledged that the great depression was a result of fed policy...
In return, you should acknowledge that Fed "policy" in those days was constrained by the fact that the U.S. was then on the gold standard. This meant that the Fed could not, in those days, expand the money supply to keep pace with economic growth.
In the presence of new technologies (principally electricity and the automobile) that were penetrating the economy at the time, pushing human labor productivity to heights never before seen by Man, a gold-backed currency could simply not keep pace. The result was deflation and an economic contraction lasting decades that produced great human misery that was totally unnecessary.
Until the early days of the 20th Century, the rate at which "new" gold could be discovered and mined roughly matched the long-term rate of economic growth, which was essentially tied to the rate of population growth.
Add rapidly-advancing technology that continually increases human productivity, and gold production becomes an ever-more-stupid method of regulating the size of the money supply. It can't keep pace, and will produce continuous deflation, contraction, and human misery.
Drink Good Coffee. You can sleep when you're dead.
I'm not arguing whether the Fed is good or bad economically as I would get that opinion shoved right back in my face. I don't know enough about the economy to do so.
I do believe that #1 above is wrong, though. I do not see any Constitutional justification giving Congress the power to delegate its authority. None. It could be argued that Congress could allow a panel of experts to give recommendations, but the final power should rest with Congress. (And if anyone asks, I think that Congress would do a horrible job.)
We don't get rid of the Fed. We simply eliminate taxation on potentially competing currencies.
If you are not taxed (sales and capital gains) on gold, silver, and maybe even some other forms of hard money this would create some demand for this. And this doesn't mean that we start using this as money in transactions, but what it would allow is for us to request a hard money acount from our bank, one that does not experience inflation in the same way.
In fact, having this option does two things. One it allows some people who choose to do so, to leverage against inflation. This also would mean that if the fed notes remained strong and people trusted them more it would win against hard money.
That is within the power granted by the constitution. But what it also means is that if the government did some "naughty" things that caused massive inflation, the trust would be gone, a panic move to hard money would insue thereby allowing the fed to kill itself. It would be legalizing competition.
Either way, we win. Either our dollar is strong, or it is weak and we have a way out.
As far as bank runs are concerned, that is of course caused by fractional reserve banking which is a whole 'nother animal and that should be outlawed yesterday! If a wheat producer sold more wheat than he had on hand, he would be thrown in jail on charges of fraud.
The impact of fractional reserve banking is far more dangerous than the wheat producer even. The wheat producer steals from a few customers. When the banks do it, they inflate the money supply, effectively stealing from everyone, a little at a time.
The answer to bank runs and the problems inherent in fractional reserve banking was NOT to implement the fed, it should have been to do away with fractional reserve banking. The fed keeps a lid on the dangers of a fractional reserve system, thereby keeping most of us in the dark to the true dangers. At least when we had bank runs, people were a little more wary of what they were getting themselves into when they had dealings with banks.
I do plan on voting for He Who Shall Not Be Named (saying that instead of the name out of respect for everyone here) and a hardcore conservative. The plan above is the one that He-Who has outlined. In addition, I am new to posting to this site, but I am not new to reading the site. I, however, am not here to promote my candidate, I only joined in because I felt like I had something to offer.
I just thought it was important to make sure I fully disclosed myself... Flame away... But I won't post again unless I feel like I have something substantive to add to the discourse and won't get involved in "my candidate can beat up your candidate" type of discussions.
cause their prices to increase beyond their utlity value.
Metals have a utility value in that they can me molded into shapes that can be useful (maybe for jewelry or conducting electricity inside that computer you're using).
What you are proposing is to grant them an additional currency value and encourage hoarding of these materials.
This would cause additional artificial demand and would reduce the material available for its utility use. This would lead to increased prices in the products that need those metals.
In other words, your plan to fight inflation would instead cause additional inflation.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
I said Gold, Silver and possibly some other commodity based money (copper, etc).
It is much harder for the value of a commodity to be increased beyond it's utility value. The demand wouldn't be artificial, it would be investment (you call it hoarding). However, due to the limited supply of Gold, it would make sense to allow silver and copper and possibly even others in as well. This would make "cornering the market" (which is probably what you meant by hoarding) almost impossible.
And by the way, this is the way that we functioned until the 70's. We aren't talking about ancient history here.
However, like all things, there could be market manipulation just as we have now. The difference is that at least you have something that does have a real "base line" value so that no matter what, it had *some* real value.
They can literally manipulate the dollar into being worthless as it stands because it doesn't have any real value, and there is only one corporation involved in that manipulation.
Once again, I would accept the potential dangers in the marketplace faster than I would accept that our government and/or the fed have a right to plan our economic future.
Also, I don't want to take credit for that plan. That is He-Who's, and is similar to what we had until the early 70's.
As I said in a different reply above. Many of our monetary problems before the Fed system were caused by changes in the relative value (or supply) of one or the other of the metals with a fixed echange rate in the coinage. How do you deal with the chaos that occurs when the supply of copper is increased by a major new find? How do you deal with shortages? How do you prevent the increase in burglaries from people who break in to homes to steal copper pipes and wiring because of the increased value of the copper? How do you replace the metals needed for their utility uses when they are taken out of the market for monetary purposes? How do you deal with the increased prices of products that need the metals for production? And about a thousand other problems such a system would create....
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
The idea of investment is purchasing something because you believe it will go up in value. So what you suggest is that it is ok to not have that because it makes life harder for some and better for others, based on personal decisions that they make?
As far as new finds and shortages, that is the nature of investment and risk and for that reason, the Fed might actually win out in the outlined plan.
The fact is that central economic planning, IMO, is socialist. You eliminate risks for some by eliminating rewards for others. (Which is why I find it rather ironic to have you on the other side of this arguement with your signature line... :) )
Will some people lose out, maybe. Will some people win greater rewards for choosing wisely, maybe. Is it the government or the fed's job to tell us who wins and loses, or that everyone has to be a draw? I don't think so...
Prices go up and down based on supply and demand, period. That's what makes it investment. And they go up as high as the market can bare and go down as far as the market will allow them. Just as they do now. Look at historical charts for precious metal values. They are a little more stable than our dollar, and have retained and increased their value in relation... :)
As far as burglaries, etc... That's a straw man (I really don't mean to insult you, but I also do not intend to address that because it is silly).
The fact is, life is hard, and nothing is certain. Socialism is about providing a steady, acceptable life. Capitalism, and freedom are about letting those deserving or just plain lucky rise to the top.
Investment implies that the value of the item will grow. How exactly does the value of 1oz of gold drow if there is a fixed value assigned to it? How does a gold bar burried in the back yard provide more value in the future?
Hoarding is removing a product from general use in the belief that you may need it later. Yes, we hoard things all the time now. Sometimes there are good reasons for it. For example a company producing copper wire will probably have a bit more copper than it expects to use in case there is some unexpected supply disruption...
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
Value is determined by supply and demand. If for instance they find a way to generate hydro fuel cells using a combination of copper and aluminum, the value goes up because demand increases while supply remained constant.
Hence, investment. However, the value does remain pretty stable which is one of the reasons why it would benefit us. In addition, if we were all using these currencies, as the value went up, so would cost of goods, and if value went down, so would the cost of goods, effectively keeping the market very stable, instead of on a constant downward trend.
Inflation is exponential. People think of it as linear growth, but it is not (2% this year is greater than 2% last year). So as long as you have inflation without ever having corresponding deflation, to help remain constant, you reach a critical mass point where the economy MUST correct itself.
Hoarding used to be called saving... :) We don't do that much these days, we are a debt based economy since the destruction of the gold standard. "Cornering the market" is something entirely different, it is an effort/act of artificially increasing demand (driving the price up) by reducing the supply.
But when you state that you what currency backed by metals, that implies so sort of fixed echange rate IE: 1 ounce of copper = $1, 1 ounce of silver = $5, and 1 ounce of gold = $32 (set the values where you will but you are implying such an exchange rate).
Once you set a fixed ratio of exchange, supply and demand no longer function the way you suggest.
Hoarding may be saving but it's not investing. Investing implies an increase of value. Hoarding is storing in the fear (rational or not) of future shortages.
Cornering the market is what the Hunt brothers did in the 70's. It's an extream form of investing in which you control the supply and thus regulate the price. It's not hoarding.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
I am not suggesting a fixed exchange rate at all. I am suggesting the elimination of two taxes which basically took currency status away from precious metals.
So for instance, if I took out $20 Dollars from this account, it would take out a corresponding amount of silver based on the current value. However, that is something different than the idealistic pure metal standard.
In an idealistic pure metal standard (which by the way, the term dollar originated as an expression of a fixed size of coin with a varying value). I have strong arguments for this (as stated above about allowing the economy to expand and contract naturally). But that kind of immediate change would cause too much of a dramatic impact on our economy.
And while we agree on saving/hoarding being a very different animal from "cornering the market", I do not agree that saving is a bad thing. Saving was demonized as un-patriotic at one point in our history and ever since, we have lived in debt. I would rather save... :) And it is an investment. You are risking the ups/downs of a particular currency because you think you will end on an up. Just like holding onto cash in an account could be considered investing in the dollar (check out the ForEx markets if you don't consider this investment), however, a stupid investment... :)
If the value of the metal is floating, there is no currency value to it. Having a store of silver physically move when I deposit money in an ATM or do an electronic transfer to pay a bill seems silly if there is no fixed amount that transfers. It is just adding additional overhead to what would otherwise be a simple low cost transaction. This mearly adding a drag to the economy without substantially changing the operation of money.
Also, you can "save" by burrying that gold brick in the back yard if you wish. I'll put my money to work by investing it it businesses and get some added value to our economy.
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
All money floats. In a hard commodity based system which has usually been practiced, it floats with little impact on the economy as a whole, but may effect specific sectors (as you suggested earlier).
If you change your dollar into Euro's today, you will get a different amount of Euro's than if you do it next week. It is the basis to ForEx markets. Usually they move in relatively minor shifts. (I know you know this, I am just pointing it out because it is relevant.)
So what we are talking about is using a system that doesn't allow the government to just magically make more, thereby allowing to add more socialist programs or fund programs until we are bankrupt (i.e. our dollar is so devalued as to be worthless in the global economy).
However, that would only happen under the above plan, if people were getting benefit from it, otherwise they would simply stick to their fed notes.
As an example, I intend to open a foreign account and have all of my clients pay directly to that account in that currency. This is my hedge against the currently plummeting dollar. If it stabilizes, I will come back to the dollar.
And if you are working with a legitimate sound bank. There is no chance that you will wake up one morning poor if the government decides to double our debt again because your account has a relatively constant value.
So for hypothetical. If the government doubled the debt over the course of 6 years... :) The value of your account would have remained stable, so while it was only worth say $40 then, because of the inflated money supply, it is now worth $120. (Made up numbers but explains the general effect.)
Socialism doesn't work. It looks nice on paper, but it's been tried and it's failed miserably every time (usually accompanied by widespread death and suffering).
Proud member of the V.R.W.C.
That would make our currency worth a lot, and the Iranian currency zippo! Hey, sucks to be them!
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About the Author
Lord Vegas is a true American. some would call him a Mutt, but he prefers the term Mixed Breed. In the interest of disclosure, He supports Franz for President.
As your money slowly turns to lead by itself.
Lends new meaning to the term Hot Money
Nobody would want to achieve critical mass anymore.
Nor would you want to make a pile.
______________________________
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
But I likes yer ideas!
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About the Author
Lord Vegas is a true American. some would call him a Mutt, but he prefers the term Mixed Breed. For the record, he discovered lead in his food a long time ago. It didn't kill him, but some suggest other long-term damage
It's only been in the last year or two that I found out just how finite the existing world supply of gold is. Returning to a gold standard wouldn't be that much different from price controls, if you accept that the success of western civilization is because of the facts of wealth creation. Matching currency value to such a limited standard would seem to go against that, and it seems unlikely that any possible deflationary scenario would correct that for very long.
First, the Federal Reserve was started under Woodrow Wilson in 1913. It was in place 16 years before the Great Depression. Ben Bernanke said this at a speech honoring Milton Friedman in 2002,
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
Google it for yourself.
While you're at it, Google Aaron Russo's video "Freedom to Fascism" and watch it.
The Federal Reserve is supposed to keep the value of our money stable. Since 1913 the dollar has lost about 95% of it's value. I wouldn't say that that is a very stellar track record.
One thing that has always amazed me is the secrecy of the Federal Reserve. Here you have a group of private bankers making decisions that move financial markets up and down. Don't you think those insiders are rearranging their investments to take advantage of that knowledge? The insiders know what they are going to do and how the markets will respond. It's hard for me to believe they aren't using this insider information to make a ton of money. I'm not aware of anything that would stop them.
If you really think about this system, you'd have to say the it's really a looney system. Some how we have been sold the idea that it's a sacred institution. I think that we accept it because not many people take time to really understand it. It's been around so long that people just automatically assume that it must be good.
I guess I mentioned a bad word or something. I thought this might be a good place for some worthy discussions but I see by this response that it's not worth the time. Come on now, "Ronulan loon"?
Let's delude ourselves as we watch the value of the dollar continue to collapse and as the Federal Reserve continues to inflate our currency. It's such a fine system. No need to change it. Don't worry. I'm sure those guys at the Federal Reserve have our best interests at heart and not their own selfish interests. They just do everything in secrecy because it's in the best interests of the country. I guess I'm just being a little paranoid.
Have a nice day guys.
Beginning with these words from President Reagan on the day after his 1981 Inaugeration to Fed Chair Paul Volker with respect to the inflation problem:
"Do what you have to do."
WE have followed the Milton Freidman theory of monetary policy, and the results have been spectacular. Frediman is the man that figured out the Fed's mistakes in the 30s.
more later
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
I've been educating myself on taxes and such for 10 years and I was amazed at what I found out there. I just recently stumbled upon Aaron Russo's film and he basically did what I had done. I had some questions and I wanted answers. The more I looked, the more disturbing the answers seemed to be.
Point me in the right direction to some article that disputes the points that Aaron Russo brings up. I'd like to know the answers to his questions.
It's sounds like you are very up to speed on all of this stuff so if you wouldn't mind, tell me a few good books or websites that will show how looney Aaron Russo's video is. I want specifics though and not general put downs. I really don't care where the truth is. I just want to know the real story. I think that most people just want the real story no matter how whacky it is.
Anyone who claims this country is becoming a fascist dictators ship but isn't getting out for good is either an idiot or a liar.
Or because they still see a tremendous greatness in this country and want to fight to make things better instead of just cowardly running with their tail between their legs to some other country which doesn't hold even 1/10th of the promise that we can fulfill here.
Not arguing against you on this, just showing that their are two sides to that statement.
Fascists don't argue. They kill. You can't beat that, and anyone who's studied history for 10 minutes knows it.
i wouldn't expect much of a dispute from this neil stevens character. he doesn't seems to have any credible evidence to support his claims.
i have seen freedom to fascism and there are some things about it that i think were a bit overblown and maybe taken out of context, but the overall message is very important. it could have been done in a better way, so as not to overload people like neil who have become stuck in the establishment rut.
i don't believe in any conspiracy by rich banker or politicians to take over the world. i simply believe that we have adopted awful policy and continue to drift from the concept of liberty that made this country so great.
HTML Help Central for Red Staters
Let's nominate the Nash Equilibrium for President.
"i have seen freedom to fascism and there are some things about it that i think were a bit overblown and maybe taken out of context, but the overall message is very important."
Sort of like "fake but accurate"?
To be honest, it is just too tedious to refute a bag full of inaccuracies, half-truths and downright lies. In doing so, not only does one waste their own time trying to convince those who have made up their minds, but you run into even more inaccuracies, half-truths and downright lies being cited to back up the first ones.
Do I think we are less free than we were when I was younger? Absolutely. Is what we have today anywhere even close to fascism? No. The use of the word to describe any situation in America automatically invalidates the argument, in my view.
Whether it is "Sicko" or "The Truth About 9/11" or any of the other films designed to extract money from the disaffected left, I am not going to waste one moment of my life viewing, refuting and arguing about it. If I did, the "rut" I would find myself in would look very much like a grave.
...may be sent in via the Contact link. Otherwise, don't waste our bandwidth.
Thank you in advance for your compliance in this matter.
The Fuzzy Puppy of the VRWC. I've been usurped!
amitski talks crazy and gits hisself banned. Along comes amagi to take up the cause, soundin jist a little bit more sane (not a lot, but its a matter of degrees).
Ya know, it ain't jist the left that is capable of seein conspiracies around every corner! You guys kill me!
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About the Author
Lord Vegas is a true American. some would call him a Mutt, but he prefers the term Mixed Breed. He is proud of his Labrador heritage, although he is lacking in formal education, resulting in his imprecise use of the language.
The fed isn't supposed to keep the value of dollar stable. It is to act as a "lender of last resort" to prevent bank runs and holidays.
Through fractional reserve banking, banks can participate in bad lending practices with virtually no risk... except a bank run... Because a bank run is a traumatic thing for everyone involved and hurts MANY people, the Fed is supposed to clamp down on lending practices when they get too "predatory and overreaching" by raising interest rates, and in the worst case scenario act as a lender to lenders to prevent a bank run from collapsing a given bank and efefctively leaving all of that banks customers without their savings.
However, as seen in the Great Depression, when the Fed actually moves to "fix" the lending problems, the market simply finds another way to adjust. The Fed caused the Great Depression, yes, because it was trying to get the banks to stop lending badly.
So now, they are trying the reverse strategy, allow the money supply to keep ever increasing (how long have we had artificially low interest rates?) in the hopes that a natural correction will not be as bad.
The fact is that communist and socialist nations have a right to central economic planning because that is what they have chosen. But central economic planning has generally proven to be a failure, and I don't like it here (and it doesn't fit in our ideals as conservatives, I don't believe). It is not our government's job to insure that everyone be happy and reasonably well off. If we make a bad investment, or choose an entity which has poor business practices to handle our money, that is our own fault.
Isn't it our belief as conservatives and Republicans that our government owes us nothing? Isn't that why we got a rep for being heartless? I was talking to someone the other day, and he said something and I loved it...
"If I decide poorly and end up in the streets, my government should promise to remove my body, nothing more, nothing less."
I am tired of being a "compassionate" conservative.
I went to the Federal Reserve website to actually see what they say their purpose is.
"...to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
I'm no expert, but I would think that stable prices means that a dollar today will buy same amount of stuff as a dollar a year from now will. Prices used to be a lot lower 25 years ago. Maybe I'm missing something. I think "stable prices" is related to what I hear some people calling "sound money". I think the reasoning is that when the value of money is stable, it's easier for people to make more rational investment decisions and the free market pricing mechanism sends clearer signals for people to follow.
Like I said, I'm no expert and am open to some educating.
The Fed's job is to keep prices stable. That means we need a money supply that grows with our needs.
I'd say they've done an overall outstanding job since 1982. To lay at the Fed's feet the last 100 years of inflation is completely unfair though. Because first of all, we were on a gold standard for most fo that, which was beyond the Fed's control. And secondly, the pressures built up during those years, and especially during Bretton Woods, exploded once Nixon pulled out. There was going to be a drop in the value of the dollar and the Fed had no way of stopping that.
Once we recovered though, it was all on the Fed. Have they been perfect? No, but look at how mild and rare recessions have been since then, and look at how the financial world has been reasonably well inslated from the rest of society (do you remember the Depression of 87? Neither do I).
preceded by spikes in oil prices.
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
As you recall, that was a time of high inflation and low growth. Congress inserted language into the Act (originally written in 1913) directing the Federal Reserve to maintain "monetary aggregates at levels consistent with a growing economy." (I'm doing this off the top of my head, so notwithstanding my quote-marks, I may have gotten that somewhat wrong.) So your statement about the Fed's objectives are more true today than they were when the Fed was established in 1913.
The original charter of the Fed was to serve as a lender of last resort, and also to provide "elasticity" to the dollar. The latter item basically means to reduce the inflexibilities caused by the fact that the dollar was on a strict gold standard in 1913. Gold standards effectively give the rest of the world a significant amount of control over domestic economies.
linked to the Fed.
If you can't, these insinuations are just false witness with those fetching Ronulan cosmetics.
It'll give you something to do to make up for not doing this any more.
The Fuzzy Puppy of the VRWC. I've been usurped!
Arkansas later this season, and we need a gameday t-shirt. See if this info helps:
USC's nick names: gamecocks and cocks
Arkansas's coach: Houston Nutt
Arkansas QB: Casey Dick
back-up QB: Nathan Dick
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
and on a side note, Will the Chippewas survive the trip to Death Valley next week?
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
About the Author
Lord Vegas is a true American. some would call him a Mutt, but he prefers the term "Mixed Breed" His full name is Lord Vegas Roy (WAA), named for a well-known hockey goalie who was also a dog! He prides himself on being a political animal. He supports Franz for President!
Forgive me Father, for I am about to commit the sin of feeding the troll. Grant me the fortitude to resist responding to the idiocy that my transgression will entrain.
The Federal Reserve exists for two primary purposes: first, to serve as a lender of last resort, and second to provide what is called "elasticity" to the US dollar.
The Panic of 1907 set in motion the chain of events that led to the creation of the Fed. First, the Aldrich-Vreeland Act, the National Monetary Commission, and then (after the defeat of Teddy Roosevelt and a change in the political makeup of Congress) a series of semi-public conferences including the Jekyll Island conference, leading to the Federal Reserve Act of 1913.
Even before 1907 (a time of strict gold-convertibility, by the way), many voices had been calling for a US central bank. At that time, we were the only major trading nation without one.
The events of October 1907 made clear to everyone the need for a lender of last resort. As runs on trusts led to the near collapse of many healthy banks and brokerage firms, short term interest rates careened violently between almost zero and anywhere from 75% to not-at-any-price. (Are you seeing the parallels with August 2007?)
Who was the lender of last resort in 1907? SecTreas Cortelyou brought boxes and boxes of gold and silver up to New York by train, but that made barely a dent in the problem.
The real solution came from the 69-year-old and semi-retired J. P. Morgan. Over many sleepless days and nights, he almost singlehandedly browbeat New York's bankers to keep pouring liquidity into endangered institutions and to the stock market, at tremendous risk to themselves.
What if Morgan hadn't been around or in full command of his powers in 1907? For a clue, look at 1928.
One of Morgan's main allies was Benjamin Strong, then the President of Banker's Trust. Strong became the governor of the New York Fed in 1913, which made him de facto the boss of the Federal Reserve System. He sickened and died young in 1928. After his death, the Fed, lacking strong leadership, abandoned his policy of keeping financial markets liquefied. The events which led to the stock market crash in 1929 followed quickly.
After 1907, Congress saw the need for an institution which could fulfill the role of lender of last resort. The Wall Streeters who met at Jekyll Island in 1910 to design the Fed saw just as clearly that Congress would never accept a "central bank." (The early history of the Republic was littered with failed attempts to establish a central bank.)
So they came up with the system of twelve Federal Reserve Banks, each setting monetary policy independently for their respective regions of the country. During the New Deal, the independence of the Banks was curtailed, and the previously-administrative Federal Reserve Board was strengthened. That's pretty much the system we have today.
If you really want to do away with the Federal Reserve System, you have to tell me who will ensure that serious market stresses (which seem to reliably occur at least once a decade) don't turn into huge bank runs, wiped-out life savings, double-digit unemployment, and people jumping out of tenth-story windows.
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
The location of this lockbox will be known only to myself, the governors of the Board of the Federal Reserve, and Tipper.
I covered some of what you outlined above already in a previous response to the poster.
My response is simple, if you had 5 acres of land but sold 10, you would go to jail. That simple. So why do we allow bankers to get away with it?
Yes, the Fed keeps the banks from getting themselves in too deep and hurting a lot of people. But wouldn't it better to just keep them honest by outlawing a practice which is considered fraud in every other sector?
As far as elasticity is concerned, that concept is far overrated. As mentioned before, the actual value of a currency is always floating, this is true of paper-only money as well as commodity based money and has been true since the beginning of time. The expansion and contractions of this value are little noticed by the general populous.
The fact is, the bank runs were a problem, and still would be a problem without the Fed... Unless we made them stop giving our money that they don't have. No fractional reserves, no bank runs. Sounds a lot simpler than a complicated system of central economic planning doesn't it?
...who don't understand the difference between credit and money.
During the post-Reconstruction gold-standard era (officially 1879-1934), there are perhaps a dozen major financial panics, all of them badly disruptive to the real-world economy. During much of this time, reserve fractions by commercial banks fluctuated with market conditions, but typically were around 35%.
Today, with the Fed, commercial bankers feel perfectly safe with 10% reserve ratios. (Savings banks get by with even a little less.) We haven't had a debilitating bank run in the US since the early Thirties.
The problem that you hard-money types have is that you can't buy anything with gold if there's nothing to buy. You're over-privileging the position of money at the expense of credit. Credit is what's needed to produce economic activity. And this has always been true in the United States, since we have always had a huge agricultural sector.
Hard money is nothing but metal. There's not nearly enough of it to float the global economy. As far as credit overexpansion is concerned, someone should explain to you goldbugs that capital is now fully globalized and moves electronically at the speed of light. If some government somewhere screws up, investors will bail on that country faster than you can read this sentence. That market-discipline alone is enough to keep the central banks under control.
Credit, lending, is giving to someone something that you have. Fractional reserves allows them to give something that doesn't exist and thereby it becomes a part of the system as real money, artificially producing a boom. Then the bills come do, and we get a bust.
I personally lent a friend of mine a great deal of money to start a new business at a reasonable interest rate. I am making some money because I am letting him use it. However, can anyone argue that it would be ethical for me to write him a check for 10 times what I had on hand and charge him interest on that? (If I avoided prison while doing so).
Further, this process, requires that a portion of the population goes bankrupt the day that the bills come due because our economy+10% != economy so once interest is thrown in on top of the fractional reserves, it makes it that much more dangerous. The Fed has kept the bills from coming due for a long time, but not indefintely.
What you're talking about is venture capital. Normal credit formation operates at far lower levels of risk than funding your friend's startup.
As far as lending 10 times what you had on hand, that would indeed be a very reasonable thing to do. That's why riskier investments are generally syndicated to groups of lenders rather than swallowed whole by a single player.
There is a normal ebb-and-flow between the amount of high-powered money (which to you is the only kind of money there is) and the amount of credit. If people feel uncomfortable with the level of risk in the economy, they can and will choose to hold more currency and fewer bank deposits. Commercial bankers, who observe this flux up close every day, are in a position to act even more quickly, and they respond to increased levels of risk by increasing their reserve levels. This dynamic was a constant feature of the American banking system before the introduction of federal deposit insurance early in the New Deal period.
But bank runs arise from panic, not from normal circumstances. Deposit insurance largely eliminates ordinary bank runs.
That leaves panic-induced liquidity crises among major financial institutions, which are analogous in some ways to bank runs. Having a strong, steely-eyed lender of last resort in the system (namely, the Fed) largely mitigates the effects of these crises, as we saw this past summer.
also means it's the taxpayer's money that's being used as a reserve. So why does the bank get to profit off the taxpayer's money?
It's not a perfect system, and I'm willing to consider alternatives. That said, I'm not seeing anything close to a workable alternative right now.
You are aware the fed remits back to the treasury ?
As to it being taxpayers money, who's money was it during bank collapses of 29 and the thirties ?
Last the fed doesn't act as savior by giving away money, they are quite well renumerated for coming to the rescue.
The only time it doesn't work is when congress gets involved (See S&L collapses of the eighties)
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
save time. I had been plowing through the Fed governing act to support my assertion, but it's right here, in far simpler language:
"The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects."
So its money is government money. Granted, it can simply create money by selling bonds, but that's still an obligation the taxpayers get to repay, with interest. Or if you prefer to think of it as expanding the money supply, and thus affecting all owners of dollar-assets, that's still a method of public taxation.
The reason the system works so well is that it does reduce risk. There aren't many bank failures that require the Federal Reserve System to create money over the long term. I agree this is a Good Thing. Subsidized bank insurance? Not so much.
I'm pretty sure only the Treasury creates new bonds, under the federal debt laws and limits set by the Congress. Any bonds the Fed sells are ones it already bought at some point in the past, no?
Members of the Federal reserve system are required to buy shares in the federal reserve. In return they receive a fixed dividend.
So the Fed is funded by member banks. Making it one of the most profoundly efficient and non burdensome government institutions ever created. Especially since membership is voluntary.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
are money spent, not money made. How many new banks are really buying shares here?
Granted, the Fed is also taking in revenue from banks, in the form of interest on the loans it makes. But in case of a financial collapse, that's obviously not how it's going to make money, becuase the banks are going into default.
The Fed deals in federal reserve bonds. And whenever the government (which the Fed is a part of) sells bonds, it's essentially creating money. See Blackhedd's response below.
The fed Makes(earns) money by lending the financing provided it by member banks. Some of the money gets paid back to the banks as dividends, some of the money is used to operate the system, the rest goes back to the treasury.
Yes they are creating and destroying money, the same way any other bank operating on fractional reserve banking does.
Do you want to get rid of fractional reserve banking as well ?
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
...Fed bank. That's ultimately depositor's money, not taxpayer money. Trust me, you want there to be a mandated level of reserves in the system.
Deposits with the Federal Reserve can (and usually do) take the form of interest-bearing securities. The US Treasury pays interest on these, either with tax dollars or with the proceeds of borrowings elsewhere along the yield curve.
Banks can and do lend their Federal Reserve deposits to other banks on an overnight basis, at a rate of interest which is known as the "Fed funds rate." As a matter of policy, the Federal Reserve Board sets a target for the Fed funds rate. The open-market desk at the New York Federal Reserve Bank seeks to nudge the fed funds rate close to target by buying and selling securities every morning.
During the August crisis, fed funds were extremely volatile, ranging from almost 1% to more than 6%. During this time, the New York Fed was extremely active in the markets, several times purchasing enormous amounts of 14-day repurchase agreements at near-market interest rates. They were also on the phone continuously to top Wall Streeters, urging them to put their money to work, just as Morgan did in 1907.
Whenever the Fed buys anything, by definition money is created. Whenever it sells anything, by definition money is extinguished.
But the August rate volatility was nothing. As I said far upthread, broker call rates during the October 1907 crisis ran anywhere from near zero on some days to 100% on others, to unavailable-at-any-price on others.
And their would be nothing wrong with the Fed if it weren't for fractional reserve banking and poor business practices of the banks causing the boom/bust cycles of which you speak.
So, by attacking the Fed, they are attacking of the solution (the socialist version) to the REAL problem which is allowing the banks to grow the money supply and lend money that doesn't really exist unchecked and without oversight.
The Fed does at least keep them from constantly screwing with our economy. But I do not believe that the best solution was to allow the banks to continue their bad business practices. the real solution would have been to lock up anyone selling (lending at interest) more goods than they really had.
I personally see centralized economic planning as a bad thing, and having what I considered to be an intelligent discussion on the subject with some of the people here who seem to know what they are talking about.
Why the insult?
You say that bad business practices cause financial panics. No, that's not true. Panics happen when normal risk becomes uncertainty. There's no way to legislate against this because it's part of human nature. You saw this as recently as last August, when credit markets siezed up all around the world.
That's not because of bad business practices. It's because everybody suddenly decided "this is too rich for my blood."
In times like this, the only way to recover without huge distress is for someone with very large balls to say "here's my money. Where's yours?"
That's the Fed's job.
I NEVER said bad business practices caused a panic. I said bad business practices by the banks cause a bank run. If the bank was 100% reserve and not fractional, there would not be a run. They would simply pay out their customers.
A run is when everyone bails from the bank and the bank doesn't have the money to cover it. Maybe I should clarify and state that a negative bank run (i.e. something bad happening) only happens with fractional reserves. Because if the bank has the money to cover it, nothing bad happens...
And their [sic] would be nothing wrong with the Fed if it weren't for fractional reserve banking and poor business practices of the banks causing the boom/bust cycles of which you speak.
So you're telling me that a bank run is the same as a boom/bust cycle?
Banks runs are a response to financial-market stresses, not to boom/bust cycles. Look at history. 1907 was caused by a slightly-insane financier trying to corner the market in his own company's stock. 1929 was caused by the Federal Reserve deciding that the stock market was too high, and being too stupid to sense that the dollar was hugely overvalued against gold. I could take you back through the whole 19th century the same way.
The business cycle does not cause financial panics. Before the Fed perfected its art, the reverse was almost always true.
An interesting play on words though. You mix and match what I say and come up with the response.
I am not saying that a bank run is the same as a boom/bust cycle. I am saying that when a bank run happens, there would be no danger if fractional reserve banking did not exist. Absouletly a bank run is a consequence of a panic, but it would not have the impact of destroying life savings if the bank run didn't result in a bank's financial problems.
As far as boom/bust cycles. If anyone truly understood how they happen, they would no doubt have the meaning of life as well. They are caused by emotion as much as anything else. But I do think that significant factor is the introduction of new money into the system. Which happens during excessive lending for the boom portion. As far as the bust, there is almost always some "event" which triggers a panic which drives the economy into the ground for a time.
I don't disagree with anything you have said pretty much. I in fact, only disagree with your assessment of what I said.
I'm trying to read and interpret your words as you write them. Let's start over from scratch.
I think, (and you can correct me if I'm wrong), that you're saying that fractional-reserve banking is a bad thing.
Ok so far?
All right. Now you also seem to be saying that fractional-reserve banking is the practice that results in bank runs.
That's not what you said?
Let's assume it is. It's completely true that you can't get a run on a bank if it holds a 100% reserve ratio. A loss of confidence in that institution would simply result in its orderly liquidation.
But holding reserves of 100% against its assets fundamentally means that the bank can only hold risk-free securities like US Treasury instruments. And in consequence, its return on assets is extremely low.
By ruling out fractional-reserve lending, you're essentially eliminating commercial banking altogether. And then who is going to fund the farmers when they start planting every spring?
That's right: the people who own the gold. Over time, they will end up owning everything and the rest of us will own nothing. This has happened many times before in history, and it results in revolutions.
That's close enough to what I was saying... :) The bank run is caused by a panic, but a bank run only occurs if it doesn't have the assets to cover deposits. As you said, otherwise, orderly liquidation.
Investments are not supposed to be risk free. That is the point of charging interest. They lend money at 5%(mortgage), borrow money at 2.5% (CD) and make the spread of 2.5%. The point of assessing credit worthiness is to eliminate as much risk as possible.
But with fractional reserve banking, we effectively allow them to earn interest on money with 0 risk, because the money wasn't really there to begin with.
Now you're showing that you haven't even seen the movies, in addition to not understanding how banking works.
James Stewart is not 100% reserved if he writes mortgages. That's because mortgages (and the other small loans that he makes in It's a Wonderful Life) are not liquid. He'll still suffer the effects of a run because he can't put all of his mortgage customers out on the street in time to satisfy his depositors.
By definition (and also by law and regulation), reserves are highly liquid assets with very low risk levels, like short-term Treasury bills. Being 100% reserved practically means you're not lending to anyone but the Federal government.
One last time, look at history. The early years of the Depression were a time of enormous risk-aversion among bankers. They shifted their holdings overwhelmingly to short-term Treasury debt.
During the early Depression, US Treasury securities were the only major asset class that suffered no significant impairment. Then as now, people responded to risk by giving their money to the US Government.
What was the result? The real-world effects, in terms of reduced output and employment, persisted far longer than they should have, and in fact for many years longer than they did in other countries like Britain and France.
That's the kind of world you're trying to bring back, by advocating 100% reserve levels.
I am talking about things that you cannot get out of. Investment deposits. You loan the bank money for a period of time and do not have an option of withdrawal.
If I loan the bank money at 2.5% that is an asset, and would count towards reserves. As a loaning agent, you wouldn't have the ability to demand a full repayment just because you felt like it. It would be paid back according to the terms of the account.
The bank earns the spread because they are willing to accept the risk, or not because they aren't.
Banks would live or die by how well they judged risk and the economy. I just can't accept the notion that they need to live risk free just because they provide us a service. And if they did go bankrupt, the only ones effected would be those that had accounts specifically designated as investment accounts but I would argue that, especially, with the recent changes to bankrupcty laws that they would still be held acountable to those people, just like the people are now still held accountable.
...for the bank, not an asset. The bank has to start with its own equity to produce reserves.
Bankers are some of the most risk-averse people around. (Unless they're playing with the house's money, as in the S&L crisis of the late Eighties.) In times of stress, they're perfectly happy to stop making loans to businesses, slide leftward on the yield curve, and make their money buying Treasury bills with your deposits.
Up until recently, that's how recessions would typically start.
But if you look at how the financial industry has changed in just the last several years, you'll see that traditional retail and commercial banks are moving toward fee-for-service revenue models. Global interest rates are just too low for them to make money the old-fashioned way, without taking unacceptable levels of risk.
I misspoke. It is indeed a liability. Still doesn't change what I am preaching. And I have no problem with bank's moving to a fee based model. I would absolutely prefer it.
I can do this because we've just witnessed it in the mortgage industry.
There was a burst of technological advances in financial engineering earlier in the decade, specifically in regard to mortgage risk analytics. The new capabilities were applied to the channel between non-traditional mortgage lenders (aka, global investors generally) and the origination industry.
What did the improved technology do? Like all technology, it sharply increased productivity, lowering costs.
But the demand side for new mortgage credits far outstripped the supply of available borrowers. Looked at in reverse, there was far too much new money available and too few places to put it. That's why we got a bubble. Too much credit (what you call "money creation") stuffing a distribution channel that wasn't able to absorb it.
In your desired world, where traditional banks move to a fee-based model, you're not going to get rid of fractional-reserve lending at all. It's just going to move into far less regulated areas of the financial world, and the total amount of "money creation" (as you understand it) will skyrocket. This has already happened (successfully) with subprime auto loans.
As a Wall Streeter myself, I'm up for this. Are you?
For a hypothetical situation. In a world where banks earned their money through a combination of fees and investment based lending (e.g. middle man between the investor and the company in need, the 2.5/5.0% example from before (very much like venture capital without the vultures)), and fractional reserve banking was not allowed, where would the bubble come from exactly? Outside of the normal economic cycles of course.
You indiciate that the fractional reserve system would move into far less regulated areas, but how could it do that if we had regulation in place preventing fractional reserve banking?
And I have to admit ignorance on the subprime auto loans that you are refering to because it is my understanding that most subprime autoloans are handled through finance companies, and not banks. Finance companies at the bottom end, do not function like banks, and cannot take on liabilities. And as far as I know, banks shy away from these types of subprime loans even in the best of circumstances and so would not be interested in purchasing them at all so I am not even sure how these two relate.
Finance companies function on a non-fractional reserve system because they do not meet the criteria to participate in the fractional reserve system. And they do just fine, and generally yes, at higher (meaning not artificially low) interest rates.
They are in fact, what I would consider acceptable types of financing. And what I would propose (btw, these are my views, not those of my candidate, and I think it is important to distinguish between them) is that the only distinction that should be left between a finance company and a bank would be the ability to take on liabilities.
Think it through.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
IMO... The only negative that I see is the bank run aspect that can cause a lot of people to lose a lot in the process. Which, the question you put forth was, "How do you solve that problem without the Fed?" (paraphrased). And the answer in my opinion is very simple. Don't let the banks lend what they don't have. They should be able to lend depositor money, etc just like they do now for CD's and such. But they should not be allowed to lend 10 times what they have on deposit.
If they only lent what they had been given by customers as investment, this would more correctly model how fast the economy is growing. The Fed could still represent an increase in the economy through injecting funds at certain points. And because of agreements in place on those types of accounts, the depositors would not be able to get their money out if it was not in the banks possession.
I wasn't here to talk about a candidate. And the only reason I mentioned it, was because I had explained his approach and wanted to be honest about that...
Boom/bust can be caused by a billion factors. It is not the government's job to keep them from happening, nor is it it's job to artifically create them.
The government can create the system of money any way we want it to; the Constitution gives us that full latitude.
And while most of us want a system that smooths our economic ride, you're proposing we ditch it and go to the one that history proves is unstable, and in fact promote that instability as positive.
Open up choices. As mentioned above, there is no reason to not keep the Fed and our current monetary system. However, simply eliminating those two taxes (sales and capital gains) on things which we always considered money, until the 70's, would allow us to make use of both systems and thereby allow us to keep our government in check. They would be less willing to allow rampant inflation if they were aware that people could opt out of fed notes and into gold. As long as the trust in the fed notes remained, they would remain strong, and I believe would make them stronger globally as well.
I would argue that the dollar is unstable. But, if I concede the point that the dollar is stable, the constant downward trend indicates a stability that I am less comfortable than an instability in commodities.
You were calling fors omething more drastic a moment ago though:
The Fed does at least keep them from constantly screwing with our economy. But I do not believe that the best solution was to allow the banks to continue their bad business practices. the real solution would have been to lock up anyone selling (lending at interest) more goods than they really had.
I never said otherwise, or said it didn't perform a function. In fact, I made it clear that the Fed isn't a threat. The threat is fractional reserve banking, and back when the problems first started to manifest themselves in a serious way, absolutely, I believe they should have changed the laws and locked up anyone who did the equivalent of selling swamp land in Florida that didn't really exist. Instead they implemented the Fed, which as I have stated, I consider central economic planning which makes me feel a little ill. But without them, and with fractional reserve banking we would likely have more problems.
So we need a law that says that they can't give away that which they don't have (don't we already have those... :) ). But, most people barely understand these concepts (you guys seem to be more knowledgable than your average Joe, by far) so trying to explain the system, and then convince everyone that it is a good thing, well, it's a long road.
"By ruling out fractional-reserve lending, you're essentially eliminating commercial banking altogether."
Exactly. Are you honestly suggesting we go from 10% reserves to 100%? Banks would only be able to loan out 10% as much money as they do now. It would absolutely destroy the economy. I suppose they would charge several times as high interest, further ruining the economy.
So your chief argument, we've been letting them commit a grand scam for so long how could we let them stop?
No, it doesn't have to be overnight. But the fact is the gold standard was attacked as if it cost the outrageous booms/busts and the damages wreaked by the fractional reserve system. It wasn't.
You can slowly back off from the fractional reserves, by slowing increasing the fraction.
Ruining the economy? We talk about investments, as Neil said, "Stop caring about money." Well, sorry but my clients pay me in money, and the value of my contracts goes down every year due to the declining economy. Middle class wage earners are hit even harder, because I can at least renegotiate my contracts from time to time. But still most of my contracts are negotiated for a year or more out.
With as rapidly as they are dead set on putting more "elasticity" into the market, the value of my contract can no longer be relied upon by me from year to year.
Further, inflation is much higher than reported by the modern calculations.
The net effect, whether or not intentional, of inflation is to steer money away from the middle class and the poor and into the investment class who as you said, deal less in money and more in other forms of investment which retain their value a little better.
If it were diluted across the board, (like a stock split) that would be acceptable. But it isn't. It's like a stock split where all the second class stock holders don't get their shares split.
that American's should be as in debt as they are? This is the fault of the people that are in debt, so don't get me wrong about that.
But American's are far more in debt than they should be as illustrated by the various bubbles that keep getting popped. We insist on living beyond our means on a personal level as well as at a government level.
And now, when the Republican's lose the Presidency in 2008 and we end up with Hillary and all of her socialist programs like "universal healthcare", how is that going to get financed? They can't tax us enough to cover it, so it will result in more inflation and a further dilution of our dollar.
Our economy isn't growing as fast as the money supply.
It should be retained & rerun as a blog whenever the Ronulan War Birds appear.
If they ever get their way, prepare for Mattress Bsnking, you know, where we keep our savings under the mattress.
...fractional reserve banking, I just have to say this.
A) You deposit $10,000 in the bank. Now you hold an asset and the bank holds a liability.
B) The bank lends 90% of your money to someone else. They keep 10% of your money either as vault cash, or in the form of Treasury securities, or of deposits with their regional Federal Reserve Bank.
C) At this point, you hold a $10,000 asset. The bank owns a $10,000 liability and an offsetting $9,000 asset and $1,000 in reserves. Their books tie out.
D) But the guy who borrowed $9,000 also owns $9,000. It says so right there in his bank statement. According to Ron Paul, the bank has fraudulently created $9,000 out of thin air!
E) Now the guy who borrowed the $9,000 will use it to buy a used car.
F) Now the car dealer takes the proceeds from the sale of the car and deposits it in the bank. Now you own $10,000, the other guy owns a car, and the car dealer owns $9,000, for a total of $28,000. Ron Paul says that $18,000 of this is fraudulent!
G) The car dealer will pay his employees and buy food, etc, all of which results in still more money appearing in various bank accounts all around town. Ron Paul says that all of this money is fraudulent too! One assumes he thinks that driving cars, paying employees, and buying food with fraudulent money are also fraudulent activities.
Now this system is stable because the bank (and you by extension) accept that lending money to another guy to buy a car is a better (more economically productive) use for $10,000 than you could come up with yourself. And so you won't call the loan as long as he keeps paying interest. This is how economic activity grows.
The only way for Ron Paul to avoid the appearance of "fraudulent" money is to prevent the bank from using your money to buy anything but Treasury securities or to hold Federal Reserve deposits. A lot fewer people will be buying cars, paying employees or buying food in such a world.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
When the first borrower gives $9,000 to the car dealer, the dealer deposits it in his bank. The dealer's bank then turns around and lends $8,100 to yet another person. (Always holding 10% of liabilities as reserves.) And the cycle repeats.
By the end of the chain, the original $10,000 has generated close to $90,000 in aggregate economic activity. But there's no fraud and no money creation.
if you include deposits as money. Take the first deposit/investment transaction. Depositer has $10,000 in deposits. Loan reciever has $9,000 to buy his car. We now have $9,000 created. And just as it had come from the printing press, it inflates all dollars everywhere. It's an incredibly small effect on any individual dollar - but a very large number of affected dollars.
The key is that this is UNAVOIDABLE money creation, if we're going to have any bond-investments at all. This wouldn't be any different if the depositer loaned $9,000 directly to the used-car buyer - except that the Fed wouldn't be guaranteeing his money back in case of default.
That last, I think, is the only issue. (Well, barring a surely disastrous attempt to outlaw bonds.) Who's paying for the risk, and is that optimal?
Maybe what we have is the best system. It strongly encourages people to invest their money instead of sticking it in a mattress. After all, it's virtually guaranteed profit, while still being payable on-demand. Further, as pointed out, investment is good for the economy. This may be worth modest public financial support.
On the other hand, risk deflection tends to encourage non-optimal decisions, as we're learning from the health care system. And of course, it's uncomfortable to have any federal instution essentially licensed to print money.
I'm open to better suggestions. I just don't see any.
The key for these people is to get over money being a shiny thing to have and to hold, and to think of it as a medium instead of the goal in itself.
Money is the goal. It's capitilism... :) Without money as the goal, well, then what is the goal? To live and work until we die?
Create wealth if you want to retire fat and happy. Buy bonds, buy land, buy shares in thriving businesses. Invest in America, and you an put yourself in good position. Heck, buy gold.
But get over money being the end all.
Well, I would like to buy gold and not pay sales tax or capital gains tax on it... :)
But, honestly, to hear conservatives say that money doesn't matter and we should work until death is beyond me. I intend to work and enjoy life for as long as I enjoy working and simply enjoy life when work becomes less interesting.
And the problem with with holding onto investments as the only means of wealth accrual, is what happens if you end on a bust? Or do you really think that the Fed can keep it from happening forever?
Ok, I am going to avoid the bait to say who I am voting for on that one... But you have to admit, you were almost begging me to say it... :)
The need to get out of one asset and into another is why we need LIQUIDITY, and for why that's a key see, well, most any post of blackhedd's.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Which he achieved until he passed at the age of 83.
And it was my grandfathers goal until he passed at 73.
Can't speak for great gran.
YMMV but most retirees I know are really annoying needy people.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
Just so that we are clear. And take it for what it is worth, afterall, it is wikipedia...
http://en.wikipedia.org/wiki/Fractional-reserve_banking
And you are correct of course in your terminology for deposits=liabilities and loans out=assets.
I used to write software in the field. Haven't in a very long time, but the product is still around, owned by a different company now... http://www.profitstars.com/
ALM Accounting and Profitability accounting for (at the time) small to mid size banks and credit unions. BUT, just because I worked on software that helped manage bank finances doesn't actually give me any particular knowledge or insight.
I trust the Fed a hell of a lot more than I trust Congress. They would just lower the interest rates to 0% all the time to be politically popular. I don't want Congress to have more power than is absolutely necessary. We've been doing pretty good the last 25 years with the Fed. The Congress already spends over a trillion dollars that is not related to national defense, interstate commerce, or any power enumerated in the Constitution.
The most interesting part of this whole discussion, aside from it even taking place, is just how in depth, detailed, and long it has gone on for. Given that the topic is dull, boring, snooze inducing monetary policy.
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
name shall not be uttered" 18th century issue crap keeps up
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
Its kind of like the three stooges running a bank. (Just think of their world war II short where Moe was Hitler and Curly was Goebels)
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
18th century would have been the 1700's, and since we are talking about the 1970's, and the most extreme case the early 1900's the math doesn't really jive.
I am done with my part of the discussion though since as you say, monetary policy is boring and likely no one cares outside of myself and the two primary posters which I was having the discussion.
Thanks to those who participated in the discussion, however... I enjoyed it...
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
I thought this was an excellent piece on the subject by argueably one of the foremost experts on all of these topics, Alan Greenspan.
[Again, that's proteus_ed@hotmail.com , fellow-Israeli stooges. And, again: Ron Paul supporter. - Moe Lane]
JFK issued Executive Order 11110 stripping the Federal Reserve of the 'right' to print US currency and returning it to the government. That very year, he was assassinated. LOOK IT UP AND LEARN before attacking the messenger.
If you do research, you'll find that The Federal Reserve is a privately owned, for-profit company. Here is a partial list of the owners. Rothschild, Warburg, Lazard, Israel-Moses, Lehman... and one American rep, Rockefeller. The rest are foreign bankers who have removed our currency from the gold standard.
Foreign Zionist Bankers, Council on Foreign Relations, Trilateral Commission & AIPAC run this country. Our presidents are their puppets.
Dems & GOP - two sides of the same globalist, Zionist coin
hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha!
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About the Author
Lord Vegas is a true American. some would call him a Mutt, but he pr
All_we_have_to_do_is_not_use_whitespace_in_the_comments_once_the_threa_starts_to_narrow___If_the_site_thinks_its_one_long_word_we_will_be_fine.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
I think one thing we all have to keep in mind is that despite his rhetoric about an ideal world, Ron Paul doesn't actually think abolishing the Fed is feasible right now. Instead, he'd end the taxes and restrictions on private money as a first step. This is an approach that was actually endorsed as a remedy to the current dollar woes in a recent CFR paper. With the dollar competing against something, the Fed will have less freedom to arbitrarily debase the currency, and Congress would have to respond accordingly. Ultimately, that's what this all boils down to, and Paul is very upfront about that. Until we radically rethink the size and scope of the Federal Government, none of these other things have a chance in hell of happening.
What's crazy is to print money out of thin air to pay back money we've borrowed from China.
I'd like for some of you who oppose returning to a gold standard tell me why rather than just say it's crazy.
I'm looking for a reasoned, well articulated response. Any takers?
But if nothing else do you really want South Africa to control our economic activity ?
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
do a little bit of homework -- then a little bit of thinking. First, find out how much money is in circulation right now. Then, look up how much gold has been mined in history. Then figure out how much every dollar in your wallet will have to be DEVALUED to get back to a gold standard. Then, since the economy must be allowed to continue to grow, figure out how much gold must be mined each year to accomodate an expanding economy. Then, come back here and talk more nonsense.
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Considering where the good doctor's head was, when practicing medicine, is it any wonder that the man has issues?
"What's crazy is to print money out of thin air to pay back money we've borrowed from China."
What's not to like?
Envisioning when all that is Left is the Right.
HTML Help Central for Red Staters
Let's nominate the Nash Equilibrium for President.
The gold standard was rendered obsolete by technological progress, primarily the widespread adoption of electricity and the internal combustion engine in the early 20th century. The significance of those two things, and of a thousand inventions since, is that human labor productivity now rises much faster than it ever had in the previous 5,000 years.
In fact you'll even hear gold bugs say things like, "Gold served us well for 5,000 years." And so it did. That's because everything increased at the same pace as the human population, which was pretty much the only engine of economic growth. The draft animals hadn't gotten any better in 5,000 years. Horses hadn't gotten any faster. If you really look at how people lived their daily lives, very few things had changed much since the Egyptians were building the pyramids.
All of a sudden human labor productivity shot up like a rocket as all these machines and widgets multiplied human labor and human intelligence. Economic growth rates reached two, three, sometimes four or five times the annual rate of population growth.
The thing about the money supply is, it has to expand as fast as the economy does, or pretty soon there are too few dollars chasing too many goods. That's deflation. It is a one-way spiral to stagnation, unemployment, and despair. To see why, imagine a world where you know that everything you might buy will be cheaper tomorrow than it is today. With inflation, prices are always going up. With deflation they go down. So you postpone buying anything until the last possible minute, because the price is always going down. Things that aren't necessities can be postponed for a very long time. In other words, you stop buying things, and so does everyone else. Pretty soon you're all unemployed because nobody is buying anything. No one will invest in anything either. No matter what it is, it will be worth less when you finish it than it cost. No stores want to buy inventory, because the price will be lower when they sell it than it was when they bought it. This condition basically sucks. No one wants it.
For 5,000 years we had found new gold at roughly the rate that everything else expanded, because virtually everything was done using the same basic technologies that hadn't changed in 5,000 years. All of sudden we needed to find lots more gold, really really fast. But we couldn't. Remaining on the gold standard would mean continuous, ruinous deflation. In fact that's exactly what happened. Roosevelt took the U.S. off gold in 1933. Most other countries made the same move around the same time.
Drink Good Coffee. You can sleep when you're dead.
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
I do share the feeling that the Federal Reserve seems a bit extra-constitutional, if that makes sense as a term. I recognize the stabilizing influence of the Fed, which was particularly apparent with the most recent rate cut, but I still sometimes feel that one of Andrew Jackson's few redeeming qualities was his distrust of central banking. I guess I'm not much help for the reformist lobby; history shows that we'll have episodic bank runs and panics with or without a moderating central bank. I know the calming role of the Fed doesn't make it any more constitutional, but it seems to work.
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