# Think Tank > Austrian Economics / Economic Theory >  Two Arguments Against the Fed We Should Make Over and Over

## Suzanimal

> Jeff Deist
> 
> Populism is the order of the day. And one particularly ripe populist issue is the Federal Reserve, which Americans quite reasonably think is complicit with Wall Street banks and the Treasury Department in creating an elite class that makes far more money than it should. While the details of how this occurs mechanically are complicated, it's no crime for working people not to follow the Fed's every move or understand the intricacies of its relationship with commercial banks.
> 
> The question is how anti-Fed libertarians might take this vague sentiment, seen among both Trump voters and Occupy Wall Street/Bernie Sanders supporters, and make hay of it. How do we make our fundamental criticisms of central-banks more meaningful to average Americans, while steering the debate away from deeply misguided anti-capitalist sentiment? Simply saying "End the Fed" sounds extreme and scary to many, but simply arguing about the details of this or that pronouncement by Janet Yellen allows our opponents to frame the debate from their status quo perspective.
> 
> *CHART YOU CAN VIEW AT LINK*
> 
> Two ideas suggest themselves:
> ...


https://mises.org/blog/two-arguments...-over-and-over

See also..

http://www.ronpaulforums.com/showthr...s-and-services

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## The Gold Standard

That's a nice thought, but the average American can barely wipe his or her own ass. We would have to dumb this down quite a bit.

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## Zippyjuan

> Second, we should consistently remind people that inflation is a tax-- and a regressive tax at that.


If there was no central bank what would the inflation rate likely be?  Zero percent?  Is there a money or banking system which has not experienced inflation we could replace the Fed with?

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## Origanalist

Donald Trump would end the fed.

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## osan

> If there was no central bank what would the inflation rate likely be?  Zero percent?  Is there a money or banking system which has not experienced inflation we could replace the Fed with?


The issue is not one of central banks _per sé_, but of the actual currency system in question.  An honestly and competently administered central bank could in theory do the job correctly. Unfortunately, theory and practice are at wide mutual variance where central banking is concerned.  That aside, a currency system that employed actual money would be far more likely to remain stable in terms of purchasing power.  Real money is a store of value.  Currencies such as FRNs are not money at all, but rather _DEBT INSTRUMENTS_.  This means that inflation is built into them such that it cannot be avoided.

If all the money in the world was represented by a single dollar bill and the Fed loans it to you at an annualized 3% on a one-year term, where prithee tell does the $0.03 come from when the note comes due?  This is a question few people even know to ask, much less ask it.  This example illustrates with stark and simple clarity the nature of the American (and other) currency system.  It is a SCAM up one side and down the other.

Another problem even well-experienced investors do not see, much less understand, is that the _apparently_ lower returns produced in an environment of real money is no handicap at all, but rather an advantage in that the real economic power of those returns are actually equal to or greater than the numerically superior counterparts of the non-money currency systems.  There are several dimensions to this, but this is not the place to discuss those.

Suffice to say that with real money, if the host economy is experiencing low growth or even deflation, the correspondingly diminished returns will not in fact result in net losses in the purchasing power of investor asset bases precisely because the  deflationary phenomenon will render the unit purchasing power of the money higher than it had been before.  Who cares if your investment returns shrink if the specific purchasing power grows?  But most people simply cannot get away from absolute numbers, believing that if those of today have smaller values than those of yesterday, they are taking it in the neck.  They seem unwilling or incapable of separating purchasing power from numbers. Who cares if today I make 50% of what I made yesterday if the price of that Ferrari I have been coveting is 50% today of what it was yesterday?  Indeed, I stand to gain net wealth if I have any savings.

Your answer, Juan, is that there are money systems that would solve virtually all of our problems regardless of whether there exists a central bank, all else equal.

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## AZJoe

> If there was no central bank what would the inflation rate likely be?  Zero percent?  Is there a money or banking system which has not experienced inflation we could replace the Fed with?


You ask as if inflation is a natural phenomenon. Inflation is unnatural. Inflation is artificially created by watering down the currency. There have been lots of monetary systems in history without inflation. Gold is not inflationary.

Sure under gold and other hard currency systems there are still price fluctuations up and down, but that is not inflation. Inflation is a policy of devaluing a currency through dilution. It is an active process of transferring wealth from the wage earners and savers to the speculators, banks and elite that have first access to the newly created currency.

A gold or other hard currency system would end the policy of inflation and impose monetary discipline.  A more libertarian approach to breaking the exclusive monopoly on  currency would be a completely open and free competition in currency.

*And some words from the good Dr. Ron Paul:*

*Dr. Ron Paul* – First reason is, it's not authorized in the Constitution, it's an illegal institution. The second reason, it's an immoral institution, because we have delivered to a secretive body the privilege of creating money out of thin air; if you or I did it, we'd be called counterfeiters, so why have we legalized counterfeiting? But the economic reasons are overwhelming: the Federal Reserve is the creature that destroys value. This station talks about free market capitalism, and you can't have free market capitalism if you have a secret bank creating money and credit out of thin air. They become the central planners, they decide what interest rates should be, what the supply of money should be...                *Question*: How does the gold standard solve that?              *Ron Paul*: It maintains a stable currency and a stable value. If the Fed concentrated more on stable money rather than stable prices... They push up new money in stocks and in commodities and in houses, and then they have to come in to rescue the situation. They create the bubbles, then they come in and rescue it, and they do nothing more than try to do price fixing. Capitalism depends, and capital comes from savings, but there's no savings in this country, so this is all artificial. It creates the misdirection and the malinvestment and all the excessive debt, and it always has to have a correction. Since the Fed has been in existence, the dollar has lost about 97% of its value. You're supposed to encourage savings, but if something loses its value, why save dollars? There's no encouragement whatsoever. [...] Gold is 6000 years old, and it still maintains its purchasing power. Oil prices really are very stable in terms of Gold. [...] Both conservatives and liberals want to enhance big government, and this is a seductive way to tax the middle class. - CNBC debate with Faiz Shakir, March 20, 2008 

*Dr. Ron* *Paul* – The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch-- Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference—that threatens to impoverish us by further destroying the value of our dollars.

*Dr. Ron* *Paul* – What's happening is, there's transfer of wealth from the poor and the middle class to the wealthy. This comes about because of the monetary system that we have. When you inflate a currency or destroy a currency, the middle class gets wiped out. So the people who get to use the money first which is created by the Federal Reserve system benefit. So the money gravitates to the banks and to Wall Street. That's why you have more billionaires than ever before. Today, this country is in the middle of a recession for a lot of people... As long as we live beyond our means we are destined to live beneath our means. And we have lived beyond our means because we are financing a foreign policy that is so extravagant and beyond what we can control, as well as the spending here at home. And we're depending on the creation of money out of thin air, which is nothing more than debasement of the currency. It's counterfeit... So, if you want a healthy economy, you have to study monetary theory and figure out why it is that we're suffering. And everybody doesn't suffer equally, or this wouldn't be so bad. It's always the poor people -- those who are on retired incomes -- that suffer the most. But the politicians and those who get to use the money first, like the military industrial complex, they make a lot of money and they benefit from it.    - GOP debate, Dearborn, Michigan, October 9, 2007

*And from some other wise sources:*

*Raymond J.* *Keating,* - Monetary policy today is guided by little more than government fiat—by the calculations, often mistaken economic theories, and whims of central bankers or, even worse, politicians. Under such a regime, inflation of three or four percent annually has come to be viewed as a stellar monetary performance. However, under a more sound monetary system—i.e., a gold standard—such increases in the general price level would be seen as wildly inflationary.     - BOOK REVIEW: The Anatomy of an International Monetary Regime: The Classical Gold Standard 1880-1914, The Freeman, p. 645, September, 1996.

*Professor Ludwig von* *Mises* – The gold standard did not collapse. Governments abolished it in order to pave the way for inflation.            - _The Theory of Money and Credit_ p 461. 

*Professor Ludwig von Mises* – The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.

*Ayn* *Rand* - Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist governments.     - _Who Will Protect Us From Our Protectors?_, The Objectivist Newsletter, May 1952.

*Paul* *Volcker* (former Federal Reserve chairman) - It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. [I]f the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with “free banking.” The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.

*Dr. Mary J*. *Ruwart* - In 1914, the Federal Reserve (Fed) received an exclusive monopoly to issue U.S. currency. Like AT&T, the Fed is a private corporation, owned by its member banks. The Fed is a powerful institution; some believe it is the most powerful in the world. …  Before the creation of the Fed, banks found they needed reserves of approximately 21% so that they would have enough money on hand when their customers wanted to make a withdrawal. When the Fed took over the reserves of the national banks, it lowered the reserve requirement to half that. The Fed itself used a reserve system: it kept only 35% of the reserves entrusted to it by the member banks! The balance was loaned out, mostly to the government, with the wealth of the American people as collateral.  Lowering reserves resulted in the creation of more money. As a result, the money supply doubled between 1914 and 1920 and once again from 1921 to 1929. In contrast, gold in the reserve vault increased only 3% in the 1920s. The bankers would obviously be unable to keep their promise to deliver gold to depositors if a large number of people withdrew their money at the same time.  Businesses could not use all the newly created money the banks wished to loan, so stock speculators were encouraged to borrow. Many people got heavily into debt, thinking that the boom would continue.      In 1929, the Fed started deflation by slowing the creation of new money. People who had counted on renewing their loans to cover stock speculations or other investments found they could no longer borrow. They were forced to sell their securities, and a stock market plunge ensued. The mini-crash in October 1987 also may have been triggered by the Fed’s slowing the creation of new money. People who lost money spent less on goods and services; business began to slow. With banks unwilling to renew loans, businesses began to reduce their work force. People nervously began withdrawing their gold deposits as banks in other countries quit honoring their promise to return the gold. Rumors circulated that the Federal Reserve would soon be bankrupt as well. Naturally, there was no way for the banks to exchange the inflated dollars for gold.  As people withdraw their bank funds, the money supply decreases—just the reverse of what happens when they deposit it. The banks’ failure to loan coupled with massive withdrawals, caused even greater deflation. People lost their savings and their purchasing power; in turn, businesses lost their customers and laid off workers. Each loss contributed to the next, resulting in the most severe depression Americans had ever known.  Had this happened in Scotland between 1793 and 1845, bank owners (stockholders) would have to make their promises good by digging into their own pockets. In our country, however, the government enforcement agents were instructed to come after the American citizenry instead! Franklin Roosevelt convinced Congress to pass a bill making it illegal for Americans to own gold. Everyone had to exchange their valuable gold for Federal Reserve notes, which had no intrinsic value. Gold was still given to foreigners who brought their dollars to be exchanged for gold, but not to Americans! … Why was the Fed introduced in the United States and relieved of its promise to return gold that was deposited by our great-grandparents and their contemporaries? Why did the Fed slow money creation in 1929, precipitating the stock market crash? Why does the Fed alternate inflation and deflation at the expense of the American public today?        Several authors have proposed that the evolution of central banks represents a collusion between politicians and a small elite with ownership/control of major banking institutions. Bank owners want to create as much money as possible, without having to dig into their own pockets when depositors want their money. Politicians long to fulfill their grandiose campaign promises without visibly taxing their constituency. Central banking can give both groups what they want.           First, through the aggression of exclusive licensing, politicians give the central bank a monopoly on issuing currency. As long as banks must make good on their promises to depositors, however, they are still subject to the regulation of the marketplace ecosystem.  The politicians encourage the aggressive practice of fraud by refusing to make banks and similar institutions (i.e., Savings & Loans, known as “S&Ls”) keep promises to depositors. Instead, owners and managers who make risky loans can simply walk away from their mistakes, as President Bush’s son Neil did. Depositors either lose their life savings or are reimbursed from taxes taken at gunpoint, if necessary from their neighbors.  The bankers, of course, must give the politicians something in return. When the ranchers, loggers, or other special interest groups want more subsides, our representatives need not incur the wrath of the populace by suggesting more taxes. Instead, they borrow some of the Fed’s newly created money! When it comes time to pay the loan back with interest, the politicians pay it back with a bigger loan using our wealth as collateral. The special interest groups thank the politicians by funding their reelections.  As a result, our national debt has grown so big that the interest alone consumed 25% of 1989 federal outlays! The single largest holder of the national debt is the Federal Reserve itself.  … our pension and investment plans often buy the government I.O.U.s. For our pension funds to pay us, we may first have to pay higher taxes to cover the I.O.U.s. How much higher will our taxes be? The 1989 national debt was more than $11,000 for every man, woman, and child! Like any special interest group, the Fed is inclined to help the politicians who protect it. By manipulating the money supply to cause boom or bust at the appropriate times, the Fed controls the illusion of prosperity an illusion that determines which politicians people will vote for or against. Like any other special interest group, the Fed can control our government to a significant extent.  For example, the exclusive monopoly of the Second Bank of the United States was scheduled to end in 1836. Andrew Jackson swore not to renew it if he were reelected president in 1832. Soon after his victory, he removed the government’s deposits from the central bank.  The bank’s president, Nicholas Biddle, attempted to bring about a depression by cutting back on the creation of money, just as the Federal Reserve would do almost 100 years later. Biddle hoped to blackmail Congress into renewing the bank’s monopoly by making the voters miserable. Fortunately, these tactics were not successful.  The American people were not fooled and the bank charter was not renewed. Unfortunately, this lesson was forgotten, and central banking was reestablished with the Federal Reserve.                   - _Healing Our World_, Ch 9.

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## Chester Copperpot

deflation is the natural order.. inflation is contrived... as daniel webster used to say when forced to choose between a politician's word and gold, I choose gold every time

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## Chester Copperpot

zippy this is the kind of thread where you have to earn your paycheck lol

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## bunklocoempire

> Donald Trump would end the fed.


lol  

I'm hoping he wins solely for the satirical quips and the rifle prices -and we'll see about the rifle prices.  
He had his own tv show ya know.
Yes!  End the Fed!

The best reaction talking to people about the Fed I get, is when ask people: 

_"Do you think that the more of something that there is, the less valuable it becomes?"_  (the example depends on who I'm talking to)

"Like an Xbox game.  Is an Xbox game worth the same now, as when it is new and not yet wide spread?"
"New games are worth more, and then the market gets flooded.  Would you agree that I may be able to trade my new Xbox game for several old Xbox games -like on Craigslist, and enjoy an advantage?" 

If they seem like they want to know more, I hit 'em with:

"Why does Game Stop charge so much for OLD used games?  It's almost like they're keeping the "value" artificially high, would you agree?"


THIS turns on a light bulb.  It may be over simplified, but they get the concept... and then turn around and vote for the flavor of the weak.

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## Zippyjuan

> deflation is the natural order.. inflation is contrived... as daniel webster used to say when forced to choose between a politician's word and gold, I choose gold every time


Changes in prices is the natural order.  As supplies and demands move up or down relatively to each other, prices should go higher or lower.  If I have four apples and only three people want one at the price I am asking, I will have to lower my price if I expect to get rid of them all.  If this year my tree only had two apples, I can charge a much higher price than I did a year ago.

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## Chester Copperpot

> Changes in prices is the natural order.  As supplies and demands move up or down relatively to each other, prices should go higher or lower.  If I have four apples and only three people want one at the price I am asking, I will have to lower my price if I expect to get rid of them all.  If this year my tree only had two apples, I can charge a much higher price than I did a year ago.


yes youre right changes are the norm... however planned inflation like we have now isnt part of that natural change.. or shouldnt be

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## DamianTV

> If there was no central bank what would the inflation rate likely be?  Zero percent?  Is there a money or banking system which has not experienced inflation we could replace the Fed with?


*shows his true colors and his support for Privately Owned Central Banks and Money Manipulation*

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## Occam's Banana

> If there was no central bank what would the inflation rate likely be? Zero percent? Is there a money or banking system which has not experienced inflation we could replace the Fed with?


The answers to your questions depend upon what you mean by "inflation." Do you mean _actual_ inflation (i.e., _monetary_ inflation) - or do you mean so-called "price inflation" (which is really just a more or less general increase in the price levels of some goods but not of others)? When it suits them to do so, Fed apologists ignore the critical distinction between these two entirely different things. They have to, of course - otherwise, they'd lose one of their chief tools when it comes to confusing the issue and covering the Fed's exposed hindparts.

Consider Zippy's questions, for example. His implication is that the _monetary_ inflation of fiat currency by a central bank is unobjectionable - or, at least, no more objectionable than any  non-centralized, non-fiat alternative - because "price inflation" will, for any of a wide variety of reasons, sometimes occur in any economy (even ones with specie-backed money and no central banking). This completely ignores the fact that the Fed's fiat-based monetary inflation is, by a HUGE margin, the major contributor to and driver of so-called "price inflation" in the economy.

Zippy _et al_. can ask all the "ooh! look! a squirrel ..." questions they like, but the simple and inescapable fact is this: when you add a centralized regime of fiat-based monetary inflation into the mix of any economy, then _ceteris paribus_, both monetary inflation and  "price inflation" will necessarily _always_ end up being greater than they otherwise would have been. After all, that's the whole point  of setting up centralized regimes of fiat-based monetary inflation in the first place! I mean, goddam - the Fed's explicitly stated purpose and policy is to ensure continual year-to-year inflation at some given percentage rate ...

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## Ender

> Changes in prices is the natural order.  As supplies and demands move up or down relatively to each other, prices should go higher or lower.  If I have four apples and only three people want one at the price I am asking, I will have to lower my price if I expect to get rid of them all.  If this year my tree only had two apples, I can charge a much higher price than I did a year ago.


True, but the problem is you are dealing with fractionalized money. 

In a true capitalistic society, a dollar is always a dollar; your goods or services are based on availability & popularity- not where a federal system is manipulating the money and handing out 1000x more loan 'money' than there are actual dollars.

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## Occam's Banana

> Changes in prices is the natural order.  As supplies and demands move up or down relatively to each other, prices should go higher or lower.  If I have four apples and only three people want one at the price I am asking, I will have to lower my price if I expect to get rid of them all.  If this year my tree only had two apples, I can charge a much higher price than I did a year ago.


And that "natural order" gets completely borked when the economy is "goosed" with money from "out of nowhere" in accordance with the arbitrary decrees of central bankers.

The "inflation" (or "deflation") of prices in your apple example depends upon _real_ factors - such as the actual demand for apples, weather (late freezes, droughts, etc.), and so forth. And the status of apples as an economic good is contingent upon the investment of _real_ wealth - such as land, labor and capital goods (seed stock, equipment, etc.).

But the status of fiat money and the "inflation" of prices due to centralized fiat-based monetary inflation are due solely to the arrogant (and ultimately ignorant) whims of central bankers and other species of "central planners," who foolishly imagine that they are clever enough to outsmart the "natural order." And that's being charitable, by at least assuming some sort of noble intent or good purpose on their part. It seems more than likely, though, that their efforts are just cynically jaded attempts to funnel wealth into the pockets of bankers, financiers and assorted other well-connected hangers-on - which ultimately has to be paid for by the chumps at the far end of the chain of Cantillon effects  ...

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## mrsat_98

> That's a nice thought, but the average American can barely wipe his or her own ass. We would have to dumb this down quite a bit.

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## Zippyjuan

> *shows his true colors and his support for Privately Owned Central Banks and Money Manipulation*


Our central bank is not privately owned.

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## Zippyjuan

> True, but the problem is you are dealing with fractionalized money. 
> 
> In a true capitalistic society, a dollar is always a dollar; your goods or services are based on availability & popularity- not where a federal system is manipulating the money and handing out 1000x more loan 'money' than there are actual dollars.


Who can loan out 1000x more money than they have?  If a bank does that, they are guilty of fraud.

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## Ender

> Who can loan out 1000x more money than they have?  If a bank does that, they are guilty of fraud.


Banks always do it, Zip- it's called fractionalized banking.

When the FED send B of A $1 mil, the bank can now loan out $10 mil or $100 mil. 

That's why the dollar is worthless; money is nothing but keystrokes.

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## Zippyjuan

> Banks always do it, Zip- it's called fractionalized banking.
> 
> When the FED send B of A $1 mil, the bank can now loan out $10 mil or $100 mil. 
> 
> That's why the dollar is worthless; money is nothing but keystrokes.


Fractional banking means the banks have to keep a "fraction" of deposits in reserve.  Typically ten percent.  So if a bank has $1000 in deposits, they are allowed to loan out $900 of that.  Not $100,000.

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## Jerry C

> If there was no central bank what would the inflation rate likely be?  Zero percent?  Is there a money or banking system which has not experienced inflation we could replace the Fed with?


It wouldn't be zero, but it would be significantly lower and much more easily controlled and managed. Inflattion which is usually cause by currency manipulation can in fact happen without a central bank but is more difficult and usually dosen't tend to be as damaging. The issue is not rising prices, but of lowering value in this case of the currency via debasement of the currency. This is precisely the purpose of a gold/silver standard is to control this and make inflation less likely.

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## fisharmor

> That's a nice thought, but the average American can barely wipe his or her own ass. We would have to dumb this down quite a bit.


And here we have the exact reason why the liberty movement is DEAD, DEAD, DEAD.

Ron Paul didn't spread a single new idea.  The only thing he did is have a little bit of goddamned faith in his fellow man to be able to understand some key concepts when clearly communicated.

And people like you fought tooth and nail against that idea every step of the way in both 2008 and 2012.

And you got your way.  You got Rand, who hasn't clearly communicated jack $#@! for the last 4 years.  The last thing he clearly communicated was his endorsement of Romney.

The people you think can't wipe their own asses are fixing your cars.  They're installing your carpet.  They're running inventory at the local home centers.  They're teaching your kids.  They're doing thousands of other things way the $#@! more complicated than being able to see that things cost more over time.

Yet you trot out here calling them names and assuming they're not worth talking to.

The liberty movement will REMAIN DEAD, DEAD, DEAD until we can excise all of you who think any voter education at all is a waste of time.  If you're not telling them an alternative idea, if all you have to offer is the same idea they get on CNN for 24 hours a day, guess what, you don't have to be able to wipe your own ass to see that they're not going to bother with your loser candidate if he doesn't offer anything different.

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## The Gold Standard

> And here we have the exact reason why the liberty movement is DEAD, DEAD, DEAD.
> 
> Ron Paul didn't spread a single new idea.  The only thing he did is have a little bit of goddamned faith in his fellow man to be able to understand some key concepts when clearly communicated.
> 
> And people like you fought tooth and nail against that idea every step of the way in both 2008 and 2012.
> 
> And you got your way.  You got Rand, who hasn't clearly communicated jack $#@! for the last 4 years.  The last thing he clearly communicated was his endorsement of Romney.
> 
> The people you think can't wipe their own asses are fixing your cars.  They're installing your carpet.  They're running inventory at the local home centers.  They're teaching your kids.  They're doing thousands of other things way the $#@! more complicated than being able to see that things cost more over time.
> ...


Relax. I'm one who was never excited about Rand and knew that his watering down of the message would fail miserably. I'm one who thinks educating Boobus is the only way to advance these ideas, politics being a waste of time. 

I didn't say they weren't worth talking to. I said this particular message would have to be dumbed down. And it would. Go up to the guy fixing your car and say the words "Federal Reserve". After his blank stare, you'd better come up with a better way to go about reaching him. 

You mentioned "clearly communicated." I even complained about how Ron worded his talk about the Fed when he was running, because most people would not understand it. I loved him ripping into the welfare state and warmongers and police state, and Rand needed to do more of that. But there has to be a better way to talk monetary policy. Most people here don't understand enough to debate people that took more than one government sponsored economics course. 

Boobus can understand that prices go up over time. Now get them to understand how that hurts them, why it's happening, who is benefiting. That what the government told them about it being necessary for prices to increase in order for an economy to grow is a lie. And do that without using words that put them to sleep.

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## Ender

> Fractional banking means the banks have to keep a "fraction" of deposits in reserve.  Typically ten percent.  So if a bank has $1000 in deposits, they are allowed to loan out $900 of that.  Not $100,000.


Nope. They are allowed to lend out more than they have.

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## RJB

- rep for Zippy.

I usually only give them in retaliation if someone hits me with one, but you just don't go on a Ron Paul forum and shill for the Fed.  Disagreement will happen for any issue, but defending the Fed, that's just wrong.

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## Ender

> Fractional banking means the banks have to keep a "fraction" of deposits in reserve.  Typically ten percent.  So if a bank has $1000 in deposits, they are allowed to loan out $900 of that.  Not $100,000.


From Murray Rothbard

Fractional Reserve Banking




> Let’s see how the fractional reserve process works, in the absence of a central bank. I set up a Rothbard Bank, and invest $1,000 of cash (whether gold or government paper does not matter here). Then I “lend out” $10,000 to someone, either for consumer spending or to invest in his business. How can I “lend out” far more than I have? Ahh, that’s the magic of the “fraction” in the fractional reserve. I simply open up a checking account of $10,000 which I am happy to lend to Mr. Jones. Why does Jones borrow from me? Well, for one thing, I can charge a lower rate of interest than savers would. I don’t have to save up the money myself, but simply can counterfeit it out of thin air. (In the nineteenth century, I would have been able to issue bank notes, but the Federal Reserve now monopolizes note issues.) Since demand deposits at the Rothbard Bank function as equivalent to cash, the nation’s money supply has just, by magic, increased by $10,000. The inflationary, counterfeiting process is under way.


Rest of the article is here:
https://www.lewrockwell.com/1995/10/...serve-banking/

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## TheTexan

> deflation is the natural order.. inflation is contrived... as daniel webster used to say when forced to choose between a politician's word and gold, I choose gold every time


But... Isnt deflation bad for the economy!??  Where the products we buy, just keep getting cheaper and cheaper??  

Imagine, the horror!

Its a good thing we have the Fed, to protect us from that.

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## TheTexan

I don't understand what goes on in the Fed, but I'm sure there is a good reason for it, or they wouldn't be doing it.

I'm gonna go back to watching Honey Boo Boo reruns now, $#@! this $#@!!

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## osan

> The liberty movement will REMAIN DEAD, DEAD, DEAD until we can excise all of you who think any voter education at all is a waste of time.  If you're not telling them an alternative idea, if all you have to offer is the same idea they get on CNN for 24 hours a day, guess what, you don't have to be able to wipe your own ass to see that they're not going to bother with your loser candidate if he doesn't offer anything different.


The American meaner is, in fact, a nitwit in political terms.  Less certainly, he is also corrupt.

None of that means that he could not become better.  I am just not sure that he wants to - at least not so long as the environment allows and even encourages him to remain a functional dullard where politics are concerned.

I say the average American is a good man in terms of intentions and wishes.  But none of that counts for a damn when his choices serve only to further destroy not only himself, but his fellows as well.  It seems that nothing will change until the pinch he feels is become agony unbearable such that he is just shy of putting a gun to his own head just to be relieved of the excruciation.

Short of setting conditions to such a timbre, I have little clue as to what gentler measure might do the trick.  The last 8 years should be evidence sufficient to strongly suggest there may be no degradation vile enough to prompt Johnny Meaner to say, "enough!"  But if that doesn't cut it, go back through to 9/10/2001 and replay all the jolly good stuff that's been foisted upon us.  Hearken back to '92 and a crappy town called "Waco".  Or take your pick of any of the large multitude of similar offenses by Themme against us.  We stood idly and took every inch of it.

----------


## Zippyjuan

> From Murray Rothbard
> 
> Fractional Reserve Banking
> 
> 
> 
> Rest of the article is here:
> https://www.lewrockwell.com/1995/10/...serve-banking/


If you start out with $1,000 and loan out $10,000 you are committing bank fraud. They can't do it like that.  The article is wrong. 

I am looking for a chart I had a while back- it shows deposits are greater than outstanding loans.  Banks are not loaning out more than they have in deposits- by law they are not allowed to.  If banks could just create as much money as they want to, why would deposits be more than loans?  

Found a version of the chart.  This one is from Zerohedge.

----------


## Zippyjuan

> But... Isnt deflation bad for the economy!??  Where the products we buy, just keep getting cheaper and cheaper??  
> 
> Imagine, the horror!
> 
> Its a good thing we have the Fed, to protect us from that.


Say you are a business.  You have costs of producing your goods.  Lets keep those fixed.  Prices of the goods you are producing are falling on the market- you keep getting less and less money the more you sell.  How does that effect you?   Your profits are declining.  If they decline enough, you can no longer stay in business.  So you need to try to reduce your costs.  What is your cost? Labor and resources.  You don't control resource costs but you do control labor costs.  So you cut hours and start laying off people.  As businesses lay off people, their customers/ workers now have less money to spend on things.  So they cut back on buying stuff from you. Now your revenues fall even farther.  So you need to lay off more people.  

If you are a consumer who did not lose hours or have their job cut, lower prices are great. You can afford more stuff.  If you are a producer, they are not good.  If you are one of the people who lost their job over it, you are definitely not better off by falling prices.  In general, falling prices are associated with recessions- times of falling demand and job losses.   They are rarely associated with economic boom.

----------


## TheTexan

> Say you are a business.  You have costs of producing your goods.  Lets keep those fixed.  Prices of the goods you are producing are falling on the market


Thanks Zippy, I didnt know non-consumer prices are fixed in deflation.  But that makes total sense, it's completely rational.

Good to know!

----------


## Suzanimal

> Say you are a business.  You have costs of producing your goods.  *Lets keep those fixed.*  Prices of the goods you are producing are falling on the market- you keep getting less and less money the more you sell.  How does that effect you?   Your profits are declining.  If they decline enough, you can no longer stay in business.  So you need to try to reduce your costs.  What is your cost? Labor and resources.  You don't control resource costs but you do control labor costs.  So you cut hours and start laying off people.  As businesses lay off people, their customers/ workers now have less money to spend on things.  So they cut back on buying stuff from you. Now your revenues fall even farther.  So you need to lay off more people.  
> 
> If you are a consumer who did not lose hours or have their job cut, lower prices are great. You can afford more stuff.  If you are a producer, they are not good.  If you are one of the people who lost their job over it, you are definitely not better off by falling prices.  In general, falling prices are associated with recessions- times of falling demand and job losses.   They are rarely associated with economic boom.


I stopped right there. That's not the way it works.

----------


## Ender

> If you start out with $1,000 and loan out $10,000 you are committing bank fraud. They can't do it like that.  The article is wrong. 
> 
> I am looking for a chart I had a while back- it shows deposits are greater than outstanding loans.  Banks are not loaning out more than they have in deposits- by law they are not allowed to.  If banks could just create as much money as they want to, why would deposits be more than loans?  
> 
> Found a version of the chart.  This one is from Zerohedge.


Sorry, Zip, but Rothbard is NOT wrong. 

THIS is why/how the FED controls all money in the country & in the world. 1913 was the complete end of financial freedom in the New World.

----------


## Occam's Banana

> Say you are a business. You have costs of producing your goods. *Lets keep those fixed.* Prices of the goods you are producing are falling on the market [...]


Gee, stack the deck much? 

If you are talking about about general "price deflation," then the costs to which you refer will NOT be fixed. General "price deflation" will apply just as much to the prices involved in production (capital, labor, etc.) as it will to the prices of the goods being produced. (The same thing applies in other direction, with respect to general "price inflation.")

Otherwise, you are not talking about general "price deflation" ... (I mean, come on ...)

+rep to the others who called you out for your shenanigans. (Did you really expect to get away with it?)

(_You must spread some Reputation around before giving it to Suzanimal again._ )

----------


## Suzanimal

> That's a nice thought, but the average American can barely wipe his or her own ass. We would have to dumb this down quite a bit.


Your comment reminded me of this talk. It took me a little while to find it.

How We Lost Economics | Jeff Deist

----------


## Zippyjuan

Can anybody share price deflations associated with booming economies?

----------


## Zippyjuan

> Gee, stack the deck much? 
> 
> If you are talking about about general "price deflation," then the costs to which you refer will NOT be fixed. General "price deflation" will apply just as much to the prices involved in production (capital, labor, etc.) as it will to the prices of the goods being produced. (The same thing applies in other direction, with respect to general "price inflation.")
> 
> Otherwise, you are not talking about general "price deflation" ... (I mean, come on ...)
> 
> +rep to the others who called you out for your shenanigans. (Did you really expect to get away with it?)
> 
> (_You must spread some Reputation around before giving it to Suzanimal again._ )


Ultimately all costs are labor.  If you buy gas to heat your factory, you had to pay for somebody to find, extract, refine, and transport the gas to you (along with producing the equipment to do all of that).   I suggested fixes input costs for the sake of simplicity. If the cost of labor is falling then that means that your wages are declining.

----------


## Occam's Banana

> I suggested fix[ing] input costs for the sake of simplicity.


Thereby stacking the deck. Input costs are NOT fixed under conditions of general "price deflation."

As previously noted, the scenario you offered has nothing to do with general "price deflation."




> If the cost of labor is falling then that means that your wages are declining.


Duh.

And if the general price level is falling, declining wages are not a problem unless they are falling faster than everything else. If they are falling on pace with other prices, then nothing effectively changes. And if they are falling more slowly than other prices, then wages will effectively be increasing relative to other prices (even though they are falling in absolute terms).

----------


## Occam's Banana

> Can anybody share price deflations associated with booming economies?


For just one example, there's the so-called (and mythical) "Long Depression":

Orthodox economic historians have long complained about the “great depression” that is supposed to have struck the United States in the  panic of 1873 and lasted for an unprecedented six years, until 1879.  Much of this stagnation is supposed to have been caused by a monetary  contraction leading to the resumption of specie payments in 1879. Yet  what sort of “depression” is it which saw an extraordinarily large  expansion of industry, of railroads, of physical output, of net national  product, or real per capita income? As Friedman and Schwartz admit, the  decade from 1869 to 1879 saw a 3-percent-perannum increase in money  national product, an outstanding real national product growth of 6.8  percent per year in this period, and a phenomenal rise of 4.5 percent  per year in real product per capita. Even the alleged “monetary  contraction” never took place, the money supply increasing by 2.7  percent per year in this period. From 1873 through 1878, before another  spurt of monetary expansion, the total supply of bank money rose from  $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent  per year. In short, a modest but definite rise, and scarcely a _contraction_.

It should be clear, then, that the “great depression” of  the 1870s is merely a myth—a myth brought about by misinterpretation of  the fact that prices in general fell sharply during the entire period.  Indeed they fell from the end of the Civil War until 1879. Friedman and  Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8  percent per annum. *Unfortunately, most historians and economists  are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious  prosperity and economic growth during this era. For they have  overlooked the fact that in the natural course of events, when  government and the banking system do not increase the money supply very  rapidly, freemarket capitalism will result in an increase of production  and economic growth so great as to swamp the increase of money supply.  Prices will fall, and the consequences will be not depression or  stagnation, but prosperity (since costs are falling, too), economic  growth, and the spread of the increased living standard to all the  consumers*.145


145 For the bemusement of Friedman and Schwartz, see Milton Friedman and Anna Jacobson Schwartz, _A Monetary History of the United States, 1867–1960_ (New York: National Bureau of Economic Research, 1963), pp. 33–44. On totals of bank money, see _Historical Statistics_, pp. 624–25.

-- Murray Rothbard, _A History of Money and Banking in the United States: The Colonial Era to World War II_ (Auburn: Ludwig von Mises Institute, 2002), pp. 154-155. [bold emphasis added; PDF HERE]

----------


## Zippyjuan

> Thereby stacking the deck. Input costs are NOT fixed under conditions of general "price deflation."
> 
> As previously noted, the scenario you offered has nothing to do with general "price deflation."
> 
> 
> 
> Duh.
> 
> And if the general price level is falling, declining wages are not a problem unless they are falling faster than everything else. If they are falling on pace with other prices, then nothing effectively changes. And if they are falling more slowly than other prices, then wages will effectively be increasing relative to other prices (even though they are falling in absolute terms).


Wages are resistant to being lowered.  If wages fall say ten percent that usually means higher paid workers lost their jobs and got replaced by lower wage workers. Or they had their hours cut.

----------


## Zippyjuan

> For just one example, there's the so-called (and mythical) "Long Depression":
> 
> Orthodox economic historians have long complained about the “great depression” that is supposed to have struck the United States in the  panic of 1873 and lasted for an unprecedented six years, until 1879.  Much of this stagnation is supposed to have been caused by a monetary  contraction leading to the resumption of specie payments in 1879. Yet  what sort of “depression” is it which saw an extraordinarily large  expansion of industry, of railroads, of physical output, of net national  product, or real per capita income? As Friedman and Schwartz admit, the  decade from 1869 to 1879 saw a 3-percent-perannum increase in money  national product, an outstanding real national product growth of 6.8  percent per year in this period, and a phenomenal rise of 4.5 percent  per year in real product per capita. Even the alleged “monetary  contraction” never took place, the money supply increasing by 2.7  percent per year in this period. From 1873 through 1878, before another  spurt of monetary expansion, the total supply of bank money rose from  $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent  per year. In short, a modest but definite rise, and scarcely a _contraction_.
> 
> It should be clear, then, that the “great depression” of  the 1870s is merely a myth—a myth brought about by misinterpretation of  the fact that prices in general fell sharply during the entire period.  Indeed they fell from the end of the Civil War until 1879. Friedman and  Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8  percent per annum. *Unfortunately, most historians and economists  are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious  prosperity and economic growth during this era. For they have  overlooked the fact that in the natural course of events, when  government and the banking system do not increase the money supply very  rapidly, freemarket capitalism will result in an increase of production  and economic growth so great as to swamp the increase of money supply.  Prices will fall, and the consequences will be not depression or  stagnation, but prosperity (since costs are falling, too), economic  growth, and the spread of the increased living standard to all the  consumers*.145
> 
> 
> 145 For the bemusement of Friedman and Schwartz, see Milton Friedman and Anna Jacobson Schwartz, _A Monetary History of the United States, 1867–1960_ (New York: National Bureau of Economic Research, 1963), pp. 33–44. On totals of bank money, see _Historical Statistics_, pp. 624–25.
> 
> -- Murray Rothbard, _A History of Money and Banking in the United States: The Colonial Era to World War II_ (Auburn: Ludwig von Mises Institute, 2002), pp. 154-155. [bold emphasis added; PDF HERE]


It was certainly a unique period (but all periods are).  The US was expanding West and rebuilding following the Civil War and population also soaring (up by 26% during the decade).  Also of note is that unemployment rate rose quite a bit during that time- from 3.97% in 1869 to a high of 8.25% in 1878- more than double.   http://socialdemocracy21stcentury.bl...-18691899.html

Its uniqueness could be called the exception which proves the rule because other examples are difficult to find.

----------


## Occam's Banana

> Wages are resistant to being lowered.


Under free market conditions, wages are no more resistant to being raised or lowered than the prices of any other goods. There is nothing inherently special about labor that makes its pricing any different from the pricing of any other economic good on the market. The so-called "stickiness" of wages is the net result of multifarious government and regulatory interferences in labor markets (for purposes of politically pandering to wage earners).

But even setting that aside and granting the existence of "sticky" wages for the sake of argument, this would only mean (for purposes of the present subject) that wages are less likely to fall at a rate greater than other prices under "natural" conditions of general price deflation - thereby improving the earning power and standard of living for wage earners, even under conditions of wage deflation.

So ... thank you for reinforcing the argument in favor of the natural deflation of prices. 




> If wages fall say ten percent that usually means higher paid workers lost their jobs and got replaced by lower wage workers. Or they had their hours cut.


This is completely non-responsive. Even if true, none of it addresses - let alone contradicts - anything I said.

What's more, it also only serves to reinforce the argument in favor of general price deflation under "natural" conditions. Falling prices - including the prices of the factors of production - allow more entrepreneurs and capital investors to start more new businesses and expand already-existing ones (which will obviously serve to mitigate unemployment). Once again, when speaking of general price deflation, you do NOT get to rig your counter-arguments by ignoring the effects of everything except the price of labor.




> [...] The US was expanding West and rebuilding following the Civil War and population also soaring (up by 26% during the decade).  Also of note is that unemployment rate rose quite a bit during that time- from 3.97% in 1869 to a high of 8.25% in 1878- more than double.   http://socialdemocracy21stcentury.bl...-18691899.html


What reason is there to attribute rising unemployment over this period to the general price deflation occurring at the time - rather than ... oh, say ... _the "soaring" population you yourself cited in the previous sentence_?




> It was certainly a unique period (but all periods are). [...] Its uniqueness could be called the exception which proves the rule because other examples are difficult to find.


What is the point of this? You asked for an example. I gave you one.

Then you just concoct an excuse for dismissing it out of hand. SMDH ...

"It was ... a unique period (but all periods are)."  Then why did you even bother asking for an historical illustration (since obviously, there is no such illustration which you could not just as easily dismiss as being a "unique exception" for some reason or other)?

And as for the difficulty of finding other examples: this dearth is due to the fact that the vast majority of extensive and reliable data we have is limited to conditions of "unnatural" monetary inflation (via central banking) and other governmental manipulations and interferences in the market. That there is a deficit of examples of the salubrious effects of "natural" general price deflation is a consequence of the widespread and pervasive implementation of inflationary policies by governments and central banks. It simply is not reasonable to expect or demand many such examples when "natural" deflationary pressures have been systematically retarded and deliberately reversed by "unnatural" interventions in most of the markets for which we have any useful data.

----------


## The Gold Standard

It isn't a hard and fast rule that you would always have general price deflation with free market money. If gold was the money and a huge deposit was discovered, you would get some price inflation. Of course, if the value dropped enough, the market would use another money. If society was becoming less productive, you would have falling supplies and rising prices. That won't happen in a society with any kind of economic freedom, but it's a scenario. The market historically tends to choose stable money, and economies usually don't become less productive, so over time, a free market would trend toward price deflation, but it's not necessarily always a steady process.

----------


## Occam's Banana

> It isn't a hard and fast rule that you would always have general price deflation with free market money.


I don't think anyone on the pro-free-market side of this discussion has claimed otherwise. I certainly haven't.




> If gold was the money and a huge deposit was discovered, you would get some price inflation. Of course, if the value dropped enough, the market would use another money. If society was becoming less productive, you would have falling supplies and rising prices. That won't happen in a society with any kind of economic freedom, but it's a scenario. The market historically tends to choose stable money, and economies usually don't become less productive, so over time, a free market would trend toward price deflation, but it's not necessarily always a steady process.


A genuinely free market will have periods of both monetary inflation and deflation - as well as periods of both rising general price levels and falling general price levels. All these things are perfectly natural, and a free market can handle them all efficiently. (Actually, it might be more accurate to say that all these thing ARE the free market.)

What is decidedly not natural is the constant, forced inflation inherent in central banking regimes. Instances of "natural" monetary inflation (such as can occur in "gold rushes" and the like) are transient events that markets can handle easily if and when they are allowed to do so. There may be unpleasant but relatively short-term disruptions in some sectors - the proverbial phenomenon of "creative destruction." But such events are brief and relatively quite minor when compared to the "unnatural" monetary and price inflation schemes forcibly imposed upon markets by governments and central banks, which manifest nothing but "destructive destruction" (except, of course, for the bankers, financiers, government agencies and other connected hangers-on who benefit enormously from such constantly inflationary regimes at the expense of everyone else).

----------


## Dr.No.

Fractional reserve banking is a myth. That isn't how banks work...they don't "loan out deposits". They create credit out of thin air. Reserve requirements are practically zero..

There is no connection between money, gold/silver, and inflation. None...our currency is no longer backed by gold/silver. Looking at the price of gold to value money is insipid. That would mean that there was massive deflation in the 90s, massive inflation between 2009 and 2012, and moderate deflation from then until now.

----------


## Dr.No.

> Wages are resistant to being lowered.  If wages fall say ten percent that usually means higher paid workers lost their jobs and got replaced by lower wage workers. Or they had their hours cut.


Bingo, exactly. In general, workers are extremely resistant to nominal wages being cut.

----------


## The Gold Standard

Fortunately, this opinion about resistance to nominal wage cuts didn't prove to be a problem during the gradual price deflation during the industrial revolution. Productive workers tend to get raises. If they don't get a nominal pay increase, they can get their raise by increasing their own purchasing power on the same wages. Deflation would have to be pretty drastic for everyone to have their wages cut, and if the money was increasing in value that much, the market would probably choose something else as the medium of exchange.

----------


## DamianTV

> *shows his true colors and his support for Privately Owned Central Banks and Money Manipulation*





> Our central bank is not privately owned.


This explains Zippy 100% right there.  Zippy seems to be fully indoctrinated to believe that the Fed is a part of the US govt.  The true owners of the Fed need for the ownership to be as confusing as possible to identify because that in and of itself keeps the majority of average people thinking that it is normal for a private institution to completely control the issue of a nations currency, thus, its laws, citizens, politicians, police, MSM, and wars.

----------


## Zippyjuan

> This explains Zippy 100% right there.  Zippy seems to be fully indoctrinated to believe that the Fed is a part of the US govt.  The true owners of the Fed need for the ownership to be as confusing as possible to identify because that in and of itself keeps the majority of average people thinking that it is normal for a private institution to completely control the issue of a nations currency, thus, its laws, citizens, politicians, police, MSM, and wars.


Who are the owners?   https://www.federalreserve.gov/faqs/about_14986.htm




> Who owns the Federal Reserve?
> 
> The Federal Reserve System is not "owned" by anyone. Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest.
> 
> The Federal Reserve derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act. This central banking "system" has three important features: (1) a central governing board--the Federal Reserve Board of Governors; (2) a decentralized operating structure of 12 Federal Reserve Banks; and (3) a blend of public and private characteristics.
> 
> The Board of Governors in Washington, D.C., is an agency of the federal government. The Board--appointed by the President and confirmed by the Senate--provides general guidance for the Federal Reserve System and oversees the 12 Reserve Banks. The Board reports to and is directly accountable to the Congress but, unlike many other public agencies, it is not funded by congressional appropriations. In addition, though the Congress sets the goals for monetary policy, decisions of the Board--and the Fed's monetary policy-setting body, the Federal Open Market Committe--about how to reach those goals do not require approval by the President or anyone else in the executive or legislative branches of government.
> 
> Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.

----------


## Zippyjuan

> Fortunately, this opinion about resistance to nominal wage cuts didn't prove to be a problem during the gradual price deflation during the industrial revolution. Productive workers tend to get raises. If they don't get a nominal pay increase,* they can get their raise by increasing their own purchasing power on the same wages.* Deflation would have to be pretty drastic for everyone to have their wages cut, and if the money was increasing in value that much, the market would probably choose something else as the medium of exchange.


How can you increase your own purchasing power?

----------


## DamianTV

> How can you increase your own purchasing power?


Eliminate Central Banking and get rid of Fractional Reserve Lending.

And for the record, if a bank has $1000 in deposits, on the fractional reserve 10 to 1 ratio, they CAN loan out $10,000 against it.  Loans made do NOT come from the deposit, they only count against those deposits.  Thus, when loans are made, that money is "borrowed" into existence out of nothing but the borrowers promise to repay that loan.

Monetary Musical Chairs, someone always ends up without a place to sit.  Those currently losing the game is our Middle Class.

----------


## Zippyjuan

> Thread: Two Arguments Against the Fed We Should Make Over and Over
> *So you flip flop and now the Fed has Private Owners after you just said our Central Bank is not privately owned?* You are such a Troll for the Money Manipulators..


Read it again.  Yes, there are "shares" but they are membership fees- not traditional stock shares.  They have no voting powers.  They cannot be bought or sold. They are not ownership shares.   To join the Federal Reserve banking system and have access to their services, a bank must put up ten percent of their assets to the Federal Reserve- their "membership fee".  If they have $10 billion in assets, they have to put up $1 billion.  The "shares" are their receipts for the $1 billion.  They do get paid a six percent annual dividend on that $1 billion but have no ownership claim.  Traditional stock shares are part ownership of a company.  The Federal Reserve shares are not.

----------


## Zippyjuan

> Eliminate Central Banking and get rid of Fractional Reserve Lending.
> 
> *And for the record, if a bank has $1000 in deposits, on the fractional reserve 10 to 1 ratio, they CAN loan out $10,000 against it.*  Loans made do NOT come from the deposit, they only count against those deposits.  Thus, when loans are made, that money is "borrowed" into existence out of nothing but the borrowers promise to repay that loan.
> 
> Monetary Musical Chairs, someone always ends up without a place to sit.  Those currently losing the game is our Middle Class.



So why aren't outstanding loan totals higher than deposit totals?  Shouldn't they be like ten or 100 times higher?  On a ten percent fractional reserve, they must keep ten percent of deposits in reserve meaning that 90% of them can be loaned out- $900 in your example.

----------


## DamianTV

Somebody please -Rep Zippy for his constant support of the Money Manipulators that are destroying this country and the rest of the planet, that we are all just about fully aware of and he insists "is a good and normal thing to have"!

----------


## Dr.No.

> Eliminate Central Banking and get rid of Fractional Reserve Lending.
> 
> And for the record, if a bank has $1000 in deposits, on the fractional reserve 10 to 1 ratio, they CAN loan out $10,000 against it.  Loans made do NOT come from the deposit, they only count against those deposits.  Thus, when loans are made, that money is "borrowed" into existence out of nothing but the borrowers promise to repay that loan.
> 
> Monetary Musical Chairs, someone always ends up without a place to sit.  Those currently losing the game is our Middle Class.


This is simply not how the banking system works. Fractional reserve banking does not exist; it is not the way banks operate anymore. Banks create money out of thin air.

----------


## DamianTV

> This is simply not how the banking system works. Fractional reserve banking does not exist; it is not the way banks operate anymore. Banks create money out of thin air.


Normally I would disagree, but you do have a valid point.  I think just about every "reserve requirement" on bank loans has been removed, thus, this system is beyond guaranteed to implode, and probably sooner rather than later.

----------


## The Gold Standard

> Normally I would disagree, but you do have a valid point.  I think just about every "reserve requirement" on bank loans has been removed, thus, this system is beyond guaranteed to implode, and probably sooner rather than later.


They pay lip service to reserve requirements, but the reserves are created out of thin air, and the banks can pyramid off of them from there, so he is essentially right. Although that doesn't mean that the results of true fractional reserve banking would be any worse, better, or different at all from what we have now.

----------


## Dr.No.

> They pay lip service to reserve requirements, but the reserves are created out of thin air, and the banks can pyramid off of them from there, so he is essentially right. Although that doesn't mean that the results of true fractional reserve banking would be any worse, better, or different at all from what we have now.


Well, no. Reserves are created thin air by the federal government when it spends money. Banks can't pyramid off that money. What the Federal Reserve has done is basically make sure banks aren't credit constrained. When they make a loan, all they have to worry about is the credit-worthiness of the loan (idea/person/etc).

If the government/FR increased reserve requirements, you would see short-term interest rates go up, thereby increasing long-term rates. That would somewhat cut down on loans.

----------


## The Gold Standard

> Well, no. Reserves are created thin air by the federal government when it spends money. *Banks can't pyramid off that money.* What the Federal Reserve has done is basically make sure banks aren't credit constrained. When they make a loan, all they have to worry about is the credit-worthiness of the loan (idea/person/etc).


They sure can. Treasuries are counted as bank reserves. Banks can lend whatever they want as long they have 10% in reserves.

----------


## Zippyjuan

Treasuries don't count as part of a bank's reserves.  https://en.wikipedia.org/wiki/Bank_reserves




> 'Bank reserves' are a commercial banks' holdings of deposits in accounts with a central bank (for instance the European Central Bank or the applicable branch bank of the Federal Reserve System, in the latter case including federal funds), plus currency that is physically held in the bank's vault ("vault cash").[1] Some central banks set minimum reserve requirements, which require banks to hold deposits at the central bank equivalent to at least a specified percentage of their liabilities such as customer deposits. Even when there are no reserve requirements, banks often opt to hold some reserves—called desired reserves—against unexpected events such as unusually large net withdrawals by customers or bank runs.

----------


## Dr.No.

> They sure can. Treasuries are counted as bank reserves. Banks can lend whatever they want as long they have 10% in reserves.


No, treasuries are *not* counted as bank reserves. Plus, the whole "10%" reserve idea is a myth; it hasn't been the case since the late 60s. Basically, CDs, money market accounts, investment accounts, savings accounts, etc. pretty much don't require any reserves (no legal requirement). Checking account have some minimal reserve requirements, between 0 and 10%. Moreover, the money created from a loan are essentially the reserves that back the loan.

That is why the federal reserve/treasury bonds. It provides an outlet for reserves to flow through. Now, the banks can hold reserves to fulfill requirements, but can also use it to buy government debt with some return. That puts upward pressure on the short-term interest rate.

----------


## mrsat_98

5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.

The Federal Reserve System, created by the Federal Reserve Act of Congress in 1913, is indeed such a "national bank" and it politically manipulates interest rates and holds a monopoly on legal counterfeiting in the United States.   This is exactly what Marx had in mind and completely fulfills this plank, another major socialist objective.   Yet, most Americans naively believe the U.S. of A. is far from a Marxist or socialist nation.

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## Dr.No.

Yes, the USA is far, far, far from a Marxist nation. Learn what Marxism is...complete wealth distribution, government control of production, abolishment of the private sector, etc. etc. 

Whether it is a socialist nation or not depends on your definition of socialist. Ancap guys would argue any government is socialism. People in Europe would argue it is when government infiltration reaches a certain level.

Moreover, Austrians foolishly claim that the federal reserve artificially lowers interest rates. No, the federal reserve artificially _increase_ interest rates. The natural rate of interest is zero. Without government rules and interference that force banks to hold currency and/or provide an alternative for that currency, banks would be able to create credit with no limitations...presumably, the legal limitation that they have to pay it back, so basically, they would create credit only on the basis of the credit-worthiness of the borrower. Just like in the era of free banking, with near-zero interest rates.

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## Seraphim

> That's a nice thought, but the average American can barely wipe his or her own ass. We would have to dumb this down quite a bit.


These two points were actually quite simple to understand. The average person can and DOES grasp this if it is shared to them in a reasonable and civil conversation. How do I know? I've seen numerous times in conversations I've had.

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## Son_of_Liberty90



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## DamianTV

> Who can loan out 1000x more money than they have?  If a bank does that, they are guilty of fraud.


Banks do not loan out ANY money they have.  They have not done so as a standard practice of fractional reserve banking.  Banking IS Fraud.

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