End The Fed - WHY?

[CogWheeler]

Thanks for the replies.

Paul did not elaborate on how, or if, he would adjust a peg in the posted video. And, thanks, rwpi, with a peg I suppose it would be possible to continue the central bank (they did it within the Bretton Woods framework). So, can we stick with going back to gold, then, as the topic?

The part of the video that hit best was Paul saying he once got into it with Bernanke by saying "Is gold money?", whereupon Bernanke answered "absolutely not". Therein lies the religion in all of this.

Gold is a fungible, exchangeable, commodity. I'm not insensitive to the constitution, but for its function, so too could be printed paper. Why support printed paper over a finite resource, is what I ask?

The exercise I keep getting into with people is working capital, or the sum that must grow as business activity grows, that gets dipped into and replenished as business transactions get larger with a firm. Many businesses go insolvent for lack of working capital growth, and the same can happen to a country without monetary growth. So, I'm trying understand how one answers the need to grow employment and economic activity with a fixed amount of currency?

Do we move the peg, or slow potential economic activity and employment as interest rates necessarily rise, with the depletion of loanable funds, or liquidity?

I don't see a gold standard working without a peg that moves, and irresponsible control of that peg simply gets us back to where we are. Perhaps he's gone over this, too.

BTW, Kudlow called Volcker a "gold guy", when he practically championed the opposite.

 

[pipewerKz]

The word "dollar" just distorts things, it allows the money masters to do what they want. We buy everything by weight. Gallon of gas, milk, water. 1lb of meat, chicken, etc. It is only fitting that our money (a market driven medium of exchange) should be a weight as well. 1/10oz, 1/4oz, 1/2oz.

With todays technology we could all have plastic cards still and debit fractions of a gram out of our accounts.

 

[gte811i]

If you are really interested you should read
http://en.wikipedia.org/wiki/The_Mystery_of_Banking
http://en.wikipedia.org/wiki/The_Case_Against_the_Fed

mises.org/books/mysteryofbanking.pdf
mises.org/books/fed.pdf

A lot of good reasons exist to have a finite resource for money. But to answer directly, you do not need the money supply to grow. Prices will adjust to the money supply available. If productivity and capital is growing but money supply is the same, prices will drop. In fact, with gold you will have a gradual steady fall in prices. And this is a good thing . . . it means you can buy more with your money -- which is just a representation/storage of ones labor.

The most practical thing to think about is computers. Prices have dropped dramatically in the past 20 years, from 10k to 500. That drop comes about because of an increase in productivity. Just look at "inflation-adjusted" prices of most things, at least things that are not leveraged and one will find that real prices are much lower today than 50 years ago . . . again a good thing.

One major issue with inflation that most do not think about: The 1st users of the newly printed money get the most benefit, so people most connected with government and banks (involved in the creation of money) reap the most benefits from inflation. They get to buy goods and services with all this newly printed money before prices rise to adjust to the new level of money.

This is why housing prices burst up, massive inflation was masked by housing. People are made at Wall Street (OWS), but their anger is directed at the banks rather than the system!

 

[Delivered4000]

“Inflation has now been institutionalized at a fairly constant 5% per year. This has been determined to be the optimum level for generating the most revenue without causing public alarm. A 5% devaluation applies, not only to the money earned this year, but to all that is left over from previous years. At the end of the first year, a dollar is worth 95 cents. At the end of the second year, the 95 cents is reduced again by 5%, leaving its worth at 90 cents, and so on. By the time a person has worked 20 years, the government will have confiscated 64% of every dollar he saved over those years. By the time he has worked 45 years, the hidden tax will be 90%. The government will take virtually everything a person saves over a lifetime.” - G. Edward Griffin.

Number of hours per week needed to produce as much as a 40-hour worker in 1950
This means that the average worker now produces almost 4 times as much as he did in 1950 (with the help of technology)

I wonder what happened in 1970-1971? (Hint: We went off the gold standard)


REAL WAGES
1964-2004
Average Weekly Earnings (in 1982 constant dollars)
For all private nonfarm workers
Year Real $ Change
1964 302.52
1965 310.46 2.62%
1966 312.83 0.76%
1967 311.30 -0.49%
1968 315.37 1.31%
1969 316.93 0.49%
1970 312.94 -1.26%
1971 318.05 1.63%
1972 331.59 4.26%
1973 331.39 -0.06%
1974 314.94 -4.96%
1975 305.16 -3.11%
1976 309.61 1.46%
1977 310.99 0.45%
1978 310.41 -0.19%
1979 298.87 -3.72%
1980 281.27 -5.89%
1981 277.35 -1.39%
1982 272.74 -1.66%
1983 277.50 1.75%
1984 279.22 0.62%
1985 276.23 -1.07%
1986 276.11 -0.04%
1987 272.88 -1.17%
1988 270.32 -0.94%
1989 267.27 -1.13%
1990 262.43 -1.81%
1991 258.34 -1.56%
1992 257.95 -0.15%
1993 258.12 0.07%
1994 259.97 0.72%
1995 258.43 -0.59%
1996 259.58 0.44%
1997 265.22 2.17%
1998 271.87 2.51%
1999 274.64 1.02%
2000 275.62 0.36%
2001 275.38 -0.09%
2002 278.91 1.28%
2003 279.94 0.37%
2004 277.57 -0.84%
Real wages have went down for the most part, however it's interesting to see them still rising from 1964 to 1973. There are two forces going on at the same time, the increase in productivity and wages, and inflation on the other hand. And inflation seems to be taking wages down despite the increase in productivity! So where does the value of the money go? It's lost to the new money, by however much new fiat money is created for government deficit financing. This is what the FED does.

The cost of living is going down because of technology, but going up because of inflation!




Sources:

http://groups.csail.mit.edu/mac/users/rauch/worktime/

http://inflationdata.com/inflation/Inflation/Cumulative_Inflation_by_Decade.asp

http://www.workinglife.org/wiki/Wages+and+Benefits:+Real+Wages+(1964-2004)

 

[pipewerKz]

Gold is a fungible, exchangeable, commodity. I'm not insensitive to the constitution, but for its function, so too could be printed paper. Why support printed paper over a finite resource, is what I ask?

The exercise I keep getting into with people is working capital, or the sum that must grow as business activity grows, that gets dipped into and replenished as business transactions get larger with a firm. Many businesses go insolvent for lack of working capital growth, and the same can happen to a country without monetary growth. So, I'm trying understand how one answers the need to grow employment and economic activity with a fixed amount of currency?

Because printed paper doesn't create wealth, if they can create it at will it makes each paper note worth less. You can't print gold, there is labor involved. That said, no one is saying gold has to be money, but over time the market has chosen gold for many reasons. High value to weight ratio, durable, rarity (can't be created). That's why diamonds can't be money because of the quality of each different 1oz of diamond.

Capital comes from savings and investing. If more is produced the value of the money would increase. Banks aren't producing anything by creating credit, they are fueling bubbles. That is what happens without sound money, there is no real, consistent growth that allows for all finite resources to be distributed to the most amount of people, in the most cost effective way.

 

[Delivered4000]

Quality of life has increased because of technology, but inflation has eroded most of the gains, if not more! It's done to finance wars and social spending, or pretty much every time the government runs a deficit.

It's basically theft from your savings, and into the accounts of those who issue\receive the newly created money. They've been able to perform this type of parasitism and hide it because technology developed to lower costs and increase the quality of life greatly since 1950, and they robbed from those very increases so that ordinary people won't notice.

 

[pipewerKz]

Delivered4000 makes a good point about real wages. No ones wage needs to really go up unless you are doing more skilled work.

The more that is produced the cheaper it is to buy those things, hence, your real wage has gone up because you can now buy more with the same amount.

 

[TheTexan]

The exercise I keep getting into with people is working capital, or the sum that must grow as business activity grows, that gets dipped into and replenished as business transactions get larger with a firm. Many businesses go insolvent for lack of working capital growth, and the same can happen to a country without monetary growth. So, I'm trying understand how one answers the need to grow employment and economic activity with a fixed amount of currency?

Economic growth comes not from manipulation of currency, but from being more efficient & productive. Currency manipulation in fact gets in the way of economic growth. There is no need to print money out of thin air so that companies can grow.

 

[pipewerKz]

CogWheeler, These are worth a look. Congressman Paul's office put on a 3 part lecture series about money and the economy.

"What is Money?" with Joseph T. Salerno -- Ron Paul Money Lecture Series, Pt 1/3
http://www.youtube.com/watch?v=vowbrq_g5NM

"What is Constitutional Money?" with Edwin Vieira -- Ron Paul Money Lecture Series, Pt 2/3
http://www.youtube.com/watch?v=k6gMkKmQSW4

"What About Money Causes Economic Crises?" with Peter Schiff - Ron Paul Money Lecture Series, Pt 3/3
http://www.youtube.com/watch?v=npJ0CUT8d_Y

 

[TheTexan]

Quality of life has increased because of technology, but inflation has eroded most of the gains, if not more! It's done to finance wars and social spending, or pretty much every time the government runs a deficit.

It's basically theft from your savings, and into the accounts of those who issue\receive the newly created money. They've been able to perform this type of parasitism and hide it because technology developed to lower costs and increase the quality of life greatly since 1950, and they robbed from those very increases so that ordinary people won't notice.

Indeed. If people only understood the magnitude of what is happening, there would be riots in the streets.

 

[TheTexan]

Even some very smart people I talk to say things like "well, it's complicated, there's a good reason for it, or we wouldn't be doing it this way."

It reminds me of that scene from Idiocracy

 

[PC_for_Paul]

" End The Fed - WHY?"

I got a few question I would like asked:

If the Government has the right to print, then why do we borrow?

Where do dollars come from?

Could the president pass an executive order for the FED to buy all outstanding debt?

Could then FED then be retired with lees economic impact?

Why would the government pay interest on something it can create?

If the fed funds rate were 5%, what would the US pay to service it's current debt?

Would you consider 4% FED fund rate average?

What would be the interest on over 16 trillion with a T?

One day will not all the world debt collapse once it cannot be serviced?

How would that compare to the FED buying all outstanding government debt and ending the fed?

I would also like all answered sealed in a water tight container and opened after the future debt collapse.

 

[CogWheeler]

A lot of good reasons exist to have a finite resource for money. But to answer directly, you do not need the money supply to grow. Prices will adjust to the money supply available. If productivity and capital is growing but money supply is the same, prices will drop. In fact, with gold you will have a gradual steady fall in prices. And this is a good thing . . . it means you can buy more with your money -- which is just a representation/storage of ones labor.

It is not ultimately healthy for prices to rise or fall, simply because there is a shortfall, or surplus, in the means of exchange, or currency. A fixed currency would lower prices, as you point out, but so too would income go down as there was less currency to buy labor. I think in that case all boats are falling because of the currency fix. That's why it isn't healthy. Prices should rise and fall strictly based on the supply and demand for labor, productivity, capital, resources, etc. Not currency. Not in my view, becasue it's economically destabilizing.

 

[gte811i]

It is not ultimately healthy for prices to rise or fall, simply because there is a shortfall, or surplus, in the means of exchange, or currency. A fixed currency would lower prices, as you point out, but so too would income go down as there was less currency to buy labor. I think in that case all boats are falling because of the currency fix. That's why it isn't healthy. Prices should rise and fall strictly based on the supply and demand for labor, productivity, capital, resources, etc. Not currency. Not in my view, becasue it's economically destabilizing.

But a gold currency isn't "fixed", a minor point, but the gold supply does increase, just at a much slower rate and subject to market forces. No one controls or "fixes" the gold supply. And so what if income falls. If income is 30k a year or 100k a year, it doesn't matter. The number doesn't matter, it's what you can buy with it that matters! Your purchasing power.

You stated that it's economically destabilizing, but you did not specify what about it is economically destabilizing. My main present day counter-point is computers. Computer prices have fallen dramatically, but it's not economically destabilizing, it's caused the greatest increase in the standard of living in at least a generation.

Your last point about prices is incorrect. Price is a reflection of 4 things, supply of the good, demand for the good, supply of money and demand for money.

 

[TheTexan]

It is not ultimately healthy for prices to rise or fall, simply because there is a shortfall, or surplus, in the means of exchange, or currency. A fixed currency would lower prices, as you point out, but so too would income go down as there was less currency to buy labor. I think in that case all boats are falling because of the currency fix. That's why it isn't healthy. Prices should rise and fall strictly based on the supply and demand for labor, productivity, capital, resources, etc. Not currency. Not in my view, becasue it's economically destabilizing.

Currency is supposed to be worth something because it has intrinsic value, not because we're told it's supposed to have value.

If it was the year 1912 and I was an apple farmer, and did all my trading in apples, I may be able to go down the road and trade 100 apples for 100 oranges. I could buy a horse & carriage for 20,000 apples. I could buy a home for 100,000 apples.

2012. I'm still an apple farmer. I can still go down the road and trade 100 apples for 100 oranges. Only now, my 20,000 apples can buy a MUCH better horse & carriage (an automobile!!), and with 100,000 apples I can buy a MUCH better home (with running water, electricity, television!!).

Dollars on the other hand have lost nearly all their value since then.

 

[TheTexan]

As far as economic growth is concerned, there's basically two net effects from using the current monetary system:

1) The wealth gap increases because the printed money goes straight to big businesses
2) The economy gets destabilized every so often (housing bubble, etc)

You could make the argument that point 2) has caused the growth of our economy to suffer (slow & steady progress is better than rapid up/down swings), but other than that, the monetary system hasn't impacted economic growth. Its main economic impact has been to make the rich richer, and the middle class poorer.

If for some reason you want to make the argument that making the rich richer and the middle class poorer is "good for the economy" - let's just imagine for a second that you're right, and the GDP does go up more with a larger wealth gap, I have to ask? Is that good? Good for who, exactly? Not good for us, that's for sure. Currency manipulation is theft, plain and simple. I don't care if the GDP improves if it means my savings gets obliterated every 10 years, and the money I do save doesn't earn squat because interest rates are artificially low.

This is of course putting aside the massive political impact our monetary system has had (out of control growth in size & scope of government). That's another story.

 

[cindy25]

there are other ways:
issue UNITED STATES NOTES, issued by the treasury; these were issued until the 70s, with a red seal
issue GOLD (Gold seal) and SILVER (blue seal) certificates, backed by the metal
have commercial banks issue the currency (still done in HONG KONG, Scotland, and Northern Ireland), and common way to issue banknotes worldwide until the 30s. thats why they are called banknotes

 

[unknown]

I think critics tend to focus (probably by design) on his some of his secondary or tertiary positions.

Ron Paul's primary focus in the short term is to stabilize the economy and the value of the dollar.

With the debt at 100% of GDP, we first want to prevent a Russia or European type debt based economic collapse by freezing and cutting spending.

We then want to stabilize the value of the dollar by limiting the expansion of the money supply via borrowing and debt.

While Ron Paul advocates a commodity currency, he has talked more about allowing competing currencies and letting market forces dictate demand.

 

[rpwi]

If the Government has the right to print, then why do we borrow?

The accepted rational is because while creating T-bills causes inflation...creating the monetary base causes more inflation. To an extent this is right...because banks will re-leverage the MB to create their own money. I like the idea of printing money to retire the debt...but it would have to be done in an environment in which banks were not propped up or allowed to practice fractional banking.

Where do dollars come from?

Directly...the Bureau of Printing and Engraving under the Treasury department. Indirectly from the Federal reserve...mostly from purchased t-bills...but some a legacy from when our currency was partly backed by gold.

Could the president pass an executive order for the FED to buy all outstanding debt?

Good question...don't think so as I think the Fed is not subject to executive orders. However...the President does control the treasury department which controls coinage...Some have advocated for the treasury department to create a bunch of billion dollar coins to pay down the debt. Think this is possible but am not sure. The coins wouldn't actually be used in the market place...but used to acquire deposits at the Federal Reserve and the actual coinage would be recycled.

Could then FED then be retired with lees economic impact?

Getting rid of the Fed WILL have a major impact. No way around this... But it has to be done...like surgery it will hurt in the short term but be better for the long term. Too much of high finance is dependent upon the Fed giving out a certain amount of corporate welfare. Too many banks and corporations are in turn depend upon their lines of credit...and too smaller businesses are dependent on the smaller banks. The economic distortions have compounded themselves so seriously around the economy that we do have a serious mess and a lot of mal-investment...but we have to clean this up and get started on the right track.

Why would the government pay interest on something it can create?

Officially it is because directly paying off the debt would be too inflationary (it doesn't have to be). Unofficially it's because the current system we have is what the financial elite (and their politician puppets) want with government debt and the Fed meddling constantly in the banking sector.

If the fed funds rate were 5%, what would the US pay to service it's current debt?

Good question... It's complicated because much of the debt is owed to ourselves and much of the debt is in long term instruments and this would only affect t-bills being refinanced (which is a lot). A deflationary period (which would happen with the end of the Fed) could be problematic for debt holders (especially the US government). Something to keep in mind is the fed funds rate doesn't necessarily have to reflect on the rest of the economy. It's an illusory centralized rate by which the government tries to control overnight inter-bank lending. If you don't associate the banking sector as being as asset to the economy...you're not overly worried about this rate...more so than real economic metrics.

Would you consider 4% FED fund rate average?

Historically...that's probably close. It's a silly measure though as it is very rigid and very arbitrarily chosen...and only reflects upon one business sector of the economy.

What would be the interest on over 16 trillion with a T?

Average rate is currently about 2.9%... Probably about a half trillion.

One day will not all the world debt collapse once it cannot be serviced?

Good question. Many theorize that it is only through defaults and expanding monetary base growth that our debt system is kept a float.

 

[CogWheeler]

But a gold currency isn't "fixed", a minor point, but the gold supply does increase, just at a much slower rate and subject to market forces. No one controls or "fixes" the gold supply. And so what if income falls. If income is 30k a year or 100k a year, it doesn't matter. The number doesn't matter, it's what you can buy with it that matters! Your purchasing power.

Yes, an academic point, which takes me to this:

Your last point about prices is incorrect. Price is a reflection of 4 things, supply of the good, demand for the good, supply of money and demand for money.

But my point is correct if the supply of money grows at the rate of potential GDP. The supply/demand of currency should be kept at equalibrium. That is one of the two goals of the Fed. The other being full employment, which fewer and fewer buy into.

You stated that it's economically destabilizing, but you did not specify what about it is economically destabilizing. My main present day counter-point is computers. Computer prices have fallen dramatically, but it's not economically destabilizing, it's caused the greatest increase in the standard of living in at least a generation.

It's economically destabilizing to a business manager who has to set price at the end of the production cycle, based upon forced assumptions he has to make about the supply and demand for money, which I hear you supporting. I think It serves the economy for that to be taken OUT of the equation as completely as possible. Both inflation and deflation are bad if you look at it prices and incomes as a wash.

As far as computers, I could be snide and just say "Dell", but the real point here is they too are an exercise in the equalibrium price of everything that goes into them. They sure have done a lot, but I do not think as many would sell under a gold standard. If we assume population growth, growth in labor, etc, than your condition of falling prices accelerates because of the competition to turn those things into wealth. Note, labor goes down. I would specify that as a negative condition in falling computer prices. I think it might be constructive to also add that productivity displaces labor. There is less reason to pay one more salary around the shop if the robot makes what was once achievable by two, achievable by one. This is economically destabilizing only in so far as we see economics as a social science.

I don't deny all the other arguments about poor management at the Fed. I used to respect Greenspan, and it still hurts me to say that. Bernanke? What's going on now is tough in that its reactionary to something that should have stopped a long time ago. That doesn't make me want to End the Fed. What comes afterwards? With the firm belief that we ought to fear the people's (Confressional) management of a peg, or floating currency much more, I think I'd be happier with a reformed Fed. Again, I guess I don't get on the gold standard bus because I don't think a fixed gold standard is going to fly. Part of the point to all of this is that the party least interested in inflation tends to be the one with most of the wealth, and to that end private banks CAN be a good guardian.

I like Ron Paul, but I think there are a lot of people like me who begin to see diminishing returns in too rigid a pursuit of liberty and the constitution.