Issue: Economic: On the Federal Reserve

[Bradley in DC]

Can someone debunk the statements in here:
http://www.geocities.com/CapitolHill/Embassy/1154/flaherty.html

which statements do you think need debunking? they offer a more sophisticated explanation than most of the hybrid public (Board)-private (Reserve Banks) than most short analyses I've seen.

 

[Bradley in DC]

The Federal Reserve has worked in the past couple of decades because the past few chairmen have had been very disciplined. But we shouldn't be in a situation where our monetary supply is run on the "honor system". There's just too much temptation to reach into that coffee can and snag a few inflation bucks when no one's looking.

Of course, I doubt that getting rid of the Fed is a realistic prospect. Maybe in Ron Paul's second term, but not in his first.

Definitely a goal of the first term! Greenspan was not disciplined: the Y2K excess liquidity (on top of the previous excesses) inflated the stock market bubble, etc. Greenspan wrote about in the WSJ and testified before the Gold Commission (Dr. Paul has a copy of the hearing transcripts handy in his office in Texas) on an easy way *how* to return to gold (gold-denominated bonds competing with FRN-denominated ones; I think it was the inspiration for our TIPS bonds). When he cuts spending and stops the deficit, the Fed won't have to monetize the debt anymore! Any function of the Fed could be handled better by the private sector, Congress or the Treasury.

 

[Brandybuck]

The cause of the Great Depression and the "business cycle" has been thoroughly explained by the Austrian economists. Here is a book (free pdf) by Rothbard on the subject: http://www.mises.org/rothbard/agd.pdf

To quote Ron Paul: "From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy."

 

[Bradley in DC]

In the last debate Dr. Paul mentioned that our total debt obligation is $60 trillion, vastly more than the current debt near $9 trillion. The $51 trillion difference is money that we have agreed to pay out (via social security and the like) at a future date. This puts the debt obligation to around $800,000 for every family of four in America which is beyond insane.

As you point out, our obligations and debt are measuring two different things. Just so we don't go off the deep end, the obligations include all government guaranteed loans (student loans, OPIC, Ex-Im Bank, etc.). While most of these loans are repaid, the subsidies do distort the price signaling mechanism of the market which causes dislocations that contribute to the boom and bust cycle.

 

[Bradley in DC]

1) The Fed is purposefully separated from the government so that the government cannot directly control interest rates and affect money. There is a damn good reason for this.

We need market-determined interest rates, not central planning through central banking.

2) Small inflation is a very good thing. It means that people can pay back loans with money that is worth a little less than the money you borrowed. Zero inflation isn't bad but any amount of deflation is almost disasterous.

Inflation is bad; deflation is the correction.

3) Our national debt as as percentage of GDP is in line with the rest of the first world and slightly lower. Yes, it's large but the money we pay in interest goes to foreign allies that we borrow money from. It keeps them our allies since if they get pissed at us, we'll just negate the debt. It's useful in world stability.[/i]

So Red China is our foreign ally on whom we should depend?

 

[Bradley in DC]

The problem you must understand is that a hard currency system, i.e. not what we operate under now, is the single most powerful check on aggressive, destructive government action, period.
If $1 == 1/35th ounce of gold (or whatever you'd like to set it to be), a government cannot go on spending forever. It could not fight an open-ended war. Indeed, like you and I, it would have to save funds to conduct such operations.

The history of the adoption of central banking is the history of war finance.

 

[G-khan]

I run a website that is dedicated to educating on the Federal Reserve and money..

Here is a link with a movie that includes comments by Ron Paul..

http://goldismoney.info/forums/showthread.php?p=343772

Here is one that explains the Fed and their role in our wars..

http://goldismoney.info/forums/showthread.php?t=100643

There is a lot more info on my site about the Fed and its creation and who owns it!

You will then understand why Dr. Paul is against the Fed!

 

[Bradley in DC]

I run a website that is dedicated to educating on the Federal Reserve and money..

I used to be Dr. Paul's legislative staffer for banking and monetary issues. I had an over-eager intern then key in all of the transcript exchanges of the banking cmte with Dr. Paul. They are available here:

http://www.house.gov/paul/committeework/bankingtrans/welcome.htm

There is no longer a link to it on their site and has not been kept updated. But it should be useful for you.

 

[fsk]

I made a pretty detailed article on this topic in the "Ron Paul Wiki".

http://www.ronpaulpresshub.com/wiki/index.php?title=Federal_Reserve

I edited it to address all the points people made here.

 

[joenaab]

A few thoughts...

Remember that gold is fiat money, too. It is a fiat money less susceptible to inflation and counterfeit than paper. With a fixed quantity of gold and a growing economy and growing population deflationary pricing would be the natural outcome.

In the presence of growth, if the desired outcome is stable prices, then the money supply would have to be increased to keep prices the same. With a gold-backed currency, the ratio of gold per unit would have to be decreased over time to keep prices the same.

Using extreme examples to illustrate the point: An economy of ten people uses 1000 grams of gold to represent the value of the golds and services they exchange. A meal might cost a few grams. The economy grows to a million people. The amount of gold remains fixed. The money supply would be inadequate to represent the value of goods and services being exchanged. Instead of ten grams per person you'd have 1000 people per gram. You couldn't keep the price of a meal to a few grams. Its price would fall to a small fraction of a gram. If paper money was used to represent grams of gold, and you wanted to keep the price of a meal the same, you'd have to grow the ration of paper units per gram of gold, which is a subjective process. If no action were taken, there'd be no way for a million people to conduct commerce with 1000 units of value to divide amongst them.

My point is that, whether a currency is backed by gold or not, maintaining an adequate supply of money with zero inflation requires human intervention. Lots of it. Who do we most trust to intervene, a private for-profit business with huge incentive to manipulate the money supply to better it's own profits, or our own not-for-profit public enterprise acting in the best interest of serving all people equally?

 

[Bradley in DC]

Remember that gold is fiat money, too.

Um, I don't think so. Gold = commodity money. Fiat money, well, it grows on trees!

"Price stability" is not the goal. In fact, keeping the nominal aggregate price level stable in a time of increased productivity effectively masks inflation. Hayek (and others) have written about this extensively. The stable (consumer) prices of the 1920s at a time of great productivity gains (radio, etc.) and in the 1990s (internet, just in time delivery, etc.) lead to asset price bubbles in the stock and real estate markets. In a market economy, prices should gently fall over time for each item (picture the Walmart falling prices sign).

I'm just suggesting a more nuanced analysis, not that there isn't some merit to the other comments you made about a growing economy. The important part is letting the price signalling mechanism work without governmental interference. The price level will adjust as necessary with a guide.

 

[chopdave]

The federal reserve is not a product of a free society. In a free society, peoples' individual actions determine interest rates, not a cabal of old grey-haired men.

 

[mordechai]

It sucks.

 

[Gimme Some Truth]

I think if a nation is actually directly threatened by another, the extra taxes or labor required to defend it will be available without overprinting fiat money.

Agreed.

Also, since Ron Paul would abolish the Income Tax , im sure people would back him up in reinstating it during wartime.

Anyhow, a sound monetary system lessons the amount of needless wars ,which lessons blowback. I fully agree with Paul and his "Trade with everyone , have alliances with no-one" stance

 

[RonPaul4President]

You do not need income tax, period. We already pay taxes on everything. If the money was used for domestic purposes instead of trying to rule the entire world their would be a suplus in a matter of months. Ron Paul knows what he is talking about.

 

[G-khan]

The problem as I see it is we have private people bankers creating our money and charging us interest on it. Plus it is not money it is debt - the bankers and the Fed create it out of thin air and charge us interest on it. If there is to be a profit on creating money it ought to go to the people and not bankers and maybe we would not need so many taxes.

Whoever controls the money supply controls the people. The creation of the Fed was the greatest rip off ever. Congress and the politicians are all in on it and let it continue because they can buy votes and promise programs without raising taxes - they just borrow it by asking the Fed for it. When it was backed by Gold/Silver they could not do this because you could take your paper dollar and cash it in for Silver or Gold - they had to back it..

What you need to ask yourself is this.
Why do we borrow money from the bankers/Fed and pay them interest on it?
How come we don't make our own money and issue US Notes and pay no interest on it?

Here is something many of you don't know but President Kennedy printed about 4 billion US notes and you can still get them and he paid no interest on them. He also wanted to get rid of the Fed.. He was killed before he got very far..

http://www.sweetliberty.org/issues/eo/eo2.htm


Here is a great film you can watch called the Money Masters

Part 1 Deals with money its creation the Federal Reserve etc.
http://goldismoney.info/forums/showthread.php?t=79890

Part 2 Is the solution and what could be done!
http://goldismoney.info/forums/showthread.php?t=27150

Getting rid of the Fed = freedom and Dr Paul knows this and that is why I fear for his life........... These guys start wars to make money and Dr. Paul means nothing to them.. they will take him out if he plans to end the Fed IMO

 

[RonPaul4President]

I watched all of part one and a little of part two. Tomorrow I will post some thoughts and ideas I have to challenge the tactics of global bankers. Hopefully I will live through the night.

 

[RonPaul4President]

Here are some thoughts, ideas and questions I had while watching part one:

• Any senator should be immediately escorted from Capitol Hill and impeached if they show any support for privitization of currency.
• Government should have at their disposal a currency to place into circulation in the event of threat from private bankers.
• Illegalize fractional reserve banking.
• There is no war nor terror. The greatest enemy to all humans is the central bank which manifests both.
• Did the U.S. attack IRAQ to instil private control of their currency, just as the British attacked us for the same reason?
• Name the investors. It is their anonymity that is their greatest strength.
• Imprison them and return the stolen wealth to the world.
• Create a new currency that is out of the hands of the private bankers. Barter when possible.
• Legislate a Constitutional amendment that makes it illegal for any private bank to control federal currency.
• Have the Department of Justice investigate Bankers and Congress for bribery and conspiracy.
• Was it the bankers that penned the patriot act?
• Dissolve all unconstitutional law.
• No bill shall pass without the vote of 2/3 or more of the Senate.

Unity of people is the banker's worst nightmare. Not only must we remain united as a country, we must strive to unify all humanity and educate them of this insane and murderous scheme to own the entire planet by a few men.

 

[joenaab]

Gold is fiat money

Bradley in DC, I want to continue to argue that gold is a type of fiat money, fiat meaning we put "faith" in that it will be accepted as a unit of stored value in exchange for actual commodities that we consume while having little consumption value itself, other than as jewelry. It's scarcity and present impossibility to "counterfeit" makes it an excellent fiat currency. However:

1. The "Gold Supply" constantly grows through mining by the tens or hundreds of tons per year. New gold enters in private hands so its entry into the marketplace is already inherantly unfair to the general public. In effect, wealth was created without having to produce value to the community, in a similar way as printing paper money on a machine, though more labor intensive.

2. By its nature, using gold and silver as money has produced a long history of slavery, war, theft and other atrocities as there is tremendous incentive by those who are prone to violence to go straight for the gold & silver as opposed to producing goods and services that have tangible value to the community.

3. The fair distribution of gold, or money backed by gold, is rarely talked about by gold money advocates. It's an easy system for Americans to promote as they have (once had?) enormous gold stores, not all of it acquired ethically. What about countries that have no gold? Most of the above ground gold is in the hands of elite private citizens or heavily armed 1st world nations.

4. Gold does not fairly represent the goods and services exchanged for it, because gold lasts forever and food, consumer goods, etc. last for days, weeks and/or decades. I believe it was Silvio Gessell who points out that true neutral money must fall in value to best mimic the underlying goods and services.

5. Gold money does not address the problem caused by the growing gap between national production and national income due to automation. We don't earn enough to pay for the goods and services that we've produced. This falls into the realm of National Dividend, Basic Income Guarantees and, I believe, the work of Henry George.

Sorry to go on at length. I'm not trying to be a know-it-all, as I am just learning all this in the past year and think that all ideas should be on the table and that we should equally discuss the flaws of using gold as money as we do its strengths.

 

[Gee]

I agree with Joe. Any form of exchange has value as a currency because people agree to use it for exchange. The problem with fiat money is that whomever prints it can simply create as much of it as they want, of course. I wouldn't say the problem with fiat money is its valuelessness in itself, but rather cronic miss-management by government. After all, it DOES have some logistical advantages over commodity-backed money.

But other than constitutional limits on how its managed, I don't see a way to keep it from being abused.