Two Arguments Against the Fed We Should Make Over and Over

[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.

 

[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 shit 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 fuck 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.

 

[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 shit 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 fuck 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.

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.

 

[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.

 

[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.

 

[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/murray-n-rothbard/fractional-reserve-banking/

 

[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.

 

[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, fuck this shit!

 

[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/murray-n-rothbard/fractional-reserve-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. :o)

 

[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.:o

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. :o)

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.[SUP]145[/SUP]


[SUP]145[/SUP] 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]​