Posted on 10/22/2010 1:31:48 AM PDT by citizenredstater9271
Rothbard's account of the origins of the Federal Reserve. You MUST watch this. All Americans need to know how the FED is not only unconstitutional but also destroying our economy.
You have managed to rediscover what Ludwig von Mises called the “money crank” theory, the idea that governments can simply issue the money they want to spend. When Lincoln tried this he ignited an inflation that blew up the gold standard and lasted nearly two decades. Lincoln issued his US Notes in 1862, and it was 17 years later before dollars could be exchanged for gold. Weimar Germany was an even more notable experiment in printing the money the government wanted, and Zimbabwe is a current example. Experience has repeatedly taught the necessity of separating monetary policy from political power. It was well known to the Founders, who were aware of John Law’s fiasco and the recent debacle of the Continental Dollar.
The rest of your writing betrays a misunderstanding of the bond market and the Fed and the creation of money.
Your local bank creates money out of thin air when it gives you a loan and puts a ledger entry in your checking account. This is no different than the Fed, it’s just a different clientele. Your local bank creates money to loan it to you. The Fed creates money for its member banks, to adjust the amount of high-powered money in the banking system. Too much high powered money results in inflation. Too little chokes off the economy.
And I see that you are a devotee of the peculiar notion that you are “paying interest on money”. There is no possible mechanism for you to “pay interest on money”. You pay interest on debt. You have either yourself or Congress to thank for that. Congress makes you pay interest on the money they borrow. This was true in Alexander Hamilton’s day, when there was no paper money, and it is true now. It has nothing to do with whether the money involved is in the form of Federal Reserve Notes, or Silver Certificates, or US Notes, or the privately issued bank currency of the 19th century.
” You seem to think Congress currently has to power to create money in order to cover a deficit. It does not.”
It probably depends on what the Supreme Court decides at any particular moment. It seems to be a murky area of law right now. You’ll want to look at Hepburn vs Griswold of 1870 and the Legal Tender Cases of 1871.
Ludwig von Mises promoted the gold standard whose operation requires total ignorance of the general population on how it works. Once enough people figured out the gold standard in the 1930's, that house of cards collapsed.
The so-called the “money crank” theory is no different from what most governments, including ours, have always done. New money the government wants is a) created and b) spent. Usually, there is an additional step between (a) and (b) where the money is borrowed at interest but that step is superfluous. Inflation is caused by growing the money supply faster than the economy and occurs irrespective of whether the government's new money is borrowed at zero, five, or ten percent interest.
Even under a gold standard, the government usually borrows gold notes instead of specie so the effect is much the same.
Weimar Germany was an even more notable experiment in printing the money the government wanted, and Zimbabwe is a current example.
I do not know about Zimbabwe, but the Weimar Republic inflation was brought about by a system very much the same as our present Federal Reserve system. What do you think of the monetary system that replaced the hyper-inflationary system of the Weimar Republic? Are you certain that Zimbabwe borrows its money at zero interest?
Your local bank creates money out of thin air when it gives you a loan and puts a ledger entry in your checking account. This is no different than the Fed, it’s just a different clientele. Your local bank creates money to loan it to you. The Fed creates money for its member banks, to adjust the amount of high-powered money in the banking system. Too much high powered money results in inflation.
Yes. The Fed and its member banks form cartel armed with a Congressional monopoly for the creation of US dollars. The Fed creates high-powered money for its member banks to use as reserve in creating money for mortgages, car loans, etc. It costs the Fed system nothing to create the money for these loans but the cartel is able to charge interest because it faces no competition. The Fed cartel monopoly on creation of US dollars enables private Fed members to skim off a significant portion of the economy.
The purpose of the Fed cartel, like any cartel, is to guard its corner on the market to artificially drive up prices. Congress granted the Fed cartel its monopoly and member bankers finance congressional campaigns. However, Congress certainly has the Constitutional authority to take away what it has granted. If state-chartered non-Fed banks were allowed to compete freely, interest costs would be negligible since the actual cost generating new money for loans is negligible.
To prevent inflation, the growth of the money supply should be limited to the rate of economic growth. If the demand for new loans exceeded the allowed amount, Congress could authorize money creation quotas to lenders through a bidding system or by other means. The apportionment should be monitored to prevent hijacking by Soros-like currency saboteurs.
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