Posted on 08/29/2009 7:47:33 AM PDT by TigerLikesRooster
THE FEDERAL RESERVE MUST DIE
“Paper money eventually returns to its intrinsic value ---- zero.” – Voltaire
“The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit created out of thin air can provide sustainable economic growth has delivered this crisis to us. Instead of economic growth and stable prices, (The Fed) has given us a system of government and finance that now threatens the world financial and political institutions. Pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn’t work, quadrupling it won’t work either. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile.” - Representative from Texas Ron Paul questioning Federal Reserve Chairman Ben Bernanke
I’ve read and witnessed various pundits during the Presidential campaign describe Ron Paul as crazy. The corrupt tax and spenders in Congress know their days would be numbered if they followed his vision of government. After reading his tremendously sane rebuke of Ben Bernanke and the policies of his Federal Reserve, I’m reminded of a classic scene from Seinfeld.
Jerry: “Ah, you're crazy."
Kramer: "Am I? Or am I so sane that you just blew your mind?!"
Jerry: "It's impossible!"
Kramer: "Is it? Or is it so possible that your head is spinning like a top?!"
Jerry: "It can't be."
Kramer: "Can it? Or is your entire world just crashing down all around you?"
Jerry: "Alright, that's enough."
Kramer: "Yaaaaaaahhh!!!"
(Excerpt) Read more at theburningplatform.com ...
Gold is valuable because it is the best thing to use as a medium of exchange. It never rusts, the supply is limited, you can melt it into smaller or bigger units, it is hard to fake and is easily recognizable.
http://goldismoney.info/forums/
the supply is limited,
Well that’s a problem since the wealth man can create isn’t.
“The Fed has destroyed only 95% of the value of the dollar since it was formed in 1913.”
Well let’s see. From 1913 to 1933 the dollar was worth 1/20th of an ounce of gold. Then in 1933 FDR, not the Fed, revalued the dollar to be worth 1/35th of an ounce of gold. Which is where it stayed until 1971 when Nixon, not the Fed, broke the link of the dollar to gold. Yep, the Fed is certainly to blame.
“Gold is valuable because it is the best thing to use as a medium of exchange.”
It’s a cumbersome medium of exchange, which is why banknotes and checks were preferred to it during the gold standard era. But it is a good store of value because of its nature as a precious metal.
“This is correct. It is the biggest scam in history. Why should we pay interest to private bankers for doing next to nothing?”
Tell us the mechanism by which we pay interest to the Fed. I’ve yet to hear this explained, seeing as the Fed isn’t in business of issuing debt.
Congress, on the other hand, is in the business of issuing debt and lots of it. They even compel us to pay interest on that debt each year when we pay our taxes. That Treasury debt is the only interest I know of that I pay involuntarily. But maybe I’ve been ignoring a bill that the Fed has been sending me all these years. Please shed some light on this mystery.
The Fed collects interest on all the money it creates out out of thin air that it loans to other banks.
http://www.themoneymasters.com/
He didn’t say the dollar has lost 95% of it’s value in terms of gold under the Fed. He said it has lost 95% of its value under the Fed (or more precisely that the Fed has destroyed 95% of its value).
Besides, the official price of gold as set by the government does not reflect its true price.
“He didn’t say the dollar has lost 95% of it’s value in terms of gold under the Fed. He said it has lost 95% of its value under the Fed (or more precisely that the Fed has destroyed 95% of its value).”
Well that’s fascinating. Since you’re stuck with the unfortunate fact that the dollar didn’t depreciate against gold for the first 58 years of the Fed’s existence, maybe you can tell us what exactly the dollar did depreciate against? I mean surely you have that measuring stick handy. Was it wheat? The price of a good suit? Cardboard? Surely you have some measure to show us evidence of the depreciation that occurred from 1913 to 1971. Of course there’s always Make Believe, which is a highly useful sort of evidence when you really haven’t any and are just, you know, repeating stuff.
Let me help you out some. The problem began after WWII because Europe was using the dollar as its reserve currency. This led to Triffin’s Dilemma, where the amount of dollars held overseas began to exceed the gold backing them. The solution to the Triffin Dilemma was for Congress to reduce spending and for the Fed to raise interest rates to attract dollars back to the States. John Kennedy didn’t want to do this because it would have thrown the US into recession. Lyndon Johnson didn’t want to do this either, and as pressure increased on our currency he abandoned silver coinage. Nixon didn’t want to endure a recession any more than JFK and LBJ did, so he abandoned Bretton Woods altogether and let the dollar float. And float it did. That’s where the depreciation took off.
Unfortunately that version of events indicates that it was our political leadership that scuttled the dollar over a decade or so. And it doesn’t provide a starring role for your preferred boogeyman, the nefarious evil Fed. So that won’t do, no it won’t do at all. I suggest you just ignore history, and stick to the The Fed Did It version. Yeah, that’s the ticket. It’s much more fun that way.
It won’t do for you to simply repeat your claim again, as if that were any more informative than the first time you told us that the Fed is collecting interest off of us.
What I need is for you to describe the mysterious mechanism by which the Fed is collecting this interest from us. It shouldn’t be hard to describe. I mean I can describe how Congress collects interest from us in about one sentence: they tax us, and that tax goes to pay people who own Treasury debt. Which raises the interesting fact that those of us who own Treasury debt are paying ourselves interest in a roundabout fashion. But I digress. I haven’t noticed the Fed taxing me. And they haven’t sent me a bill demanding payment for interest I owe them. So I want to know if I’m getting away with something that you aren’t, since I’m not paying them anything and yet you are being charged interest. How are they collecting that interest from you?
“The Federal Reserve is a bank. All banks issue debt.”
Okayyy.... “all banks issue debt”. Hmm. Those must be different banks than I’m used to. The banks I know issue loans, not debt. In fact I’m the one who seems to issue debt to them, and they collect interest from me. The only time they pay me interest is when I deposit money with them. So I don’t think I buy your idea that All Banks Issue Debt. I think you have that mostly backwards, they tend to purchase debt.
“When the US government needs money and tax revenues are short, it will sell bonds (debt) to the Federal Reserve in exchange for electronic credits to the government’s account.”
Actually that’s not quite how it works. The Treasury auctions debt when the government needs money, and anyone can buy it directly from the Treasury. Except for the Fed. They are not allowed to purchase debt directly from the Treasury. They can only buy it on the secondary market. When the Fed buys debt in its open market operations they do it to alter the mix of high powered money in the banking system, not to provide money to the government.
“Granted, the interest is refunded to the Treasury minus expenses, the system is still fatally flawed because it means perpetual debt and inflation.”
The system of a funded public debt was one of the innovations of Alexander Hamilton, so I’m not sure what relevance it has for the Fed which came into existence well over 100 years later. “Perpetual debt” is the choice of the politicians in Congress. If they want to pay off the national debt they can create a sinking fund for that purpose.
When someone says the dollar has lost value, they’re generally looking at the CPI. Are you trying to deny that prices haven’t risen continuously (with episodes of inflation here and there) since 1913, or that prices aren’t significantly higher now than they were then? What exactly does this show if not lost value?
I haven’t made any judgment on whether the Fed is a boogeyman or not. All I said was that the poster you replied to didn’t say the dollar has lost value against gold, only that it has lost value. To deny that would be very strange indeed. And seeing as the Fed controls the money supply I don’t see who else can be responsible for the dollar’s lost value.
***Since you’re stuck with the unfortunate fact that the dollar didn’t depreciate against gold for the first 58 years of the Fed’s existence...***
Not really. An official government price can not tell the true price of any commodity. In reality, the dollar did depreciate against gold, but the official ratio between the 2 didn’t reflect it.
If the price between gold and the dollar were actually a market price, it would be an economic anomaly. Starting at 1913, the price of gold was about $20/oz all the way through 1933 (again we’re looking at this through the lens of a would-be market price). It’s conceivable that over this 20 years the average price increase was 0% or in other words that there may have been minor fluctuations always returning to $20/oz (though even this is a bit unlikely over a 20 year period). But that’s not the claim; the claim is that the price of gold didn’t change at all for 20 years. No fluctuations at all. Again, it would be an economic anomaly for a price to go completely unchanged for 20 years.
Fortunately, it’s easy to see that this price is not a market price, but an official price. Through economic analysis we can say that it is almost impossible for there to be no appreciation or depreciation (price change) of the dollar against gold (or any good or service) over a 20 year period in the true market price. An official rate hardly shows a lack of depreciation or appreciation of the dollar against any commodity. It merely masks the market price.
Continuing, in 1933, suddenly out of nowhere the price shoots up to $35/oz. This sudden and one time increase in price is also difficult to believe if we are looking at a market price, which isn’t the case (the government obviously set the price higher to reflect the reality that the dollar had in fact depreciated against gold). From then until the ending of the system, the same analysis that applied to the $20/oz situation applies here. It’s simply not believable that a market price (which is the true price) of anything would stay constant for 20 years, almost double in an instance, and then stay constant for another 38 years.
“If the price between gold and the dollar were actually a market price, it would be an economic anomaly. Starting at 1913, the price of gold was about $20/oz all the way through 1933 (again we’re looking at this through the lens of a would-be market price).”
Which would be a good point, except that it’s not true. It was an actual market price, not a “would-be” market price. At any time prior to 1933 anyone could take twenty dollars in currency to a bank and exchange it for an ounce of gold. It was the tail end of the era of the classical gold standard which ran from the 1870s to 1933. This is why you have American gold coins minted up through 1932, they were part of the circulating money stock.
In 1933 FDR confiscated privately held gold and revalued the dollar at $35 to an ounce of gold, in an attempt to increase the monetary base in the face of the massive credit collapse of 1930-33. And while private citizens could no longer convert dollars into gold, foreign governments could. This posed no problem until the late 1950s when a combination of the Marshall Plan and general American spending resulted in too many dollars floating around overseas. In response the French started a run on the dollar, exchanging their dollar holdings for gold. This could have served to correct the over creation of the dollar, had JFK, LBJ, or Nixon decided that protecting the dollar was more important than their grandiose spending plans. They didn’t, and that is a major cause of the depreciation of the dollar.
“I haven’t made any judgment on whether the Fed is a boogeyman or not. All I said was that the poster you replied to didn’t say the dollar has lost value against gold, only that it has lost value.”
The post of Karl’s I was replying to was directed at the Fed:
“The Fed has destroyed only 95% of the value of the dollar since it was formed in 1913.”
My point wasn’t whether there has been a depreciation of the dollar, but rather when and why. Gold is a common measure of a currency’s value but we can use the CPI:
http://www.economics-charts.com/cpi/cpi-1913.html
The dollar inflates during WWI. It remains flat through the 20s. It strengthens during the credit collapse of the early 30s, and then stays flat until the spending of WWII. From the mid 1940s to 1970 the price level doubles, this is the period of the dollar becoming the world reserve currency and the resulting Triffin Dilemma. Starting in 1971 with Nixon’s abrogating the Bretton Woods agreement and the last link to gold the CPI goes parabolic.
“but perpetual debt is an inherent trait of a debt-money system: a system where all money comes into existence from debt and the total amount of money owed is always larger than the amount of money in existence. Money and debt must be exponentially increase at all times to keep the system going, and that results in perpetual debt and inflation.”
There’s a lot of curious ideas packed together here. The funded public debt of Hamilton was instituted at time when there wasn’t any American money of any sort, and certainly none “that came into existence from debt.” The money that circulated in the early United States was coinage issued by England and Spain and France and the Netherlands. And a largely worthless fiat issue of the Continental Congress.
The debt that Hamilton worked with already existed. It consisted of the loans that had financed the Revolution, and the money that was owed to the soldiers who fought it. Under the Confederation government it looked as if the veterans would never get paid and as if the United States would default on the money that they owed foreign governments. American debt was the original junk bond issue and traded for cents on the dollar, pound, schilling, and piece of eight.
Under the new Constitution government with its taxing powers Hamilton converted this debt into an asset by stating that interest on all this debt would be paid in gold coin. Investors eager to receive a payment stream in gold coin quickly bid up the value of the previously junky American debt. Debt holders no longer hounded the Treasury for their principle, they were quite happy to lend their money to the US Treasury and receive a predictable interest stream in return. American government finances were suddenly sound and its debt paper A rated.
There was no inherent reason to increase this public funded debt or even to keep it at its current size. Jefferson was among those opposed to public debt. Early administrations enacted sinking funds in order to pay off the national debt, and the national debt was completely paid off at least once, under Andrew Jackson, and coincidentally was accompanied by a five year depression.
Bump for a great article and good discussion.
Sad to see the vandalism in the keywords.
Why abuse the keywords? Why not just post?
I posted a history of the Continental and Colonial currency issues on a thread earlier this summer. Maybe I’ll try to dig up the links again. Out of all of the currency issues there were only 2 that were successful, and that was because they strictly limited the amount of currency they issued.
The rest, including the Continental dollar, were disasters. And while the British may have contributed to the problem by counterfeiting, the real problem was the enormous quantity of notes the governments cranked out on their own. They used no self control, and had no feedback loop like what comes from a gold standard.
Regarding Biddle I haven’t read up on the particulars of Biddle’s actions but he would have had to call in his loans when his bank was closed down. And he certainly couldn’t have made any new ones. That’s true for any bank that closes down. Biddle wouldn’t have needed to try to contract the money supply on his own, it would have been a necessary consequence of Jackson forcing the Second Bank to close.
“In other words, the economy crashed for the same reason it crashes today: debt is money and when new debt isn’t taken out and old debt paid, the money supply deflates. That will always be the case as long as our national medium of exchange is based on debt and created by banks.”
Technically the debt you speak of isn’t “money” under a gold standard as existed in Jackson’s day, it is “bank money”, “fiduciary credit”, or simply “credit” as von Mises termed it in his “The Theory of Money and Credit”. This credit money is not some innovation of central banks, it is something that banks have always done. In the 19th century they even issued their own bank notes. This fiduciary money is functionally the same as the currency issues of the colonies and the Continental Congress. In fact this debt issue was usually more secure because it was convertible to gold, and if a bank was suspected of overissuing then it would be hit and often wrecked by a bank run.
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