High Risk Credit[Ron Paul]

House.gov ^ | 20 Aug 2007 | Ron Paul

[BGHater]

As markets went on a rollercoaster ride last week, our economy is coming close to a day of reckoning for loose credit policies being followed by the Federal Reserve Bank. Simply, foreign banks we have been relying on to buy our debt are waking up to the reality of much higher default rates than predicted, and many mortgage backed securities have been reduced to “junk” ratings. Wall Street fears the possibility of tightening credit and the tightening of America’s belts. Why, they say, “if Americans spend only what they can afford, think of the ripple effects throughout the economy!” This is the cry, as the call comes for the fed to cut rates and bail out companies in trouble.

More inflation is, however, never the answer to inflation.

The truth is that business involves risk, and businesses that miscalculate risk should be liquidated, so their assets can be reallocated to businesses that correctly judge risk and make profits. Instead, the Fed has injected $64 billion into the jittery markets, effectively amounting to a bailout that keeps these malinvestments afloat, but eventually they will become the undoing of our economy.

In addition to the negative reactions in financial markets, many Americans have taken on too much personal debt owing to exotic mortgage products and artificially low interest rates. Unfortunately, these families are now in the position of losing their homes in unprecedented numbers as the teaser rates expire and the real bills are coming due.

The real answers are, and always have been, found in the principles of the free market. Let the market set the interest rates. If we had been functioning under a true and transparent free market system, we would not be in the mess we are in today. Government, like the American household, needs to live within its means to get back on stable fiscal ground.

We’ve been headed in the wrong direction since 1971. This week marks the 36th anniversary of Nixon’s decision to close the gold window, which convinced me to seek public office to call attention to the runaway money train that would come in the aftermath of that decision. The temptation to print and spend money with impunity, like the temptation to max out lines of credit, is too strong to for government to resist. While Nixon brokered exclusivity deals with OPEC to prop up demand for the tidal wave of green pieces of paper the Fed pumped into the markets, the world is tiring of marching to the beat of our drum in order to secure their energy needs. The house of cards Nixon built is now on the verge of collapsing on our heads, and on our children’s heads.

As the dollar weakens, it becomes ever clearer that we need a return to sound, commodity-based money for a secure future. Money based on real value, not empty promises and secretive backroom machinations, is the way to get out of the current calamity without causing even bigger problems.

[DesScorp]

“You can’t have a Free Republic when its alleged adherents want to throw the Constitution (which requires gold and silver money) into the trash can.”

Can you please point out to all of us fake american apostates precisely where the Constitution says “you have to have gold and silver backing US currency”?

Would you be referring to this, from Article 1, Section 10, Clause 1?

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

You did see that “No State” part, didn’t you? As in, no state of the Union will go off and do those things? I didn’t see the Federal government mentioned anyway in that clause, did you?

In fact, I can’t find anything in the Constitution that expressly tells the government how they have to back our currency.

[Iwo Jima]

No, an ounce of gold wouldn't be a sufficient amount upon which to base an entire monetary system. But of course, the world never has and never will be reduced to owning a single ounce of gold.

You see, money is a commodity, but it is fundamentally different from any other commodity: its essential purpose is as a medium of exchange and a store of value.

Throughout history, two commodities have been repeatedly selected by free people and free markets as vastly superior to any other commodities for these purposes: silver (for smaller puchases) and gold (for larger purchases.)

There are several fundamental characteristics that make a commodity a good choice as a medium of exchange and a store of value. Going from memory (my formal economics education was over 30 years ago), those characteristics are:

1. Homogeneity. One unit must be as close as possible to any other unit so that the each unit is of equal value and therefore interchangable.

2. Divisibility. It must be capable of being broken into pieces or parts to accommodate transactions of many sizes.

3. Transportability. This may be the same as No. 2 above.

4. Scarcity. The commodity must be so difficult to find or create that its aggregate numbers cannot easily be increased so as to decrease the "store of value" of that which has been set aside or "saved."

5. Relative lack of intrinsic value. It cannot have significant other uses which generate significant demand that could skew its value as a medium of exhcange and a store of value.

There are probably more hallmarks of a good currency, but that's all that I can recall at this time.

You can see why gold and silver would have emerged over and over and over again throughout history as the currency of choice of free men and free markets. The scarcity requirement is probably the most imporatnat, and the one which eliminates paper fiat money as an acceptable medium of exchange and a store of value.

BTW, I find your mocking and condescending tone especially combined with your ignorance to be most unbecoming.

[Iconoclast2]

If you want to understand why the plain language and history of the Constitution compel the conclusion that the Founders never empowered Congress to issue paper money, you ought to be reading the rest of the thread. There are three different articles posted there explaining it.

It is really pretty simple. Congress’ power to “coin money” is not a power to force people to take paper, and anyone who understands what a government of limited powers means ought to be able to get this. There is perhaps no single issue (the idea of limited, delegated powers) more important to a Free Republic.

[Petronski]

Well...I’m certainly convinced. Aren’t you?

[Petronski]

Congress’ power to “coin money” is not a power to force people to take paper...

The full quote is "to coin money and regulate the value thereof."

[Toddsterpatriot]

No, an ounce of gold wouldn't be a sufficient amount upon which to base an entire monetary system.

So when you said:
However much gold there is, by definition it is "enough."

You were lying? Or just wrong?

[Iwo Jima]

Neither. I was addressing my comment to someone whom I assumed had a modicum of common sense and good faith. Not to you.

By definition, any amount of gold which has ever been known to exist in the history of the universe would be sufficient. If the amount of known gold reserves in the world were insufficient to allow it to serve as a medium of exchange and store of value, it would never have become the currency of choice by most civilizations throughout history.

Now try, if you can, to respond to the substance of my comments without juvenile ridicule in the "I know you are but what am I" variety.

[Toddsterpatriot]

By definition, any amount of gold which has ever been known to exist in the history of the universe would be sufficient.

I'm interested in the amount of gold the United States would need to back the money supply of the United States. Could you be more precise than, "All the gold ever produced would be enough".

[Iconoclast2]

Correct, but regulating the value of coined money, which has a specific historical meaning discussed elsewhere in the thread, is still not the power to force people to take the Government’s paper.

Perhaps after the Nation’s experiment with fiat money comes to the same place as every other such experiment in history, they can do an even clearer job of writing the Constitution next time around.

[Toddsterpatriot]

If the amount of known gold reserves in the world were insufficient to allow it to serve as a medium of exchange and store of value, it would never have become the currency of choice by most civilizations throughout history.

I suspect the money supply today is a little bigger than when Ug and Glug found a pretty yellow nugget in a nearby stream.

[Iwo Jima]

You see, oh statist one, the beauty of the free market is that no one person needs to have all of the answers to all of the questions that a free market requires. I do not need to be able to answer your unanwerable question in order to know that the free market will do as has been done for millenia. The amount of gold in the world will be "enough" because all other prices will adapt to that supply.

There is a reason that gold and silver have been chosen over and over and over as the currency of choice, and it is precisely because no one person or persons or government controls or even knows the exact amount of the supply. That which is a negative to you is what makes it valuable as a medium of exchange and store of value.

[Iwo Jima]

Another absurdly ridiculous, irrelvant statement.

[Toddsterpatriot]

The amount of gold in the world will be "enough"

Since the US doesn't have all the gold in the world, your claim is not helpful.

because all other prices will adapt to that supply.

Oh, it's that simple. LOL!

Some goldbugs are dumber than others, but I think you win the prize.

[Petronski]

...still not the power to force people to take the Government’s paper.

I suggest you stop taking it.

[Iwo Jima]

You don’t have a clue about classical, free market economics, do you? You are dismissed. Go pester some (other) Keynesians.

[Toddsterpatriot]

You don’t have a clue about classical, free market economics, do you?

You mean the economics where any amount of gold is enough to back our money supply, because prices will simply adjust? LOL!

Go pester some (other) Keynesians.

I'd rather pester ignorant goldbugs.

[sargon]

A fractional reserve banking system (the Fed), like the ‘progressive’ income tax, is a central plank of the Communist Manifesto.

[Iwo Jima]

Goldbuggery garbage.

I would appreciate it if you could explain to me in a calm, rational, and substantive way, not just with flaming soundbites, why the gold standard is "goldbuggery garbage."

Throughout recorded history, every civilization in which gold and silver was known and which had anything closely resembling a free market has chosen gold and silver as their preferred commodities for a medium of exchange and store of value. Given this overwhelming historical record, on what basis do you claim to have such superior knowledge as to be able to label support of a gold standard as "goldbuggery garbage"?

[Iwo Jima]

You are nothing but a common pest. You add nothing to a serious discussion. Just go away.

[Petronski]

It’s an irrational fetish.