Posted on 09/03/2009 4:39:19 PM PDT by all the best
Since H.R. 1207 was introduced by Dr. Ron Paul in Congress this February, there has been a growing movement questions whether the Fed should continue to operate without more oversight and some question whether or not the Federal Reserve should continue to operate at all.
Currenty, Paul’s “Audit the Fed” legislation has 282 co-sponsors and there are two similar pieces of legislation in the senate. If the legislation is passed, it will allow the Government Accountability Office (GAO) to review the Federal Reserve’s balance sheets and their policy deliberations and monetary transactions. Currently Federal Reserve Chairman, Ben Bernanke, opposes the plan, saying it would undermine the Fed’s independence.
The “Audit the Fed” act has a real chance in passing, but some supporters of the legislation, including Ron Paul, want to take it further than that by ending the Federal Reserve all together. Paul introduced a piece of follow-up legislation, entitled H.R. 833: The Federal Reserve Board Abolition Act which would wind down and eliminate the Federal Reserve over the course of the year. Currently, the act has no co-sponsors, but is gaining a lot of grass-roots support. Paul hopes that members of Congress will join his movement to end the Federal Reserve after they see the results of a full audit of the Federal Reserve. Paul also authored a book about his proposal to end the Federal Reserve, entitled “End the Fed.”
Although the movement is in its infancy and still gaining momentum, it’s not too crazy to think that the United States wouldn’t be better off without the Federal Reserve. Since the Federal Reserve System was brought into force into 1914, the United States economy has grown at a slower pace than it did before 1914, despite significantly improved productivity. The rate of inflation has been substantially worse since...
(Excerpt) Read more at americanbankingnews.com ...
Am I still okay because my salary only fell as much as the general price level?
Maybe you missed what I said. I said "Depends on what you want to spend your money on, doesn't it? The price level on everything doesn't drop (or rise during an inflation) uniformly."
In this case, no, obviously you're not better off because the housing market collapsed. But the asset deflation reflected in home prices is because many were fooled by the FED's easy money, and because the various government programs steered the money into housing, and because the wall street boys found ways to make more money on derivatives, and because the Asians and other savers bought up the crap and kept the party going. It was the perfect storm... but it all started with the FED's easy money.
In that case, your bank's reputation for honesty and sound business judgment is irrelevant.
You'll argue everything, won't you. :-)
It's a minor point... but surely when participating in this sort of business we would want a banker/broker with sound business judgment - the better to screen potential borrowers. Jeez.
The future is a 2% drop in prices every year. Now what do you invest in?
Same answer I gave twice before. This is getting old.
Sounds easy. LOL!
It IS easy. End the FED!
Or maybe a central bank should have prevented crushing deflation?
Crushing deflation? You know, I don't recall stories of mass starvation occurring during the late nineteenth century. But I do recall seeing statistics of unemployment reaching 25% and staying in the high teens and twenties for years during the great depression.
Do you see any connection between the ability of the FED to create money out of thin air and the size of the federal government?
Only to the extent that the Fed helped grow the size of the economy.
And there's your blind spot. Because I know if you did see it, you'd be in favor of taking another look at the need for a central bank.
The federal government gets it's power from the money it spends. It gets the money it spends from taxing or borrowing. WRT borrowing, it is able to borrow to the extent it does only because the FED exists to create money out of thin air when necessary. If the federal government had to raise it's money "honestly", by taxing us or by borrowing money from us in a sound money environment, it would not be able to raise the money it does. Abolishing the central bank, and that alone, is IMO, the only way we will ever reign in the federal government.
So no one would be hurt, except anyone with a mortgage or any company that borrowed money. Got it.
It IS easy. End the FED!
Because there was no easy money before the Fed. LOL, again!
Same answer I gave twice before. This is getting old.
Because you can't come up with any good investments in a long term deflationary environment. This is getting old.
Crushing deflation? You know, I don't recall stories of mass starvation occurring during the late nineteenth century.
You can have crushing deflation without mass starvation.
But I do recall seeing statistics of unemployment reaching 25% and staying in the high teens and twenties for years during the great depression.
I agree, the Fed should have acted to ease the crushing deflation during the Great Depression.
And there's your blind spot. Because I know if you did see it, you'd be in favor of taking another look at the need for a central bank.
When I look at the length and frequency of recessions and depressions before the Fed as compared to after the Fed, I'm still in favor.
It gets the money it spends from taxing or borrowing. WRT borrowing, it is able to borrow to the extent it does only because the FED exists to create money out of thin air when necessary.
The government created money out of thin air, when necessary, before the Fed existed.
Corrections are painful. The key to avoiding the pain is avoiding the boom.
Because you can't come up with any good investments in a long term deflationary environment. This is getting old.
Deflation is a real bogeyman for you. Why can't stocks be a good investment during a long-term, non corrective period of deflation? Why can't bonds? Why can't CDs? As long as you had faith that the company was sound almost any interest or dividend rate paid would be a bonus, since the value of the underlying investment would be rising. Heck, cash buried in your back yard would be a good investment.
It's when the deflation is due to a correction that we have problems. Like now. Because we don't know who is going to survive the crunch. Granted, it's tough to invest right now. But again, the key to avoiding times like this is avoiding the booms.
The government created money out of thin air, when necessary, before the Fed existed.
Yes they did, and they'll undoubtedly do it again and again even if the central bank is abolished. But they didn't get too far with it back when people knew sound money. The people were wary, and rightly so.
Deflation is not a correction. Deflation is breaking your left arm, to cure your broken right arm.
Deflation is a real bogeyman for you.
And everyone else who understands economics.
Why can't stocks be a good investment during a long-term, non corrective period of deflation?
Which Japanese stocks did well during their 2 decades of deflation?
Why can't bonds?
As long as the bond issuer doesn't go out of business due to deflation, bonds could be a good investment.
Why can't CDs? As long as you had faith that the company was sound
Which leads back to the unanswered question, which companies would do well during deflation?
Heck, cash buried in your back yard would be a good investment.
Proof that deflation is a bad idea.
Yes they did, and they'll undoubtedly do it again and again even if the central bank is abolished.
Your cure doesn't work.
But they didn't get too far with it back when people knew sound money. The people were wary, and rightly so.
I'm wary of these government greenbacks. Too bad.
Yeah, I can see how that stopped the government from going too far.
Although Congress did consider several pieces of legislation similar to what Canada had, none of those made it out of Congress because local bankers were determined to block any proposal for branch banking that would threaten their local monopolies.
After the adoption of a system similar to Canada’s failed, only then did reformers consider the establishment of a central reserve bank. As a result, the Federal Reserve Act allowed for the creation of 12 new banks to do what other banks were prevented from doing themselves, establishing branch networks and issuing currency backed by commercial assets.
The Federal Reserve was a poor substitute for deregulation.
I'd want to hear more about that Canadian system, but I don't know if he's right about the history.
No way were we going to have deregulated nationwide banks in the populist/progressive era.
Even forty years ago, multistate banks with many branches were anathema to politicians (and probably voters too).
Deflation doesn't have to occur in only a correction, but it can. Present times are an example.
One aspect of free markets is that the market wants to set a market interest rate. The price of money. When central banks drive down the interest rates in their attempts to spur the economy, they signal to borrowers that this is a good time to borrow, and they signal consumers that this is a good time to spend rather than save. The result is excess debt, or looking at it from the other side of the coin, an over expansion of credit. Deflation of the credit bubble is required to correct this condition. It's the central bank interference with the market interest rate that causes the problem in the first place. Deflation is just the corrective process of the market.
Which Japanese stocks did well during their 2 decades of deflation?
It was a corrective deflation.
As long as the bond issuer doesn't go out of business due to deflation, bonds could be a good investment.
More of a worry during a corrective deflation.
Which leads back to the unanswered question, which companies would do well during deflation?
You don't seem to want to recognize that deflation can be the result of a correction or the result of economic productivity, and that the answer to your question depends upon recognizing that there are differences in investment strategies depending on which type of deflation one is experiencing as well as one's reading of most likely future conditions.
I'm wary of these government greenbacks. Too bad.
And each time the governments tried, the people demanded sound money again, and got it. After a long period of fiat it's about to happen again, I hope.
It was a corrective deflation.
It was a question.
You don't seem to want to recognize that deflation can be the result of a correction or the result of economic productivity
Was that why I've said, several times, that falling prices due to productivity are a good thing? Don't confuse increased, cheaper production with decreased, more expensive money.
there are differences in investment strategies depending on which type of deflation one is experiencing
We're discussing the deflation caused by a shrinking money supply.
Which companies would do well during a long period of shrinking money supply?
After a long period of fiat it's about to happen again, I hope.
What do you hope we'll get?
I gave it my best shot to try to communicate with Todd. You seem to have the same problem as I have. I give up.
Did you ever figure out what monetary freedom means?
See post #148.
See post #149.
In ANY economy, whether the money value is stable, inflationary or deflationary, the business that is going to be most successful is the one that is best able to please it's customers and is best able to predict the future.
Look, I'm not sure what inconsistency you think you're trying to catch me on. Maybe you think that because I have suggested that the FED's inflationary policies create booms that lead to busts, that I'm therefore an advocate of deflation? That's not the case.
The way I see it a STABLE money value is the best for any economy. It makes it easiest for everybody in the economy to make judgments about the future. Businesses are better able to predict input costs. Consumers are better able to predict the future value of money saved, and so on.
Both deflation and inflation make predicting more difficult, unless the rates are consistent from period to period, which they never are. The more volatile the inflation or deflation, the more difficult the predicting.
And I'm not suggesting that an economy without a central bank is going to bring a perfectly stable money value or any sort of utopia either. If it were gold, for instance, we would expect to see additional gold enter the money supply from mining. But I'd rather have that, than a central bank, subject to political persuasion and under the control of a handful of central planners, deciding what the money supply will be. I don't doubt that they have the best interest of the public at heart. They just don't have enough information to get it right... "it" being the "right" amount of money to maximize sustainable economic growth. They will inevitably make mistakes, and we are now living with the consequences. They will inevitably inflate too much, which we can see by looking at the history of our FED. It's too easy for central banks to inflate.
What do you hope we'll get?
Sound money, the volume of which can't be adjusted with computer programs or a printing press.
Proponents of a gold standard are advocates of deflation.
The way I see it a STABLE money value is the best for any economy.
Stable money is a great idea.
Both deflation and inflation make predicting more difficult, unless the rates are consistent from period to period, which they never are. The more volatile the inflation or deflation, the more difficult the predicting.
Careful, that's two agreements in a row!
And I'm not suggesting that an economy without a central bank is going to bring a perfectly stable money value or any sort of utopia either.
Three!
If it were gold, for instance, we would expect to see additional gold enter the money supply from mining.
Yes, but not enough.
Sound money, the volume of which can't be adjusted with computer programs or a printing press.
Do you have a mortgage? You just adjusted the volume of money.
Not really. Under the gold standard, the value of money stayed relatively stable from the late 1700's through the advent of the FED in 1913. There were spikes and dips, but the value of the dollar was pretty much the same after more than 100 years. That's certainly not so now. Since the advent of the FED less than 100 years ago the value of the dollar has dropped by 95%, most of it since 1971 when Nixon closed the gold window and dropped all pretense of a dollar backed with anything real.
Even if a return to the gold standard DID result in some price deflation, that's hardly a concern next to the FED's history of inflation. If you like stable money value, you have to prefer the gold standard... and ending the FED!
Do you have a mortgage? You just adjusted the volume of money.
Under a gold standard, with fractional reserve banking limited by market forces, mortgages would be harder to come by, no argument there.
But the flip side is that credit crunches wouldn't devastate folks life savings, or put home owners under water, or lead to fascist "too big" government bailouts.
Not to mention that the federal government would have to live within it's means. Returning to a gold standard is worth it just for that reason alone.
I dunno, I think he's softening. ;-)
We need to keep workin' on him... if we can convince somebody as dug in as he is, we win!
LOL! Yeah, inflation spikes and big deflation = stable. LOL!
Even if a return to the gold standard DID result in some price deflation, that's hardly a concern next to the FED's history of inflation.
My left arm is broken, quick, break my right arm. LOL!
If you like stable money value, you have to prefer the gold standard...
If you like deflation, the gold standard is for you.
Under a gold standard, with fractional reserve banking limited by market forces, mortgages would be harder to come by, no argument there.
Even under a gold standard, your mortgage just increased the money supply.
But the flip side is that credit crunches wouldn't devastate folks life savings
You need to do more research on the panics on the 1800s.
Don't hold your breath.
Not necessarily so. Only if fractional reserve banking is involved.
If you go into your bank and deposit 100 ounces of gold, which you agree to allow the bank to lend out, there is no new money created. If I, as the borrower take the gold, give it in payment to my home builder, still no new money is created. If the home builder then deposits the gold in his bank, still no new money is created. As the de facto mortgage holder you are owed 100 ounces of gold (with interest) by the bank or by me as the mortgagee (depending on the nature of the loan) but no new money has been created.
It's only when fractional reserve banking comes into play that new money is created. For example, you take your same 100 ounces of gold to the bank and deposit it in a checking account. The bank then lends out 90 ounces of your gold to me, not in specie, but in the form of a note, payable upon receipt in the form of gold. New money - in the form of credit - has just been created. As the borrower, I have use of 90 ounces of gold, in the form of a note, but you still have claim to 100 ounces of gold that you can withdraw from the bank at any time.
Now, if I turn over the note for 90 ounces of gold to my home builder, and he takes the note to his bank and deposits it, and then his bank then comes to your bank for the 90 ounces of gold, and if at the same time you go to your bank looking to withdraw more than 10 ounces of your gold, then the bank, unless it has gold from other depositors to give to one of you, is in serious doo doo. As are you.
As you know... because I know you understand fractional reserve banking... the only way it works is if (a) too many depositors don't come looking for their money at the same time, and (b) if they do the bank can get the money from somewhere - either from a short term loan from other banks for from the central bank, and (c) if the bank has too many bad loans that even borrowing isn't an option then there is the government backed insurance agency to pay off the depositors.
Which is why fractional reserve banking doesn't frighten me in a free market banking system. Because it'd never last.
Not necessarily so. Only if fractional reserve banking is involved.
We've always had fractional reserve banking, even under the gold standard.
If you go into your bank and deposit 100 ounces of gold, which you agree to allow the bank to lend out, there is no new money created.
New money is not created until the gold is lent out.
The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written.
If I, as the borrower take the gold, give it in payment to my home builder, still no new money is created.
See above. The demand deposit, 100 ounces is money and so is the money in the hand of the home builder.
Which is why fractional reserve banking doesn't frighten me in a free market banking system.
What is a free market banking system? Where can I find an example?
You said "Even under a gold standard, your mortgage just increased the money supply."
And I gave a scenario where a non fractional reserve TIME deposit, not a fractional reserve DEMAND deposit financed the mortgage and no new money was created.
This is why I said, in the earlier post, that mortgages would be harder to come by with a gold standard. Precisely because there would be less credit available.
You're just flat out wrong on this. Come on... admit it... you'll feel better. :-)
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