Abolish the Fed

[floridarocks]

Can someone please explain why we should not abolish the Federal Reserve or explain why lawyers won't discuss the bankruptcy of the corporate US in 1933 the keeps us perpetually indebted to the international bankers. How rich are those Rothschilds anyway? Is there such a thing as kazillion?

[Deuce]

Why do you feel the stock market might crash if Mexico doesn't pay money it owes to Citigroup...unless in recognition that the Ponzi scheme is coming to the end because taxpayers are refusing to make the welfare payments?

But I'm looking for a free enterprise reason, not one based upon socialism.

[Deuce]

In evaluating my post 109, you state:

I try not to attribute motives to people. But your attacks on some secondary words in [Nick Danger’s] writing, while deliberately ignoring his main points, lead to your hijacking of this thread. It is you whose incendiary allegations and accusations that led to polarization rather than discovery of common ground.

I maintain that the above statement of your is EITHER intellectually dishonest OR you missed the first brush that Nick and I had. If so, I direct your attention to the fact that my post #59 is addressed to : xsive_guy; floridarocks; Facecriminal; brat; america76. Please note that I was not addressing Nick Danger.

Nonetheless, Nick felt compelled to spend 1245 words lambasting (but not addressing the issues raised in) my post (see Nick’s post 68). I post the complete text of Nick’s non-substantive, abusive response, to this post, below, because excerpts don’t do it justice. Also please note my measured response to Nick at post #78, attempted to first correct the mis-conception that blinded his initial reaction and then, in #79 sought to respond to the only thing that was remotely an intellectual pov expressed in Nick’s post.. If I have judged you too harshly and you are, indeed, intellectually honest, but failed to properly explore the origins of my interaction with Nick, I apologize for viewing you as intellectually dishonest, and I accept, in advance, your apology to me (I do, however, request that you post any such apology on this thread for all to see). Nick’s post #68 follows:

[Deuce]

Nick's post #68:

It really irks me that there are people who would prey on those who never studied this subject by trying to sell them such awful drivel.

The theme of "special privileges" awarded to "elites" is a pretty transparent repackaging of Marx's idea of class struggle. Instead of 'Proletariat' and 'Bourgeoisie' (words that are extremely unlikely to have any meaning to the target audience for this drivel) we're going to have "us" against the "elites." Perhaps instead of Special Privilege the book should be called Marxism for Dummies or Class Struggle in America: a Primer in Marxism.

I found the description of the "monetary elites" hilarious. The author must be assuming that there are still some yokels left who believe that the people managing the banks actually own them, and get to keep the money... sort of like the cartoon guy on the Monopoly box. That must be the level of understanding that the author is targeting, because no one else would believe that bank managers are anything but salaried employees who make pretty much the same sort of money that's made by, say, the people who work at Barnes & Noble. The Great Satan himself, Alan Greenspan, makes $136,700 a year as Fed Chairman. We have Freepers who make more money than that. Some monetary elite he is.

The author tells us that...

As soon as a bank makes such loans, it can no longer fulfill its stated obligation to return depositor's money on demand. Money that is out on loan, quite simply, is not available to be paid back to depositors on demand. No degree of added complexity can negate this simple fact.

It sure is a simple fact. In fact it's so simple that only a simpleton could fall for it. Does anybody actually think they're going to get back exactly the same dollar bills they deposited? I mean, how dumb do you have to be to expect that your electronically-deposited paycheck is going to come out of the ATM as a spray of electrons? Who is the target audience for this book, Afghan aborigines?

Most people are astute enough to know that the phone company hasn't really run a wire from their house to every other house on the planet. What really happens when you make a call is that they quickly find some idle wires and string them together until they have a path from your house to the place you called. As soon as you hang up, the same wires get assigned to somebody else.

This is what banks do with currency. It's what grocery companies do with food. It's how we manage resources in general, so as not to go broke. It is true that if everyone in town picks up their phone at the same instant, or goes to the grocery store on the same day, or withdraws all their money from the bank, there won't be enough to go around. But only an idiot would propose that the way to fix this is to dedicate a wire from everyone's house to every other house, and enough currency in every bank to cover everyone's deposits simultaneously, and enough produce in the grocery store to cover the eventuality that every single person in town comes in on the same day. That is enormously wasteful. To understand that though, one must have some common sense. The people the author wishes to reach with this book are the ones who have no common sense, and who think it's perfectly reasonable to demand that no one ever run out of anything, no matter how improbable the demand.

The author also tells us that "few people have a well-conceived, proper understanding of exactly what [money] is." But then he goes on to say that, "The second major component of our money supply consists of bank deposits (checking, savings, etc.), which are liabilities that banks create against themselves, limited only by their reserves at the Fed." What that tells us is that he doesn't understand it, either. It looks like he's trying to get to a definition of what's called "M2", but he gets it wrong. A reasonable attempt to get it right is here.

The next thing the author tries to tell his victims about "is the self-perpetuating cycle: if money is created out of thin air and (mostly) lent out at interest, there will not be enough to repay all those debts unless still more is created out of thin air and lent out at interest!"

The scene the author is trying to paint here is the dead-end one, where you borrow a hundred thousand bucks, put it under your mattress until the load matures, and then find that you don't have the five per cent the bank wants for interest. Your only choice is to borrow the five per cent, and the cycle never ends.

This is the so-called "zero economic growth" scenario, and it is used here because zero economic growth is at the heart of what the Fed kookburgers are pitching. Many of their prescriptions actually would work, if the society that adopted them was willing to tolerate zero economic growth.

Instead, let's visit the real world, where you borrow the hundred thousand and build your third pizza parlor. You already know, since you have two of them, that it takes about three years for a pizza parlor to pay back the money invested in it, and after that it returns about 23% on the assets invested in it. Now when the loan comes due, you pay back the loan, and the 5%, and you're left with a pizza parlor that throws off $23,000 a year for the next twenty years. Boy, those bankers sure did stick it to you, right?

But wait... it gets worse. The author wants to convince his readers that no one should be allowed to build a pizza parlor at all. That would cause Pizza Elites, who know secret recipes that only Mamma Maria ever disclosed. In the spirit of class struggle, we can't allow anyone to get ahead. So what we'll have is... 100% reserve banking! Here's the author again:

Simply put, the Fischer and Graham suggestions would have required that all demand deposits (checkbook money) be physically kept in the bank and not lent out.

See, now there isn't any money to loan. The banks are just big warehouses. Instead of paying people interest on their deposits, they charge people storage fees. And the money all stays in the bank. So when the American entrepreneur comes calling, hoping to find some money he can borrow to start a pizza business, he can't have any. Nor can anyone else. All money has to stay in the bank, because otherwise we might have economic growth, and mere serfs would be stepping out of their "place" to become pizza barons and inventors and stuff. Our author thinks that's bad. Instead he wants to charge the serfs to store their money, to get back at the financial elites.

It amazes me that supposedly intelligent Freepers embrace this crap, and even preach it like a gospel. At least once a month we have a thread on this, and the same half-dozen grassy-know-it-alls cheer for class struggle, and zero economic growth, and restricting economic mobility by making it impossible for ordinary people to get ahead.

In another note I had called this stuff "what happens when ignorance goes bad." That's exactly what this stuff is. Ignorance gone bad.

[mlocher]

can someone please explain why we should not abolish the federal reserve?

easy. no working alternative has been proposed.

or explain why lawyers won't discuss the bankruptcy of the corporate us in 1933 that keeps us perpetually indebted to international bankers?

lawyers only work to keep guilty people out of jail. ask an economist to explain, and then be prepared for a large laugh.

how rich are those rothschilds anyways?

this is none of your business.

is there such a thing as a kazillion?

if you would stop whining and look the word up in the dictionary you might learn something.

[Nick Danger]

I don't think you can defend this statement. That entrepreneur can go to the money owner and sell stock. No borrowing, or interest, is necessary in that regard.

Your characterization of selling stock makes it sound like the money owner is making a gift by investing in a company. "No interest" does not mean that the money owner expects no return. People who invest in start-ups are looking for very high rates of return, because they are taking a huge risk. If you are an entrpreneur and you take in that kind of money, you'd better look in a couple of years like you've got something that is either going to go public or be acquired at twenty to fifty times what the seed investors put in. Otherwise you are going to be an unemployed ex-entrepreneur. I'm told that the number of former CEOs who are taking programming jobs in Silicon Valley has never been higher.

That the entrepreneur can go to the money owner is easy to say. What happens when the entrepreneur actually tries to do it? Does he go door-to-door, looking for someone with extra money to lend? Is there something like a union hall, where money owners hang out looking for borrowers? Does he put an ad in the paper, "Money Wanted"? Do people who have lots of money want to sit around all day playing Loan Officer, a job that pays around $120K?

A market economy solves this problem of matching borrowers and lenders with brokers, people who do open up offices and who do sit around all day waiting for borrowers and lenders to come in. It's called specialization of labor. There are cost savings in it for both borrowers and lenders, which is why such entities are created, and why they stay in existence.

One popular English word for an office that brokers loans -- that takes money from lenders under contract, and loans it out to others after checking out their credit worthiness -- is bank. There are also stock brokers and bond brokers and venture capitalists and so on, and even places that will loan you money against your next paycheck at mafia-grade interest rates. But those are just even-more-specialized forms of loan brokers. And yes, some people have rich relatives that they can tap when they want to open a Jiffy Lube franchise. But for the vast majority of people, banks are a very convenient form of money brokerage. They eliminate tons of hassle that would otherwise soak up everybody's time if we all had to guess who might be paying interest today, or who might have money to lend.

One of the things the kookburger sites never talk about is "what happens after we smash the banks?" Other than the fact that we'll be free, and the birds will sing, and rainbows will appear. Where will people go to get car loans? Will a guy with no money, but lots on the ball, be able to get a small business loan and take his shot at becoming financially independent? How will that happen once the rainbows appear and all the elite people who used to work in banks have gotten jobs at Wal-Mart instead?

What you'll hear is bunch of noise about "free market solutions" and "marketplaces." But poke at them long enough, insisting on details, and out will come something that they'll never call a bank, but which in fact is a bank. It will be a place where borrowers and lenders meet to strike deals. You listen to this for about five minutes, and you realize that sensible people are not really going to take a day off from work to go down to some Borrowing Hall in hopes of meeting someone who wants to borrow their $300 bonus. Very quickly, some guy is going to set up a card table in front of the place and offer to do the hanging-around for free; he'll get his cut from the borrowers. This is how A.P. Giannini founded Bank of America amongst the ruins of the San Francisco earthquake. So no sooner will the kookburgers smash the banks like an earthquake, then somebody else will start a bank. Because people want them.

[Carry_Okie]

What happens when the entrepreneur actually tries to do it? Does he go door-to-door, looking for someone with extra money to lend?

Most of them do, Here in Silicon Valley they call it "venture capital"! They seem to do OK.

Is there something like a union hall, where money owners hang out looking for borrowers? Does he put an ad in the paper, "Money Wanted"?

Actually, there IS a coffee shop in Palo Alto that is rather well known... ;-)

You were claiming that without fractional banking money would be sitting in warehouses. I wasn't arguing against banking, I was stating that the assertion of the alternative wasn't accurate. Aren't we getting a touch defensive? I was merely addressing the exclusive nature of your statement.

[mvpel]

Why does the Constitution specify that no state shall make any thing but gold or silver coin tender in payment of debts?

[Rodney King]

Your post #303 was excellent!

[Torie]

We are just arguing semantics here. If you want to describe a package of legal rights as something tangible, that is OK by me. Trade secrets involve legal rights as well.

[Carry_Okie]

At the time gold and silver were the preferred store of value and unit of account and thus designated as a medium of exchange; i.e., legal tender. They didn't have a demand for gold as a contact material in electronics, nor for silver for photography. These demands alter the VALUE of gold and silver, do they not? Were substitutes found for gold and silver for industrial uses, would their VALUE fall? Are gold and silver then a stable store of value?

There is no such thing as a perfect currency. Indeed perfect distribution of information, zero transaction cost, and fluidity in all markets would theoretically eliminate the need for money entirely because all goods would be equally fungible.

[TopQuark]

We are just arguing semantics here.

If you feel so, I am sorry I subjected you to this. The differences I pointed out are quite far-reaching. They may even have something to do with the boundaries of the firm: noone knows what determines the size of the firm and why we don't see just one --- USA, Inc.

Until our paths cross again, TQ

[mvpel]

Are Federal Reserve Notes, then, a "store of value?"

[Deuce]

A market economy solves this problem of matching borrowers and lenders with brokers, people who do open up offices and who do sit around all day waiting for borrowers and lenders to come in.

The word "deposit" implies a bailment, in actuality it is an unsecured loan to the banker. This bears very little relationship to the broker relationship to which you refer. Very little money would be deposited in banks without the socialistic FDIC protection. (take from each taxpayer according to his abilities, give to each depositor in the inherently unsound fractional reserve bank according to his needs).

Actually Nick, the free market currently has many ways to funnel money from bona fide borrowers to bona fide lenders. Bonds, money market funds, commercial paper, bona fide loan brokers come to mind to name a few. Banks aren’t even the prime source let alone the only source of investment capital---even with all the socialistic special privileges they receive by government force.

But for the vast majority of people, banks are a very convenient form of money brokerage.

The dis-information you put out, in view of all your groupies, is dangerous.

[Torie]

The FDIC doesn't make much sense, but your statement is too broad. Merchant banks in Britain without such insurance do just fine. Banks would remain very much in business without FDIC insurance, or with such insurance and circumscibed use. Attending the government guarantee is a huge bureaucracy that monitors bank soundness, and tries to make sure they write down their loans as needed and book adequate reserves. I think I would prefer that insured deposits be used to buy treasury bills or some such, and shut most of the burearcracy down. There would need to be strict requirements though about full disclosure, and the banks should be required to be audited by deep pocket CPA firms.

[Mikey]

I'd rather be labeled a kook and know the truth, than be considered not a kook and know nothing along side the ones considering me a non kook.

If nick calls me a kook for knowing (with documentation) what I know, then I consider that a compliment.

[Deuce]

Why does the Constitution specify that no state shall make any thing but gold or silver coin tender in payment of debts?

Article 1, section 8, Clause 5: Congress shall have the power to coin money and regulate the value thereof;

Article 1, Section 10, Clause 1: No state shall emit bills of credit (i,e, paper money, even if redeemable in gold or silver) or make anything but gold or silver coin a payment for a debt;

The Coinage Act of 1792, which explicitly defines the dollar as 371 1/4 grains of silver, was the act which instituted the obligation mentioned in Article 1, section 8, clause 5 above.

Since none of these provisions has been amended or appealed, not only is the Federal Reserve an economic catastrophe but unconstitutional as well.

[Nick Danger]

Oh good, somebody who knows what he's doing. Thank you for coming.

I think that competing, private forms of money can work just fine, as long as there are not too many of them. The empirical evidence suggests that three or four "mediums of exchange" is about all that the market wants to see. Beyond that, people get tired of dealing with multiple vendors. We see Visa and Mastercard succeeding, and American Express is a player, but after that things go downhill fast. Discover was not really welcome, and Diners Club is all but dead. So if one of the things we want in a "money" is universal acceptance, we shouldn't expect to see more than a handful of providers. I agree that today there is no sensible reason to insist that we have only one. I think in Alexander Hamilton's day it made sense, and it also made sense for the "one" to be the government, since there were no such things as trusted nationwide brand names like Visa and Mastercard.

Urgent note to kookburgers: If you are reaching for the Reply button to tell me that I am confusing currency and credit cards, or some similar crap, then you don't know what we're talking about here. This is about universal acceptance, not whether the stuff is paper or plastic.

Let's stipulate that these providers should be selected by market competition, after a period during which we might have fifty or a hundred would-be "money" suppliers issuing various sorts of stuff that they propose we use as a medium of exchange. Let's also stipulate that a whole bunch of people are going to get burned when the losers lose, which will tend to stack the deck in favor of big names like American Express, and away from upstart currency wannabes like PayPal and Norfed.

I don't think many people want a return to currencies backed by individual banks, such as we have had at various times. Those were OK when people used horses for transportation, but today nobody would want to fly from Philadelphia to Seattle and try to spend a bank note from the Second Bank of Harrisburg. You certainly don't want that guy in front of you in line at the seven-eleven.

To some extent private currencies are happening already, and the Internet has been a big driver of it. Things like PayPal are essentially privately-managed currencies. They are also banks. Microsoft wants to own this business now, so maybe Microsoft will become the big issuer of private currency. Look out Uncle Sam, ten years from now Microsoft will revoke the dollar convertibility of Passport accounts, and henceforth the main U.S. currency will be called Melindas. We'll get emails from Amazon.com offering us Drudge's Last Opus , only 47 Melindas. And they don't take dollars.

It would be a stretch, but eBay could potentially pull off the same thing. Auctions are ferociously efficient marketplaces. Internet auctions have decimated the brokerages that used to move things like machine tools and airplanes around. Why not loans? We're already seeing this.

If this is going to happen, it will. We don't need frantic articles about tearing down the banking system. If some new technology has come along, like the Internet, which renders banks obsolete, then that will happen. Frankly it won't surprise me. Localized brick-and-mortar brokerages for things that are easily assessed for quality, etc. are falling like dominoes before the Internet. It's just a lower-cost technology for doing the same thing.

Of course, once the country is running on Melindas, our friends will be back to wail that Microsoft is not a federal agency, and it has a database system that tracks where every Melinda is at every moment, and Bill Gates has Special Privileges, and he could shut down the country at any moment on a whim.

So they'll want the government to break up Microsoft because it has essentially turned into a privately-held central bank, just like we had before, except that instead of Alan Greenspan we have Steve Ballmer. And then the Microsoft shills will pour in to tell us that Melindas are a superior product, and it's all free enterprise at work, and if the money in your pocket expires every time you buy a new wallet, it's for your own good, to make sure you aren't being robbed.

I don't want to be here for that thread.

[Deuce]

I know little about the British system. Can you direct me to anything on the internet or know whether merchant banks take demand deposits and what the reserve ratio is for them how about for other categories of deposits?

There would need to be strict requirements though about full disclosure, and the banks should be required to be audited by deep pocket CPA firms.

These would be substantial improvements, but not far enough as far as I'm concerned. I can't remember when any CPA firm ever gave an early warning sign of impending collapse.

[Deuce]

Let's stipulate that these providers should be selected by market competition, after a period during which we might have fifty or a hundred would-be "money" suppliers issuing various sorts of stuff that they propose we use as a medium of exchange.

Er...will the government be required to accept all of them in payment of taxes, or will they be allowed to express a preference, and if a government adopts a particular preference, won't that become the standard---assuming all of these competing monies are pure fiat; or, hope against hope, maybe they will only accept the monies that are redeemable in something. Gee, why would anybody consider that important?

[mvpel]

Here's some interesting reading: 12 USC 411:
Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.

I wonder what that "and for no other purpose" implies, legally? And what is "lawful money?"