| Switzerland is still on the Gold Standard...
A major revision of the constitution in 1999 abolished the gold standard for the Swiss franc |
Posted on 12/01/2001 9:02:46 PM PST by 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?
What is the current role of the Federal reserve and what is the proper role of the Federal reserve?
Having ascertained that, the question then becomes, can this be done better, and by whom?
Always start at the beginning.
| Switzerland is still on the Gold Standard...
A major revision of the constitution in 1999 abolished the gold standard for the Swiss franc |
Excellent idea.
Money Panics occurred in 1819, 1837, 1857, 1873, 1893, and 1907. Each of these panics was preceded by substantial bank money creation for various speculative purposes: western lands, canal building, railroads, railroad stock, stock market, etc. At the end of each period of irrational exuberance, a money panic ensued (you've seen those Wily Coyote cartoons when he runs off the cliff and his feet are still moving...until he looks down!). The irrational exuberance was the disease; the money panic was the free enterprise medicine.
The perpetrators/promoters of these irrational exuberance bubbles convinced people that the free enterprise medicine (money panics) was actually the disease for which a lender of last resort was the medicine. Thus the Federal Reserve System was foisted upon us. Lenders of last resort are capable of keeping Wily's feet churning a little longer but then the ultimate crash is even worse (16 years after the Fed we got the Mother of All Stings---thus far). It is like giving a needle in the arm to a strung out druggie: you can make him function better for a while, but you are just guaranteeing the ultimate collapse will be even worse.
It's all explained, quite clearly in Special Privilege
| Special Privilege
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.
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. |
There's a chicken-and-egg thing in there. All economies require constant infusions of new money to keep growing. If the supply of new money does not keep pace with an increasing supply of good and services (i.e. economic growth), then we have "too little money chasing too many goods." When happens, we have deflation -- the price of things, in money, starts to drop. What sold for $5 yesterday sells for $4 today. People pick up on this very rapidly... what they do is conclude, "Well then, it'll be $3 tomorrow. I'll wait." Sure enough, it is $3 tomorrow, because by holding back, the person has effectively reduced the supply of money even more. If it worked once, it might work twice. Let's not buy today, either; maybe we can get them down to a buck. Pretty soon the people who were making all that stuff stop doing it; they can't make any money, because they can't sell anything. So they shut the doors and lay everybody off. This is how depressions happen.
What's under the hood there is that economies need the supply of money to grow at about the same rate as the quantity of stuff to buy. Anything else will cause either inflation or deflation. Whether the money is fiat or not has nothing to do with it. An economy that is on the gold standard, which for some reason (like a new technology, or multiple new technologies) experiences very rapid economic growth, will soon find that there isn't enough money to go around. The gold miners do not necessarily become more productive at the same rate as everyone else. They may be digging as fast as they can, but they still can't keep up with the rate of growth in the amount of goods and services in the underlying economy. If that were to cause a depression, people might reasonably decide to de-couple the "money supply" from the rate at which gold miners can find and dig up gold. They might, in other words, move to a fiat money system where the next time this happens, somebody can just turn on a faucet and make new money come out, at whatever rate we need it. This is in fact what happened in 1933.
Can debt support debt forever? Almost certainly. We have enough experience now to know with 95% confidence what the overall default rate on loans is going to be. There will be times when it's a little higher, but unless there is deflation, it's highly unlikely that every investment made by everyone who borrowed money will fail, and cause a default. It's like oxygen atoms... in theory, Brownian motion could cause them all to migrate into one corner of the room, and stay there long enough to suffocate every human and animal in the place. In theory. It never really happens though. It doesn't happen with investments, either. Overall, the debt loaned out results in the creation of more real wealth (actual stuff to buy or use) than was borrowed. So the debt does get paid back, and the cycle does continue.
So long as that happens, the existence of "debt" is little more than an artifact of double-entry bookkeeping, which requires that every asset have a corresponding liability. By definition, so long as there are assets, there are going to be liabilities. The guy who tells you that liabilities are bad either doesn't know how accounting works, or has a secret plan to wipe out assets. For most of these kinds of "The Fed is a Scam!" threads, I think it's the former. The people who write the material on the kookburger web sites might be of Type B; there's enough Marxism woven through their stuff that they might really be out to hose up our economy.
This is my night :)
The Fed is owned by member banks, which are American (not International) banks. There are actually 12 regional Fed banks each controlled by the member (some times referred to as Money Center) banks in their local area. These banks are in turn controlled by their shareholders, as most large money center banks these days are public corporations traded on the NY Stock Exchange. The Treasury department takes a dim view of foreign corporations that try to take majority control of US chartered banks. You may remember the BCCI scandal where a bunch of spooks and arabs tried to circumvent this. They failed, the bank was closed and several people including Clark Clifford had their reputations ruined.
May I suggest two other books: "Money" by John Kenneth Gallbrath and "Secrets of the Temple" by William Greider. Both are available on Amazon. Either will give you a much better idea of what the Fed is for and how it works than "The Creature", fun though it is.
As usual, you have your “isms” mixed up.
The “ism” that opposes the use of government force to favor one class of citizens over another (as I do) is called “capitalism” not “Marxism.” The rest of your post is similarly innane. For the benefit of others, I will correct your other mis-information when time permits. I won’t expect you to understand.
I assume others are aware, for example, that there are many efficient ways to facilitate the transfer of capital from bona fide savers to bona fide investors.... Even if some (mistakenly) think that the inherently unsound fractional reserve banking system is one such efficient method, I doubt anybody else is as deluded as Nick who apparently believes that it is the only one.
The "ism" that promotes the idea that there even is a need for class struggle against capital is Marxism. The "ism" that promotes the concept of "financial elites" exploiting the masses is Marxism. The assumptions behind your bald-faced words about Capitalism are... Marxist.
Sorry, but you do not get to dress up Marx's discredited ideas about class struggle, labor vs. capital etc., by calling yourself a capitalist. You are waddling and you are quacking. Calling yourself an eagle won't turn you into one.
Afflaaaack!
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Are you sure? Before you answer, you should read 
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.