Ron Paul: Audit the Fed, Then End It
I’ll say this much about Ron Paul: He is intellectually consistent in his staunch opposition to the incredible money creation that has been going on at the Federal Reserve.
While I cannot imagine anyone managing to disband the Central Bank — as long as any other countries have one, it would amount to unilateral disarmament — he can effect change for the better at Fed.
For example, Paul is calling for a full audit of the Fed — including the dreaded Maiden Lane holdings, the mess that is the junk paper formerly owned by Bear Stearns. This would be a positive, as taxpayers would learn the truth about how much financial support was given to incompetently rub financial institutions. These enormous taxpayer giveaways will shock the conscious of those who read the details.
Paul wants ALL of the Fed’s holdings to reflect the “transparency of our monetary system.” This at least puts into debate whether we should be so actively rewarding the speculators while punishing the prudent.
Excerpt:
“The main argument seems to be that congressional oversight over the Fed is government interference in the free market. This argument shows a misunderstanding of what a free market really is. Fundamentally, you cannot defend the Federal Reserve and the free market at the same time. The Fed negates the very foundation of a free market by artificially manipulating the price and supply of money — the lifeblood of the economy. In a free market, interest rates, like the price of any other consumer good, are decentralized and set by the market. The only legitimate, constitutional role of government in monetary policy is to protect the integrity of the monetary unit and defend against counterfeiters.
Instead, Congress has abdicated this responsibility to a cabal of elite, quasi-governmental banks that, instead of stabilizing the economy, have destabilized it. It took less than two decades for the Federal Reserve to bring on the Great Depression of the 1930s. It has also inflated away the value of our currency by over 96 percent since its inception. It has invisibly stolen from the poor and given to the rich through this controlled inflation, and now openly stolen through recent bank bailouts. It has predictably exacerbated the very problems it was meant to solve . . .
As far as the foolishness of placing complex monetary policy decisions in the hands of politicians — I couldn’t agree more. No politician or central banker, no matter how brilliant, is smart enough to know more than the market itself. The failure of central economic planning has been witnessed over and over. It is frankly beyond me why we ever agreed to try it again.”
Interesting stuff from Dr. Paul . . .
>
Source:
U.S. Rep. Ron Paul: Audit the Fed and then end it
By U.S. Rep. Ron Paul
Monday, May 18, 2009
http://www.house.gov/htbin/blog_inc?BLOG,tx14_paul,blog,999,All,Item%20not%20found,ID=090518_2909,TEMPLATE=postingdetail.shtml
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May 19th, 2009 at 7:41 am
Where IS my conscious, anyway? ;)
May 19th, 2009 at 7:52 am
He holds too much faith in the ‘market itself’. The Efficient Market Theory has led to many misguided decisions and distortions.
May 19th, 2009 at 8:02 am
Ron Paul is pretty bold for saying this. At this time he will have a hard time getting enough regular people to demand this. Most of them don’t understand where our money even comes from, or the fact that the dollar is actually a representation of debt, not wealth. Until more people know about that Ron Paul is in a minority.
There aren’t a lot of voices against the Fed like this since 1913. Seems like there was a very popular president that was speaking this way once. He got shot.
May 19th, 2009 at 8:12 am
Moss, I disagree. We essentially haven’t had a free market since the Federal Reserve was first instituted, i.e. our lifetime.
Why does the Federal Reserve need to ‘set’ interest rates?
Was it not the last misguided manipulation (circa 2001/2) that caused this giant bubble to inflate?
Sure, without a central bank there could still be panics/mania in some areas of the market (such as the tulipbulb mania, railroad overinvestment etc). However it took the Federal Reserve to bring us to a near-system wide collapse.
Secondly why does the government/federal reserve have the right to destroy the purchasing power of my money over time? The targeting of a 2% inflation rate essentially means we experience a 2-fold reduction in the purchasing power of money every 36 years. Surely this has a significant consequence when it becomes time to retire?
One could argue that this also flows through to wages but I don’t know if wage rates increase with the same relentlessness as inflation.
May 19th, 2009 at 8:26 am
“It is frankly beyond me why we ever agreed to try it again.”
I think that would make a good open thread.
Why did we really agree to try it again, should we agree to try another ‘solution’ again, or do we need something completely different?
May 19th, 2009 at 8:27 am
V,
You should really learn a little bit about financial panics. Not only did they occur before the Fed came into being, they occured more frequently and were more severe.
There were financial panics in 1797, 1807, 1819, 1837, 1857, 1873, 1893 and 1907. After the Panic of 1907, the Fed was setup to avoid precisely these type of panics. Now, I agree that sometimes it messes up (like this time), but police departments sometimes mess up, become corrupt and arrest the wrong guys that doesn’t mean we should get rid of police departments.
As to your comment about wages not keeping up with inflation, I agree this is a problem. But its not the average wage thats not keeping up, its the median wage. From 1945 to 1970, median wages did keep up with inflation but since then we have become a very unequal country (mostly because of politics) and median wages have not kept up with inflation.
May 19th, 2009 at 8:30 am
Probably the only reason he hasn’t been killed yet is that they’ve managed to marginalize him.
May 19th, 2009 at 8:38 am
Unfortunately ( or fortunately, depending) Mr. Paul is a poor politician with little skill at persuasion or alliance-building. He barks from outside the pack. He may raise issues but cloaks them in the jargon of a zealot and alienates people he should be converting.
May 19th, 2009 at 8:39 am
Once the Fed starts selling (or allows to mature) the trillion(s) in bonds they have, any inflation will be toast. That “money” one-note economic thinkers like Paul sing will be gone…
She’s Gone Oh I, Oh I’d better learn how to face it
She’s Gone Oh I, Oh I’d pay the devil to replace her
She’s Gone – what went wrong
Instead of thinking about “all the money that’s been created” think about “All those bonds the Fed has.” …since most of those bonds will mature, and soon.
May 19th, 2009 at 8:40 am
In a more-nearly-perfect realm, perhaps the Fed might be limited to the auditing of member banks and policing of leverage limits, with actual monetary policy carried out by a computer program, as Milton Friedman often advocated. Just verifying that no one was cooking the books or indulging in disallowed practices (all that is not expressly permitted is forbidden) would be enough on the plate of any reasonable agency … oh. I forgot.
May 19th, 2009 at 8:41 am
Moss,
Ron Paul is an Austrian, and Austrians think The Efficient Market Theory is hooey.
May 19th, 2009 at 8:43 am
Machiavelli999,
OK I accept I might need a lesson here and there were many panics. As I look through a wikipedia list there appear to be many that were caused by some sort of government manipulation/rule changing/intervention or blatant fraud. This doesn’t refute the idea that a free market might do a better job than a central bank.
In any case how many of these earlier panics required the government to guarantee the entire system and transfer the risk onto an innocent third-party, ie. the taxpayer?
May 19th, 2009 at 8:46 am
We are basically trying to run a capitalist system without using real capital. To do that you must destroy capital and pyramid debt. What’s the next bubble? Government finance. And this isn’t the end game because we can get half the World’s population to pyramid debt too. We look at China with its ridiculous savings rate and drool. If we could leverage 2-3 billion more people up to their eyeballs, you’ll see a real bubble, and the final act of our 100 year ponzi drama. All systems and civilizations eventually fail.
May 19th, 2009 at 8:48 am
The bold effort the present (central) bank had made to control the government … are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.
– Andrew Jackson
http://quotes.liberty-tree.ca/quotes_by/andrew+jackson
The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction… I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity… is but swindling futurity on a large scale.
– Thomas Jefferson
http://quotes.liberty-tree.ca/quotes_by/thomas+jefferson
One of our founding fathers and the guy on the $20 bill.
But what did they know? Different era and all. Two old fuddy duddies whose heads were full of sound bites and lint rather than substance and wisdon.
Ditto Dr. Paul.
Right? Hmmm…
May 19th, 2009 at 8:54 am
@ wally 8:38
Well put. He had his shot at center stage during the primaries, when he was awash in a sea of grass-roots money, and was completely clueless about how to deal with success. Not the germ of a clue in his head. Barack Obama, for all his own cluelessness, is ten times the leader that Ron Paul will ever be. Sadly, it is entirely possible for a talented leader to lead in exactly the wrong direction.
May 19th, 2009 at 8:55 am
Wally,
It certainly seems relative, as what you seem to think is evidence of a poor politician is why some think Ron Paul is the best politician – he has beliefs he actually adheres too.
He can’t join the pack and still be Ron Paul, because to be Ron Paul is to be against the pack.
I dunno if you have a good feel for the conversion/alienation issue, and perhaps seem to have far greater belief in the capacity of people to be honest and open-minded. Those alienated by Ron Paul’s “jargon” are largely co-extensive with close-minded folks unwilling to be open to new ideas in the first place.
As his record setting presidential fund raising demonstrated, Ron Paul doesn’t alienate everybody, much to the establishment’s consternation.
May 19th, 2009 at 8:58 am
“This would be a positive, as taxpayers would learn the truth about how much financial support was given to incompetently rub financial institutions. These enormous taxpayer giveaways will shock the conscious of those who read the details.”
Agreed, yet for this reason, hell will freeze over first before any audit ever takes place.
May 19th, 2009 at 8:58 am
People are talking… ZH has a Fox News video clip that’s worth watching.
http://zerohedge.blogspot.com/2009/05/flagrantly-visible-hand.html
May 19th, 2009 at 8:59 am
no matter how much I agree with him, he does come across in the same manner as someone mentioning their gold holdings at a cocktail party – a loon, you get that HMV look – he is going no where, no concern to main stream politicians – the room falls silent.
May 19th, 2009 at 8:59 am
@ thetanman 8:46
Good God, man — with thoughts like that running through your head, do you find yourself waking up in the middle of the night screaming? And here I was naive enough to think we had reached the nadir of how badly they could screw things up.
May 19th, 2009 at 9:00 am
a Fox news clip worh watching? – surely you jest.
May 19th, 2009 at 9:01 am
@constantnormal – I discovered last night that the tan man is seriously insightful
May 19th, 2009 at 9:02 am
The average person — even in the “Information Age” — doesn’t have a clue about the government/banking nexus or how that nexus deprives them financially and politically. Those who do have a clue are too few and easily marginalized. When a Republic ends with a whisper, not too many people notice.
May 19th, 2009 at 9:10 am
@ Wes:
Zero Hedge is the draw for me. ;)
May 19th, 2009 at 9:11 am
I cannot imagine anyone managing to disband the Central Bank
I think historically the central bank disbands itself when it destroys its currency to satisfy political motives.
May 19th, 2009 at 9:11 am
Well – in all seriousness I’m a little confused about the Fed and it’s practical uses. Expansionary policy (allowed by the creation of the Fed) has brought great growth to the US. If the Fed were not there backstopping all the other banks, pushing them to lend more and more, I believe our nation would be less developed at this point in time. Granted, the majority of the development has been in the progression of better quality consumer items, but even though our populace is debted up to their eyeballs they do have a pretty luxorious lifestyle. I think if you asked the majority of Americans if they’d rather own a ’78 Pinto or lease an ’09 Lexus I bet I know which one they’d choose.
May 19th, 2009 at 9:14 am
Ron Paul may be a bit of a one trick pony- but I still like what he has to say- also
his desire to be president was determined by his conviction to change our monetary system- he did not want to be president because he wanted to be president-
something that can’t be said about almost all other candidates- and yes you can include Obama, McCain, Edwards, Hillary, Kerry etc, etc, etc
May 19th, 2009 at 9:14 am
The Fed’s money is only worth anything because it is backed by the full power of the US Gov, and the US Gov only has power because of us. In the end it’s our Fed, to some extent, as well. Clarity over what it does would be a nice thing to have. Anyone who is concerned about inflation of currency which is inherently valued at approximately $0 in the first place should turn their attention towards acquiring shiny assets.
May 19th, 2009 at 9:18 am
constantnormal,
I don’t sleep.
May 19th, 2009 at 9:19 am
Not only did they occur before the Fed came into being, they occured more frequently and were more severe.
More severe than the Great Depression?
Hmmmm…..
May 19th, 2009 at 9:25 am
transor z-
great link- a lot said in those 5 minutes
May 19th, 2009 at 9:27 am
…..the Creature from Jekyll Island….
May 19th, 2009 at 9:29 am
Can someone explain to me how the Fed caused the internet bubble? I’ve always heard it explained that they did so by not increasing rates enough (can’t have it both ways!). Would the market have done so on it’s own?
Also, looking at the Case-Shiller data, the real estate bubble has its roots in the late 90′s not the 2001/2002 period (when it really took off).
It seems a lack of Fed won’t eliminate bubbles, but the Fed can make it worse. Perhaps since the bubbles of my lifetime are blindingly obvious, one could find a criteria for decision-making that works better?
May 19th, 2009 at 9:30 am
transor z-
great link- a lot said in those 5 minutes
I noticed that stuff, but I noticed it back in early 2007. You just come to understand that you’re living in a kleptocracy and as a small guy it’s not too hard to trade around the manipulation.
I can imagine it must be hell for the larger fund managers who can’t liquidate short positions easily when they see the pumps.
May 19th, 2009 at 9:30 am
Actually there was a lot more government interference in past panics than people realize. But nowhere near as much as we now have. But we had the largest bubble in history on almost every metric you can imagine. Now the government balance sheet takes over and we all get to see if it works. Its rough being a lab rat.
May 19th, 2009 at 9:33 am
TransorZ – yes, good clip, despite Fox – ZH is a great attraction – can we say PPT.
May 19th, 2009 at 9:34 am
I am a Ron Paul convert. I only wish I had reconsidered my position before the election.
May 19th, 2009 at 9:35 am
Cursive, unfortunately, it would not have made a difference.
May 19th, 2009 at 9:35 am
@ Transor Z, I watched that video. He’s bang on with the prop job being done in the markets. It’s as blatant as ever. Take that efficient market theory and throw it out the window. It’s a crooked wheel more than ever. In fact, sit down for this, even Bove is complaining that there’s too much too manipulation going on, PUMPING up the bank stocks. The world really is upside down.
http://www.foxbusiness.com/video/index.html?playerId=videolandingpage&streamingFormat=FLASH&referralObject=5161667&referralPlaylistId=1292d14d0e3afdcf0b31500afefb92724c08f046&maven_referrer=staf
May 19th, 2009 at 9:43 am
Super-Anon:
Historically, the world we have known — that existing after the GD — has no parallel in history. While the GD may have been harsh, the period immediately preceding it (between the industrial revolution and the GD) saw the emergence of the first middle class in America. The GD may have been terrible for those who had recently risen to middle class status, but those who came before it, or those who did not benefit financially from it, would probably not have been severely impacted by economic panics, as all they knew was relative poverty in the best of times. Prior to the industrial revolution, there was no such thing a personal finance as we know it. The GD was “severe” because it hit the middle class. Our current decline will be worse, for the same reason(s).
May 19th, 2009 at 9:47 am
Don’t blame me, I voted for Ron Paul. I wrote him in. An honest President, what a concept. I am overall pleased with President Obama. He at least knows the word “jobs” and knows jobs are important, something that alluded the former President.
May 19th, 2009 at 9:48 am
@Wes 9:35
It matters to me. In retrospect, Ron Paul seems like the most qualified person for the job. As Ahab pointed out, not the least of which because unlike the others he seemed to have a real solutions rather than a desire to add “President” to his lifetime resume’. You don’t have to support him for President, but if anyone here would like to open this kimono of fraud, I suggest you give Ron Paul the support he needs.
May 19th, 2009 at 9:56 am
the Fed can basically do what it wants whenever it wants-
transor z-
regarding the video- blatant manipulation by market makers probably at the behest of the Fed/Treasury is very likely- anything to keep the ship from going down- fuck truth, justice and the American way
May 19th, 2009 at 9:57 am
@Machiavelli999
Great post. It’s too bad Senor Paul never paid much attention in history class, or he would know why Jay Gould (if you could find him in a rare moment of honesty) and Theodore Roosevelt would both agree that any civilized country must have a central bank.
It’s ridiculous that some people act as though a market controlled by the government is unfree, but an unregulated “wild west” market controlled by private individuals with plenty of capital and no morals (as we had in the late 19th and early 20th century in America) is somehow “free.”
May 19th, 2009 at 10:00 am
Transor Z,
Re the pump:
It’s still going on. You would think the housing news, the WSJ stories about pending commercial loan losses, the FASB requirement about bring on the books all the crap that has been hidden (although, in fairness the rule doesn’t take effect until 11-15-09 and won’t be seen until 3/31/10 on any bank financial statements), AMEX layoffs, oil at $60, and more might make a dent. But no.
Since it’s well known now to the point of open amazement, it should cost a lot more to keep up a market that has no independent buyers. At some point, the cash has to dry up.
My real amazement is why mainstream media such as the WSJ has ignored the pump, even to debunk it. Are they now a part of the business news trash heap along with CNBC? Also, the WSJ hasn’t even mentioned the FASB ruling. An analysis from them would be interesting. How bad will it be or is it a non-issue at this point? God, they’re useless.
May 19th, 2009 at 10:01 am
Lifelong Republican, but I wrote Paul in, in the last election. I admire his principle, his insight, his intellect, and his desire for change for the sake of fixing wrongs, not acquiring power for a political machine. Which is specifically why he was marganilized. The party did not have him in their pocket, hence he was cast away. Certainly, he was not the greatest politician, and my biggest frustration with him is during Congressional inquiries, and committees, he seems more centered on making long winded points, rather than drilling the usual suspects with pointed follow up questions. Grandstanding ultimately does not, in and of itself, create change. Exposing the vermin to the light, and casting them out has to be step one. His myopic view of elimination of the Fed is endemic of his shortcomings. He doesn’t posess any practicality to his views. But I still admire him a great deal.
May 19th, 2009 at 10:04 am
From Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aH8SyaUL.9H0&refer=home
“May 19 (Bloomberg) — The derivatives market shrank for the first time in the second half of 2008 as the global financial crisis curbed trading, the Bank for International Settlements said in a report. ”
As far as the internet bubble, perhaps there was a demographic element to the tremendous cash inflows which were met by magically expanding multiples. The Boomer generation was on the receiving end of the largest wealth transfer in human history. And they blew it on SCAMCO.COM trading at a multiple of 565 to zero earnings.
WRT tanman- leveraging billions of people. That’s exactly what they are doing in Brasil. Watch their bonds. Their recent issuances are crowding the market. They are in the process of significant monetary expansion. This is related to their intent to build a million homes.
May 19th, 2009 at 10:07 am
lifelong anti-politician-
they couldn’t suck more- they are the same useless “tools” you couldn’t stand in high school
May 19th, 2009 at 10:13 am
@ahab, stuart, dead hobo:
The ZH theory seems to be that the Fed is feeding $$ into GS and MS (et al?) to be used in their “SLP” capacities via open market operations and that this is being screened from view by two main things: 1) NYSE is a private entity and thus authorized to act appropriately to “maintain orderly markets” and 2) The fact of OMO loan issues are public record but recipients are not. So in theory there’s collusion between the Fed/Treasury and NYSE to prop up prices.
My feeble grasp of market machinations stops there. My own pet theory is that if the baby boomers lose their 401k’s for keeps there will be tremendous social upheaval. So this is kicking the can, as so many here have said.
Personally, I don’t think much of the US generation currently in their 20s and 30s. They’ll have to be confronted with some pretty ugly realities to get their collective heads out of their rear ends to mobilize themselves and rediscover social activism that goes beyond buying a Save the Pandas mug at Starbucks.
May 19th, 2009 at 10:14 am
MRegan Says:
“This is related to their intent to build a million homes.”
________________
Brazil is smart — everybody knows, real estate never goes down. Jungle housing is a great investment.
May 19th, 2009 at 10:17 am
Transor Z:
I believe OMOs are the tool that’s being used to pump the market. Too bad there’s no way to prove it.
May 19th, 2009 at 10:21 am
“They’ll have to be confronted with some pretty ugly realities to get their collective heads out of their rear ends”
Indeed. Long recessions can do that. Now, where is my Save the Panda mug?
Transor: It’s almost time to stop goosing stocks and start supporting the bond market for the summer.
The ride ends here. Change here for the D train™ !!
May 19th, 2009 at 10:26 am
franklin411,
Until the CB becomes corrupted and destroys capital in favor of debtors. Real capital is the bedrock of any real wealth creation. Western CBs are running a ponzi scheme, pure and simple. And history shows they will continue to do so to the bitter end. Long gone are the days that Paul Volker told Jimmy Carter he was going to have to take one for the team.
May 19th, 2009 at 10:27 am
transor z-
but in the end- there cannot be mass hypnosis – there has to be a reason for the market to advance beyond a certain level- wouldn’t pas the smell test if the market trudges back up to say 11 or 12,000 for no apparent reason-
I think there is manipulation for the reason to keep the market from going down further- cannot risk another TBTF bank panic/failure
May 19th, 2009 at 10:28 am
I am not sure we would be better off without a Fed busy inflating away or that people would choose differently if they all knew the whole story. Human psychology seems very happy to confuse chronic inflation with growing prosperity. Also, inflation does have a way of spurring the velocity of money and investment into productive activities. That is the basic policy choice that has occurred in preference over price stability. http://www.economics-charts.com/images/cpi-1800-2005.png
There is an endgame though where it becomes impossible to generate enough wealth to service even debt that is being inflated away.
May 19th, 2009 at 10:29 am
in a politically correct* world the number of fiat debt dollars is the equilibrium to the human population numbers that needs to be supported* at some level … machines have upset the balance of birth rates … * “Save the _____” and save me/us
“Giving” .. the kickback to the utopian dreamer
______
within the hour – my excerpt to IL Congress Rep Election Reform Questionaire
“interesting days to come when we have moved into spaceships and off earth – where the cashless near utopian system will endure – small enclosed tribes needing each other”
May 19th, 2009 at 10:30 am
While I cannot imagine anyone managing to disband the Central Bank — as long as any other countries have one, it would amount to unilateral disarmament
I’d say it’s more like ceasing to blow our own toes off. No reason not to do that just because others are also fond of the habit.
The idea that the pre-Fed financial panics were “more severe” than the post-Fed ones is patently false, we’ve just hidden the costs of the post-Fed panics by transferring losses to the taxpayer. Once the federal government’s finances become strained you will see what suppressing debt liquidations for 70-plus years gets you: the mother of all panics.
May 19th, 2009 at 10:32 am
Human psychology seems very happy to confuse chronic inflation with growing prosperity. Also, inflation does have a way of spurring the velocity of money and investment into productive activities … There is an endgame though where it becomes impossible to generate enough wealth to service even debt that is being inflated away.
And thus ends the confusion. The laws of reality cannot be permanently repealed, only ignored or suspended for a time.
May 19th, 2009 at 10:50 am
@Marcus Aurelius:
A class action lawsuit by persons/funds who held short positions — and therefore suffered actual losses — during the period in question would be interesting.
If it was handled by a sophisticated law firm, it would be epic and an awful lot would come to light.
May 19th, 2009 at 10:53 am
pss – Downer Spoiler Alert
ps – yesterday I was at the library looking at 100+ year old maps of under my property coal mine tunnels and related photos & stories
my friends – those were the days of what was work … I think war and soldiering is the closest thing we have today
…
and who today (as well as then) do we reward richly for their deeds .. the money pile pushers .. my bliss has been eroded with old age .. so learn children what pays in cash and what provides a back-breakin existance
May 19th, 2009 at 11:06 am
If you want to support HR 1207 to audit the Fed please sign this petition.
http://www.ipetitions.com/petition/HR1207/index.html
May 19th, 2009 at 11:13 am
Transor Z Says:
May 19th, 2009 at 10:50 am
@Marcus Aurelius:
A class action lawsuit by persons/funds who held short positions — and therefore suffered actual losses — during the period in question would be interesting.
comment:
—————-
It wouldn’t even take that. Assuming a market propped up via OMO and cooperative funds managers, anyone who was fooled into thinking the market was in good shape and safe to buy into, and who subsequently lost money when gravity finally won out, is due for compensation. Also, since the loss was due to fraud and manipulation, possible jail time might be involved.
May 19th, 2009 at 11:15 am
I have to say despite whether it makes any sense or not, getting rid of the Fed isn’t on the table right now. For better or worse, it’s here to stay for the foreseeable future. Removing it would be like shuttering the dept. of education, it’s built too far into our culture (and sense of daily life) to pull out in such a abrupt fashion.
But Dr. Paul does have an excellent point that transparency should be a new pillar added to the functioning of the Fed. It’s OUR money, its OUR economy, and lately it’s OUR taxes bailing the whole thing out. We deserve and should expect to know what “deals” are being made in our name, right down to the last decimal point. Otherwise, the potential for corruption and neoptistic behavior is too great for most to resist. It is perfectly reasonable to expect any institution of a democratic republic to be beholden to the citizens, no matter what purpose they serve.
May 19th, 2009 at 11:26 am
cursive @9:48
I voted for Ron Paul as well – It was in 1988 when he was the Libertarian Party candidate.
He had no chance at all this go around either.
It mattered more to me in 1988 than it did in 2008 since it seemed to be an exercise in futility.
I guess I am loosing my youthful innocence and idealism.
May 19th, 2009 at 11:32 am
TZ and MA,
you guys are funny – Bailout Nation for the shorts that were suckered by the PPT.
why not, everybody else is getting some funny money – it won’t be worth anything by the time the lawsuit is done, at the rate Helicopter Ben is going.
May 19th, 2009 at 11:33 am
Maiden Lane LLC has been audited. The nearly 30% loss is almost as disgusting as the $54 million in fees paid to Blackrock for “managing” the assets and State Street for providing custody services from March 14, 2008 to December 31. 2008. And let’s not forget the $21 million in organizational fees paid to some law firm to print out a bunch of documents to form an LLC.
The whole thing is beyond corrupt.
http://www.federalreserve.gov/monetarypolicy/files/BSTMaidenLanefinstmt20072008.pdf
May 19th, 2009 at 11:49 am
Too many are under the assumption that the (banking) experiences in the 19th century are the alternative in a Fed-free USofA. Remember, we were trying to populate much of an entire continent, and even without a central bank, there was lots of “cooperation” between government, banking, and, umm, railroads.
Since even the Austrians have de-bunked the myth of Scottish Free Banking, we really don’t know what truly free banking might look like. In any case, it’s not in governments’ self-interest to not issue money (give up power), and I don’t see them stopping anytime soon. Should rampant inflation take hold, however, I’d love to see Ron Paul’s portrait on a $1 trillion FRN.
May 19th, 2009 at 12:06 pm
Barry Ritholtz says to end the Fed would be unilateral disarmament – what oligarchical crap.
It would be like being the only NUCLEAR POWER again. It would be like rediscovering the wheel. It would be like a financial fountain of youth for this nation. If the people of the US take back their money, the graft, waste, interest debt, and eternal (infernal) slavery that ensues from a central bank would end.
Returning to a savings based banking system and an asset backed money supply would recreate a dollar that is a true IOU of VALUE. It would create a non-inflationary, growth oriented economy in which real wealth could be created and PRESERVED. In such an economy THE PEOPLE could have economic freedom instead of the debt and inflation and tax slavery they now enjoy.
I CANNOT STAND THE F’ing DISINFORMATION establishment interests (yes, Barry Ritholtz for all his clucking is an establishment interest against the interests of the people) spew about central banks and why they are necessary.
~~~
BR: How would being the only nation WITHOUT a central bank be like being he only WITH nukes? You make no sense, but at least you know how to use the cap lock key
May 19th, 2009 at 12:38 pm
At least two lawsuits have been filed to force the Fed to provide information on its “cash for trash” program. So it’s not like Ron Paul’s idea is new or radical.
The lawsuits will probably stay bottled up in the courts until the Fed is good and ready to provide the information anyway.
May 19th, 2009 at 12:44 pm
Congress has abdicated this responsibility to a cabal of elite, quasi-governmental banks that, instead of stabilizing the economy, have destabilized it.
Damn straight. One of the few people who actually tells it like it is.
Why did we really agree to try it again, should we agree to try another ’solution’ again, or do we need something completely different?
The Fed was essentially architected by reps from the world’s biggest banks, disguised as a Federal entity (not as a central bank, which would have been politically unacceptable) and pushed through Congress in a late night holiday session to be signed by a President elected with the support of the banking oligarchy.
May 19th, 2009 at 12:46 pm
Machiavelli999 Says:
“You should really learn a little bit about financial panics.”
Apparently so should you. Several financial “panics” were orchestrated by bankers themselves, to oust one another or drive support for a central bank.
May 19th, 2009 at 12:53 pm
Expansionary policy (allowed by the creation of the Fed) has brought great growth to the US. If the Fed were not there backstopping all the other banks, pushing them to lend more and more, I believe our nation would be less developed at this point in time.
Right, but this is like saying my own personal empire would be less developed if not for all of my credit cards and the printing press in my garage. Sure, I have 12 houses and 15 cars, but it was all built on debt and fraud!
May 19th, 2009 at 1:25 pm
He’s also aware of how the dollar has fared since the Fed’s creation. And a lot more I’m sure. I would have voted for him but I knew he didn’t stand a chance of winning. No, special interest groups would never had allowed that to happen.
May 19th, 2009 at 1:58 pm
The United States grew before the FED existed. Then it continued to grow in spite of the FED. I wish somebody would let me hold ten dollars and then allow me to loan out ninety. I wouldn’t even have to charge interest. Once I collected on the loans I’d have made nine times what I started with. Most new business’ fail. But the banks don’t care. If they only get back half the money they loan out, they still are four and one half times richer. Unless they make a bunch of bone head loans. Then they get a bailout, which they loan us the money to give to them.
May 19th, 2009 at 2:00 pm
1) Just like the Bank of England, but UNLIKE OTHER CENTRAL BANKS, the Fed pays dividends to shareholders instead of handing their revenues back to the treasury. I think there IS a point in saying, IF there’s a central bank then it should be sort of independent from politicians. However, there’s really no need to not give the earnings to those who deserve them: The public.
2) The question whether or not a fractional reserve banking system is a great thing to have is dificult to answer. Yes, central banks manipulate the market, but that’s why they’re there. Please note that the priorities of objectives vary among different central banks. The idea is that the bank keeps the money supply adequate wrt eceonomic devlopment. Now that’s where it all starts… if CPI rates are manipulated the rest of the story doesn’t make too much sense, and apart from that, there has never been a fiat money sysem which didn’t collapse (and the first to have a fiat money system were not the French but the Chinese back in 11th century). I think a fiat money system has its advantages… however, one should openly address the fact that when it finally and inevitably collapses, the effects of that collapse should be handled in a fair manner.
3) I’d be happier if the world stopped listening to central bankers of questionable reputation. I’d even be happy if people UNDERSTOOD the monetary system at all. If they did, a lot of things would be impossible.
4) I think Ron Paul is cool. I’ve seen him admit he didn’t know a detail and was open to reconsider his attitude when he knew more, in an interview. I’ve seen him say things the public doesn’t want to hear, in interviews. He doesn’t care about his popularity, he just shows a tremendous amount of integrity, and hell, how refreshing is that… I so wish there were more politicians like him, so just we’d get a chance to openly discuss core issues instead of being provided with manipulated information. Man, that would be democracy… instead of de-mock-racy…
Cheers!
May 19th, 2009 at 2:07 pm
Pat G.
w/this: “I would have voted for him but I knew he didn’t stand a chance of winning.”
Since you’re intelligent, enough, to understand the following Q:
“Self-fulfilling Prophecy, much?”
or, differently, “Did you get “Rewards Points” for Voting for “the Winner”?
May 19th, 2009 at 2:10 pm
The idea is that the bank keeps the money supply adequate wrt eceonomic devlopment. Now that’s where it all starts… if CPI rates are manipulated the rest of the story doesn’t make too much sense
Inflation wouldn’t be so bad if it were an innocent imperfection in an attempt to grow the money supply wrt to economic growth.
But the fact is the Federal Reserve system is incentivized to inflate. That’s how their member banks make the biggest profits! It’s inherantly perverse.
May 19th, 2009 at 2:34 pm
“incompetently rub” typo reminds me of Take the Money and Run “I have a gub!”
May 19th, 2009 at 2:43 pm
Andre D,
The Federal Reserve turned over 31.7 billion of its 35.5 billion in income in 2008 to the United States Treasury. http://www.federalreserve.gov/newsevents/press/other/20090423a.htm
May 19th, 2009 at 3:17 pm
@ 1.5quad, mikaeel and AndreD
Wish I had written that, glad you all did. I would not knowlingly give up my rights as a free man, yet it seems the FR have been usurping them since before I was born.
May 19th, 2009 at 3:30 pm
@ delliott 2:43
That’s a bit like the fuss made over the AIG bonuses, i.e. misdirection. Thanks for throwing a few pennies after you’ve raped the economy. And I love this from the release:
The individual and combined Reserve Bank financial statements and those of the consolidated LLCs and the Board are audited annually by an independent external auditor.
Yeah, they may be been external, but I can assure you that they weren’t independent.
May 19th, 2009 at 3:50 pm
@Mark 2:07PM
As I see it, anyone who won’t allow themselves to be manipulated by special interest groups, won’t win. Self-fulfilling? Hardly. Just reality. Sad but true.
May 19th, 2009 at 4:32 pm
I read all the comments on the Fed and Ron Paul that are both poison and honey. I noticed there are probably a couple or so commentaries that came from those who probably have a formal education in economics. And they explained why there is a Federal Reserve and why we could not have been — and still is — the wealthiest, the greatest and the mightiest nation on the planet had there been no central banking our wealth and monetary system [policy-making and regulatory direction on economic stability and growth].
In spite of my long years in the academe – in graduate school studying and teaching advance economics – I don’t know where the rest got their economics. But it is honest ignorance [the polite term is genuine innocence] that entertains monetary economists when they read those comments from those who pull their talking sticks straight from smart bags full of tricks! And like watching Angels and Demons in a full-packed downtown theater brandishing their magic wands to vanquish each other, I enjoyed it myself.
Just a fundamental clue of what all the arguments missed when the uninitiated dives into the empty pool of economics. I will say it in biological terms to placate hero-worshiping of Ron Paul who is not an economist but a doctor of medicine. Economic forces out there are made of radical bodies that attack the system [the bad guys], and also of anti-bodies [the good guys] that preserve a system of growth, and a healthy economy. If the bad guys are stronger, an ailing economy results – like what we have now – until the good guys neutralize them one by one in time.
What we are having right now – bailouts, regulatory policies introduced, punishing and rewarding economic players, etc. – are actually anti-bodies engaging the bad guys.
Note that in the science of economics, either of those forces can be the good guys or the bad guys. Let’s take inflation. There is no economic growth without any inflationary expansion. Inflation is therefore absolutely needed. We are practicing Keynesian economics [our economic system rejects Austrian economics as unworkable]. In this sense, supporters of inflationary expansion for growth are the good guys. They brought us here with our Mercedes Benz and trip to the moon.
But inflation eats up the value of assets. Inflation hits hard those with income that falls behind the rate of inflation. They are the grumbling bad guys who use their expertise to see to it that the good guys couldn’t and shouldn’t move forward.
These bad guys could be good guys in reverse if the inflationary force goes out of control. Expansionary advocates lost track of reality when they enjoy their bounty like gluttons, out of inflationary expansion. This time they become the bad guys. We could have a run-away inflation that in fact would damage the economy. Printing of money for more purchasing power and indulgence in the use of credits that balloon to uncontrollable proportion because of greed is a situation where we are having now.
The Fed was created precisely to regulate the swings of inflations between those opposing forces. Today many are hurt because expansionary forces are out of control. However, the Fed is not an abracadabra illusionist we see in many stage shows in Las Vegas where one sweep of the magic wand this hurting episode will quickly disappear. It works slowly but surely – from six months at the shortest, to two to three years at a medium range of recovery in a moderate to severe recession. Unfortunately, you need advance economics to know this. You do not learn this from street economics. But you can pretend that you are talking real economics. It is good for blogging, just to get your share of the verbal mayhem you enjoy.
So basically, there you are. The Fed is you and me, created through Congress. To say that we should abolish the Fed, it is like saying that we should abolish you and me. A doctor of medicine cannot know what he is talking about on this subject. A doctor of medicine who sponsors bills to abolish the Fed year in and year out is like sponsoring a bill to abolish the law of supply and demand. He is laughed at and ignored – just a reality check, with no offense intended.
The Fed is run by thieves … isn’t that the funniest joke out of a complaint from the bayou? It’s purely innocent … so untainted with malice – just plain anger — that it elicits an honest hearty chuckle.
Never mind Ron Paul. He is widely known as a doctor of medicine who many believed had lost his aerial navigation and landed in politics — landing in the wrong trade. In economics, you need him only when you develop a migraine for losing the value of your lifetime assets or when the falling stock market becomes your nightmare. He can prescribe you drugs to dull your pain for a temporary relief.
But don’t be silly. He can prescribe medicine but cannot prescribe any economic cure just because as a doctor he can get rid of your economic headache. No legit economist understands his economic diatribes. He thought he was talking economics.
Hoping that he would become president with your vote, is like hoping that the sky will fall because he had fired so much number of cannonballs in the air against the Federal Reserve. Take it as an entertainment in the last comic standing reality TV-show where it is worth your time.
May 19th, 2009 at 5:04 pm
George, what a party pooper.
“There is no economic growth without any inflationary expansion. Inflation is therefore absolutely needed. We are practicing Keynesian economics [our economic system rejects Austrian economics as unworkable]. ”
Would you like to elaborate a bit on this quote?
May 19th, 2009 at 5:12 pm
Huh? You teach college and you can’t punctuate or deal with simple pronouns?
Whatever, George.
Paul certainly knows more about economics than you know of syntax or the rules of composition…
KILL THE FED AND FREE THE PEOPLE! NOW!
Only liars like you could support the FED. Academia my ASS!@ Go back to grade school English!
George Voit Says:
I noticed there are probably a couple or so commentaries that came from those who probably have a formal education in economics. And they explained why there is a Federal Reserve and why we could not have been — and still is— the wealthiest, the greatest and the mightiest nation on the planet had there been no central banking our wealth and monetary system [policy-making and regulatory direction on economic stability and growth].
May 19th, 2009 at 5:24 pm
Count me amongst the great unwashed ignorants who don’t have sweaters with elbow patches, don’t smoke pipes, festoon our den walls with advanced Econ degrees, and do not further haunt the halls of Academia. I believe in the need for a Fed, but your elegant prose has don’t little to still my belief that the Feds actions are tainted, whether it be by poor judgement, or by undue, self serving influence of its principal financial regulatory constituents. A little oversight and trasnparency is not totally incompatible with its basic function.
May 19th, 2009 at 5:31 pm
@ George:
I can’t help but note the irony in your criticism of a doctor of medicine playing at “advance economics” taking the form of a academic economist playing at a medical analogy.
Thanks for putting things in terms of good guys and bad guys. Those of us here who are total morons greatly appreciate the condescension and oversimplification.
Tip: what goes on in real-life high level business meetings is a lot more “street” than academe.
May 19th, 2009 at 5:37 pm
George Voit is Tiny Tim blog-posting after a pint of scotch.
If he teaches “advance(d) economics ” then Tiny Tim Geithner really must be a genius!
George – the Fed was created for one purpose: to create a money cartel that can control THE PEOPLE’S money and charge the people interest for the issuance of it’s OWN currency.
http://video.google.com/videoplay?docid=6507136891691870450&ei=5yQTSqKGIpW6qAPB54SgAQ&q=creature+from+jekyll+island&hl=en
READ THE CONSTITUTION. You do not need a PRIVATE central bank to issue currency.
If the FED was created to moderate monetary excesses then it isn’t working! What it is good at is siphoning off taxpayer monies to pay for the issuance of currency thereby increasing the NATIONAL DEBT!
The Grace Commission in the 80′s made it very clear that NOT ONE SINGLE DOLLAR OF TAX pays a single bill of the Federal Government. IT ALL goes to service the debt, which exists exclusively because the FED issues the currency.
Tim G, is that you using a pseudonym to post defenses of the FED?
May 19th, 2009 at 6:59 pm
@ 1.5quad
“READ THE CONSTITUTION. You do not need a PRIVATE central bank to issue currency.”
What a novel concept. We never needed a FR and now that we’ve got one, we have to explain to people that it’s not necessary. We are a long way from the collective wisdom of Independence Hall.
May 19th, 2009 at 6:59 pm
Pat G. Says: May 19th, 2009 at 3:50 pm
Pat,
I hear your point, though, it’s like the ol’ Country Song says: “if you don’t Stand for Something, you’ll Fall for Anything..”
May 19th, 2009 at 8:30 pm
“The failure of central economic planning has been witnessed over and over. It is frankly beyond me why we ever agreed to try it again.”
Well, the opposite has also failed over and over again. That is, completely free markets.
Why?
Because for free markets to work the way the rhetoric wants it to do so, requires that the foundation of the system be true.
That is:
*Perfect information
*Completely competitive markets
*Perfectly rational investors
*Perfect flow of labor and capital.
hmmmmm, is it me or not of that holds? EXACTLY.
That’s why we need free markets combined with some sort of centralized government intervention.
Please, throw the bullsh*t rhetoric off the window and understand that free markets or government by itself does not work.
The combination of the two is what is needed.
May 19th, 2009 at 11:32 pm
clarification of my post at May 19th, 2009 at 10:29am
at the moment before posting I deleted line feeds in the 1st paragraph to save space – that made a difficult to comprehend post horrible ..
“in a politically correct* world the number of fiat debt dollars is the equilibrium to the human population numbers that needs to be supported* at some level
…
machines have upset the balance of birth rates
…
(politically correct)*(supported)* ‘Save the _____’ and save me/us”
thats what I wrote – what it meant in a few more words ..
“pc” = to care for not kill
“fiat debt dollars” = funding mechanism
“equilibrium” “balance” = sorta like former TresSec Paulson (paraphras’g) said “once a debt (home) is created its to late to take it back
“needs to be supported” = somehow/someway folks get what they need – be it charity or gov social programs
“at some level” = nice home or a shelter bed
the entire statement also meant .. as long as someone is alive – generally you will provide for their existence … so that living being kicks into GDP tho shallowly .. helping that being increases GDP
…
prison for that living being is very unproductive and costly (barring a few trades)
May 19th, 2009 at 11:55 pm
InvestmentAnalysis ….
You can tell them again — straight economics that some of these guys have no idea what it is all about.
Stress your point to those who ran out of argument and resorted to personal attacks in lieu of “brains” that ran out of ideas what the Fed and free enterprise mean to the national economy.
Notice this: In Texas Straight Talk — Ron Paul’s website, I posted this comment over the many comments written under different names.
It is strange. The comments are all worshiping Ron Paul, and obviously written only by one person who speak the same language. Audit the Federal Reserve? The Fed is the nation’s auditor of the monetary system. Who will audit the auditors? Who will audit the auditors that audit the auditors, and still audit the auditors that audited the editors, ad infinitum? The Fed is you and I — the people — acting through Congress and the Office of the President, and the bankers that together perform a public function.
By law, Congress delegated its policy-making power to the Fed. That’s because as a body run by politicians, Congress does not have the technical expertise needed to run our monetary system. It is the bankers who literally live their life in monetary economics that have it, so we jointly become the Fed that performs a public – not private – function.
However, when the Fed formulates monetary policies delegated by Congress, you and I participate through the involvement of the President we elected to office, and the participation of politicians we put in Congress like Ron Paul. The Fed’s monetary policies are not policies of a banker or group of bankers that “robs” the “poor” and gives the loot to the “rich” as Paul sorely whines. I am embarrassed that this “politically correct” diatribe comes from no less than a member of Congress. That’s not reality … it is simply pure rage.
Monetary policies are formulated by a group of government and banking participants or representatives that make up the Fed’s Board of Governors. No single private person or private interest working within the intricate Federal Reserve system, which the law has so wisely structured with all the necessary check-and-balance safeguards, dictates the rules of the game, except you and me and the politicians we elected to office.
Just because a couple or so of our great forebears criticized the operations of banks and faults of the banking system during their own time, it does not mean that their critiques are right IN OUR TIME. In their time, they didn’t have the likes of Freddie and Fanny Maes, the AIG, JPMorgan Chase & Co. (JPM), Goldman Sachs, International, etc. or Visa and Mastercard, so forth and so on. The point is, brains that do not work well because of emotional outrage over the malfunctioning economy will use quotes of our framers of the Constitution to attack the Fed which is delusional.
It is not the language of economist for Paul to say that “ … you cannot defend the Federal Reserve and the free market at the same time.” It gives a false impression that the Fed cannot exist in our free market system. On the contrary, the Fed and our free enterprise economic system need each other both in good and bad times. The Fed guards and acts against excesses in our free enterprise system – you will know this when you really knew what central banks are for in the modern and more complex economy of the civilized world.
Legitimate economists would not hesitate to say that the Fed never intervenes in the market unless the economy is in trouble or on tilt. On the contrary, the Fed’s primary job is to encourage free enterprise in open market by regulating the players’ excesses. Fed is not the enemy of our free market system as foolishly perceived by those with ax to grind or by those politicians just obsessed of hugging the limelight, with supporters that knew no better than sing hallelujah.
When comments like what I read are nothing but empty hero-worshiping of an idol that happens to be outside of the world of economists, the problems we are now in become tenfold more dangerous. That these are amusing is probably its only redeeming virtue.
May 20th, 2009 at 3:02 am
I’m inclined to believe George Voit is some kind of clown trying to rile up the board by spouting exactly the kind of gobbledygook they teach you in upper-level economics courses. I.e.: the Federal Reserve System is our Lord and Savior, praise be to its smoothing and taming of the wild beasts, capitalism and hard money (which made the nineteenth century such a horror show of endless economic stagnation), and blessed are the modelmakers, who alone can divine and chart the proper course for our great Ship of Commerce, steering it with the might rudders of open market operations and discount rates.
No wonder I had to stick around and get a math degree after I finished my econ B.A. … I had to get the taste of bullshit out of my mouth.
May 20th, 2009 at 9:20 am
Graphite,
as you know, “Economics”, as it is widely known, has been co-opted by Poli-Sci charlatans–namely JMK, and his ilk–to serve their Finance underlords..
thus, giving rise to the Poli-Sci-Fi schema that Masquerades as an ‘Economy’..
and, yes, Voit, above, is completely FOS.
May 20th, 2009 at 3:19 pm
To 1.5quadrillion and your kind:
Throwing manure on opponents cannot make you win any debate. Having too much dirt to throw around speaks only of where it is coming from. From where you are, to where I am now in my educational attainment and experience in life, I am a million miles too far away from you that I could not anymore go back to your level no matter how tempting is your invitation to join you there.
None of you and your kind has ever responded to the issues I raised. You are too deep in your anger. For instance, in my previous comment I raised the issue that Ron Paul was ignorant to say that the Fed and our free enterprise system cannot be defended at the same time – in short, he believes both cannot co-exist. In fact one cannot exist without the other. Only street economists dispute this reality in the science of economics. Many believe that what they hear from Ron Paul is “loconomics”, not economics. You should have spent your energy in proving this wrong instead of excreting too much bile pigments out of your system that makes the color of the sky looks yellow.
But here is to your credit: Your rant shows sparkles of ideas that could only come from a genius [or what you are good at]. I will reprint what you said and ask you to explain what you mean because no schooled economist understands what you are saying [CAPITAL LETTERS FOLLOWING YOUR STATEMENT IS MINE]:
Here’s your RantsKILL THE FED AND FREE THE PEOPLE. ISSUE THE CURRENCY DIRECTLY AND CREATE A WELL-REGULATED REGIONAL BANKING SYSTEM WHICH IS ASSET BASED. Provide liquidity to match the transactional needs of the economy, not credit needs. Restrain credit and encourage INVESTMENT.
WHO SHOULD ISSUE THE CURRENCY? WHAT IS AN “ASSET BASED” REGIONAL BANKING SYSTEM? DO YOU UNDERSTAND WHAT THIS MEANS? WHO WILL “PROVIDE LIQUIDITY”?
IN ECONOMICS, “LIQUIDITY” IS CASH AND/OR EASE OF CREDIT, AS OPPOSED TO CREDIT CRUNCH. YOU SAID “PROVIDE LIQUIDITY” … MAYBE YOU MEAN MAKE CASH ASSETS AND CREDIT AVAILABLE FOR NEEDED ECONOMIC TRANSACTIONS. WHO DO YOU THINK WOULD DO THAT EXCEPT THE CENTRAL BANK OR THE FED THAT YOU WANT TO ABOLISH?
YOU DO NOT TALK SENSE WHEN YOU SAID “Restrain credit and encourage investment.” THIS IS OXYMORON [CONTRADICTORY]. DID YOU KNOW THAT IN ECONOMIC PERSPECTIVE, WHICH BY THE WAY IS VERY FAMILIAR TO LEGITIMATE ECONOMISTS, YOU CANNOT INVEST IF YOU DO NOT HAVE SAVINGS, AND IN BUSINESS YOU CANNOT HAVE SAVINGS [NETWORTH] UNLESS YOU HAVE INVESTED. INVESTMENT IS ACTUALLY BORROWING, AND YOU CANNOT HAVE BORROWING WHEN “CREDIT IS RESTRAINED”. WHERE DID YOU LEARN YOUR ECONOMICS? I AM CURIOUS.
ON THE SUBJECT OF SAVINGS AND INVESTMENT, LET’S TALK ECONOMICS.
YOU ARE NOT TALKING LIKE AN ECONOMIST THAT I COULD UNDERSTAND AS AN ECONOMIST, BUT I GUESS YOU ARE THINKING OF ECONOMIC GROWTH VIS-À-VIS RECESSION WHEN YOU MEAN WHAT YOU SAID ABOUT CREDIT AND INVESTMENT. GROUTH RATE IS DETERMINED BY THIS SIMPLE EQUATION: S = I. WHICH MEANS THAT THE ECONOMY WILL GROW AT A RATE DETERMINED BY [1] MARGINAL PROPENSITY TO SAVE, AND [2] INCREMENTAL CAPITAL-OUTPUT RATIO. THIS IS KNOWN AS “WARRANTED GROWTH RATE” OR EQUILIBRIUM RATE OF GROWTH. THIS IS MY FAVORITE EQUATION I TAUGHT IN MY ECONOMIC CLASS:
THIS IS EXPRESSED AS FOLLOWS:
S = I
S = sY
AY = 1/L I
WHERE:
AY = IS CHANGE IN REAL INCOME EXPECTED.
I = IS NET REAL INVESTMENT [CHANGE IN THE STOCK OF CAPITAL].
S = IS REAL SAVING.
s = IS MARGINAL PROPENSITY TO SAVE.
L = IS THE DESIRED OR EQUILIBRIUM MARGINAL CAPITAL-OUT RATIO.
PUT THE NUMERICAL ECONOMIC MAGNITUDES IN THIS EQUATION AND YOU WILL COME OUT WITH [–] G OR [+] G [POSITIVE OR NEGATIVE GROWTH] BASED ON THE NATION’S MARGINAL PROPENSITY TO SAVE, AND INCREMENTAL CAPITAL-OUTPUT RATIO AS COMPUTED.
I ONLY EXPANDED IN ECONOMIC TERMS, WHAT YOU HAVE STATED, TO MAKE YOU UNDERSTAND WHAT YOU ARE TALKING ABOUT IN ECONOMICS. WE ARE ON THE SAME WAVE LINK EVEN IF YOU HAVE JUST A MODICUM OF UNDERSTANDING OF THE MEANING OF WHAT YOU JUST SAID. BUT I DOUBT VERY MUCH IF TALKING BIG IN ECONOMICS LIKE YOU DO MAKES YOU UNDERSTAND A SINGLE WORD OF WHAT YOU ARE SAYING.
YOU ALSO SAID: “the only way for the FED to keep the air in the bubble (read: increase the money supply) was to issue loans to people who couldn’t pay them back. That worked out well don’t you think!” BANKS ISSUE [sic] [YOU MEAN GRANT – BANKS DO NOT “ISSUE” BUT GRANT] LOANS TO PEOPLE. [ONLY LAY PEOPLE SPEAK THE WAY YOU DO – NOT ECONOMISTS THAT YOU CLAIM YOU ARE. IN ECONOMIC CLASSES, STUDENTS ARE TAUGHT TO BE ECONOMIC-LITERATE, EVEN IN THE WAY THEY SPEAK THE LANGUAGE OF ECONOMICS.]
FOR YOUR VERY MUCH NEEDED INFORMATION, FED REGULATES BANKS THAT GRANT LOANS TO CONSUMERS/INVESTORS WHEN BANKS FAIL TO OBSERVE THE STANDARD CRITERIA THAT COULD RESULT IN BANKRUNS AND/OR FINANCIAL MELTDOWN LIKE WE HAVE NOW. WHEN DEMOCRAT CHARLATANTS IN CONGRESS LIKE BARNEY FRANK Financial Services Committee Chairman PREVENTED THE FED TO REGULATE THE CORRUPT LENDING OF FANNY MAE AND FREDDIE MAE, [FRANK IS GAY AND THE OFFICER-IN-CHARGE WAS REPORTEDLY HIS LOVER HE ALLEGEDLY WANTED TO PROTECT] THE BUBBLE BURST. CREDIT CRUNCH FOLLOWED THAT SMASHED INTERNATIONAL GIANT COMPANIES LIKE AIG, AND BIG BANKS IN THE COUNTRY DOWN TO THE CREDIT-DEPENDENT AUTO INDUSTRY, AND FINALLY TO CORPORATIONS AND SMALL BUSINESESS THAT COULD NO LONGER OPERATE BECAUSE CREDITS TO FINANCE THEIR DAILY OPERATIONS HAVE BEEN RESTRICTED BY THE CRISIS. DO YOU UNDERSTAND WHY WORKERS LOST THEIR JOBS? MAYBE YOU ARE WONDERING WHY THE RATE OF JOBLESSNESS IS SKY-ROCKETING ALL OVER THE COUNTRY?
YOU MISSED AGAIN. YOU WANT TO GO BACK TO GOLD STANDARD JUST BECAUSE YOU PUT YOUR EARS ON THE GROUND AND HEARD SOMEONE MAKING A CALL TO GO BACK TO GS. THIS THINKING IS ABOUT A CENTURY-OLD. COUNTRIES ALL OVER THE WORLD LEFT GS MANY YEARS AGO. NOBODY WANTS TO GO THERE ANYMORE, EXCEPT THAT IT IS GOOD TO HEAR GS FROM THE MOUTH OF SOMEONE IN THE MEDICAL FIELD WHO PRETENDS TO BE AN ECONOMIST.
I DO NOT NEED TO GO ON AND EXPOSED YOUR __.
I THINK YOU JUST GO BACK TO NAME-CALLING WHERE YOU ARE VERY GOOD AT. LEAVE ECONOMICS TO LEGITIMATE ECONOMISTS. THEY NEED A BETTER SPACE HERE THAT YOU ARE TAKING AWAY. LET’S GIVE THIS SPACE TO EDUCATED, CIVIL AND POLITE COMMENTS WHERE WE COULD EXCHANGE IDEAS IN SOLVING THE PROBLEMS OF THIS COUNTRY. NOBODY, PERHAPS JUST A FEW, WHO WANTS TO GET DIRTY, EVEN THOUGH IN THE FREE MARKET OF IDEAS, SOAP IS CHEAP FOR THOSE WHO WANT TO CLEAN THEIR MOUTH.
May 21st, 2009 at 1:01 am
George – methinks you protest too much.
I ask for you to provide Bone Fides, not a meth induced rant!
You do realize that you didn’t provide an equation in you rant about your “FAVORITE EQUATION… TAUGHT IN [your] ECONOMIC CLASS”. You’ve listed a set of sillytautologies.
Savings = Investment Oh REALLY? Shit= Turd.
Maybe this is what you meant: The product of the savings rate and output equals saving, which equals investment. sY=S=I
The above is still only a single part of a static model that explains the economy’s growth rate in terms of the level of saving and productivity of capital and, by the way, is irrelevant in discussing THE FED!
You crazy George.
May 21st, 2009 at 1:14 am
George – stop with the verbose inanities. PLEASE! You are not an economic professor and you can’t write a coherent sentence.
Provide us with bone fides if you dare OR SHUT THE HELL UP about being “educated”. I have a degree in economics and a minor in Philosophy, so I can tell you flat out that you are full of crap and fallacious to boot!
(I know you are really Tiny Tim G. all scotched up and drooling on your keyboard! CONFESS!)
KILL THE FED AND FREE THE PEOPLE. ISSUE THE CURRENCY DIRECTLY AND CREATE A WELL-REGULATED REGIONAL BANKING SYSTEM WHICH IS ASSET BASED. Provide liquidity to match the transactional needs of the economy, not credit needs. Restrain credit and encourage INVESTMENT. Stop ponzi capital structures at the banking level and reinstall firewalls between banks and brokerage.
Proper lending should be asset/deposit based, rather than built on the exigencies of money expansion for inflationary bubbles.
The reason, George, we are in this mess, is that the only way a central bank can “print” money is to issue new loans. By 2002 everyone who could qualify for a loan had done so. They also maxed their cards and had equity lines to boot. So, the only way for the FED to keep the air in the bubble (read: increase the money supply) was to issue loans to people who couldn’t pay them back. That worked out well don’t you think!
Understand this you arrogant ignoramus – the only way for the FED to increase the money supply is to increase LOANS! This is the idiocy of the system. MONEY IS DEBT, not a stable store of value as it should be in a sane economy. That is why the operations of the FED are and always have been destabilizing to the economy, but very profitable to the members of the money cartel.
GOLD STANDARD PLEASE!
Fractional central bank monetary systems last 100 years MAX. Then comes the fiat wind. Can you hear it blow from between faux George’s cheeks? It stinks!
May 21st, 2009 at 1:49 am
BR asks QUADRILLION: How would being the only nation WITHOUT a central bank be like being he only WITH nukes? You make no sense, but at least you know how to use the cap lock key
Barry, being the only nation without a PRIVATE Central Bank would mean:
We would be the only nation without debt tied to the issuance of it’s currency which would be a HUGE unilateral NUKE in financial terms. Tax savings in the TRILLIONS (read the Grace Commission Report)
It would mean we could create a stable dollar as a store of value.
It would mean we could stop the inflationary credit cycles caused by creating money through debt. THAT WOULD BE A HUGE NUKE. IT alone would have avoided this crap we are in now.
It would mean we would drive the economy through investment instead of fractional money expansion (credit driven consuption) which is destructive. THAT would be a unilateral Nuke in financial terms.
It would mean interest rates would be a freely adjustable price in the market place so that investment would flow where it was needed! ANOTHER HUGE NUKE!
Abolishing the FED will allow Congress to reassert its constitutional authority over monetary policy. OVERSIGHT! ANOTHER HUGE NUKE!
It would end the zero sum insider game that allows THE MEMBERS OF THE CENTRAL BANK to gobble up financial assets at pennies on the dollar durring a contraction USING TAXPAYER MONEY! (happened durring the S&L debacle as well). THAT IS ANOTHER HUGE NUKE!
There are many more benefits, but I’m tired of dealing with self-promoting mouthpieces.
YOU, Barry and the defenders of the FED, MAKE NO SENSE.
and I LOVE CAPS!
May 21st, 2009 at 2:29 am
So: if the chronic inflation undergone by Americans, and in almost every other country, is caused by the continuing creation of new money, and if in each country its governmental “Central Bank” (in the United States, the Federal Reserve) is the sole monopoly source and creator of all money, who then is responsible for the blight of inflation? Who except the very institution that is solely empowered to create money, that is, the Fed (and the Bank of England, and the Bank of Italy, and other central banks) itself?
In short: even before examining the problem in detail, we should already get a glimmer of the truth: that the drum-fire of propaganda that the Fed is manning the ramparts against the menace of inflation brought about by others is nothing less than a deceptive shell game. – Murray Rothbard
WAKE UP BARRY!
May 21st, 2009 at 2:54 am
An 1865 London Times editorial directed against Lincoln’s debt-free Greenbacks said it all:
“If that mischievous financial policy which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world.”
ANOTHER UNILATERAL FINANCIAL NUKE!
Barry – why do you support a monetary system of debt salvery, graft,
May 21st, 2009 at 5:28 am
1.5quadrillion
What the hell is sY=S=I? You attempted to reformulate my equation, to impress me that you understand this measurement based on marginal propensity to save [y] and incremental capital-output ratio [I wrote L to represent this in my original equation].
Look, if you understand how S = I measurement works, you will notice that there is a direct relation between the size of total Capital [K] and total GNP [Y] … simply read as capital/output ratio. Nothing is written here in what appears to me as your guessnomic graffiti.
I will give you an example: $3 of K is required to produce a $1 net of GNP, thus any net addition to K in new investment will bring about a corresponding increase in national output.
K/Y [Capital Output Ratio] is defined as:
K = capital stock; s is national savings ratio which is a fixed proportion of the national output GNP. K bears a direct relation to output [Y] represented by k [incremental capital output ratio]. Thus:
K K
- = k or – = k or finally K = k Y
Y Y
What the heck is sY=S=I? Where are the incremental capital output ratio [k] and the national saving ratio [s]? These two symbols are the basis for income determination developed by J.M. Keynes.
Are you sure you passed your undergraduate study in economics?
As to your delusion on my academic credential, do you think anyone can teach economics in graduate school without a Ph.D.?
If you think this is possible, you must learn more about the academia. You will definitely flunk the course. But I doubt if you have even enrolled as a student of economics.
Your latest weirdo is, you want this country to be, and I quote, “… the only nation without a PRIVATE Central Bank …”
You really don’t understand what the Fed – America’s Central Bank – is, do you? The Federal Reserve or the Fed, is NOT a private Central Bank! Where in heaven’s name did you get this idea? Many pornographic revolutionary videos show this crap and you fall for it. This proves you have not been to any school that teaches economics. Sure, you want to think that you are an economist … okay, okay.
Here is your latest quixotic dig that is very uneconomic, quote: “We would be the only nation without debt tied to the issuance of it’s currency …” This nation without debt? You must be crazy to say this. Since that’s what you want, you must be a somnambulist, walking in your lullaby dream. There is no nation on this planet without debt.
Since I am now convinced that I am dealing with some kind of an oddball, I mean, dealing with an unusual person that you are, this is the last lesson you will learn from me in economics. You will not anymore get any response from me. With you, please consider this matter closed.
You can do the worst name-calling you want to do since that’s your expertise, but it has no more meaning to me and to readers because they are now aware that it is coming from a very angry unusual person.
As I close, I apologize if I ever hurt your feelings. If I did, it was never intended.
I want you to know that I need no apology from you. At my senior age, I am shielded with many hard long years of discipline in the academe, as an award-winning journalist for more than 45 years, and as a UN-ILO-World Bank specialist. Anyone decades younger than me – which I presume you are — could no longer hurt me.
Cheers.
May 21st, 2009 at 6:44 am
The Danger of discussing politics is that most Humans cannot have an objective rationale chat about it without lapsing into this sort of silliness.
May 21st, 2009 at 8:34 am
BR,
that is a Hazard, no?
G. Voit,
w/this: “FOR YOUR VERY MUCH NEEDED INFORMATION, FED REGULATES BANKS THAT GRANT LOANS TO CONSUMERS/INVESTORS WHEN BANKS FAIL TO OBSERVE THE STANDARD CRITERIA THAT COULD RESULT IN BANKRUNS AND/OR FINANCIAL MELTDOWN LIKE WE HAVE NOW.”
did we not have ‘the FedRes’, in place, before, during, and after(now) the “FINANCIAL MELTDOWN LIKE WE HAVE NOW” ??
and your point is that FNM/FRE caused the ‘meltdown’, thereby the FedRes should be held harmless?
that’s some Poli-Sci-Fi S****!
May 21st, 2009 at 8:57 am
“Unfortunately ( or fortunately, depending) Mr. Paul is a poor politician with little skill at persuasion or alliance-building. He barks from outside the pack. He may raise issues but cloaks them in the jargon of a zealot and alienates people he should be converting.”
Once he compromises on principles to build political alliances, Dr. Paul would lose the credibility that he has built by being consistent and logical in his fight against the special interests that have dominated the creation of purchasing power since 1913. His goal seems to be to educated voters and the general public so that the move towards a totalitarian state can be resisted and reversed and that when fiat money dies, there will be an alternative to the proposals hat will be favoured by the banking insiders and their political supporters.
May 21st, 2009 at 11:01 am
Barry – nice ad hominin.
So if I still don’t make sense (numerous points made with support – Murry Rothbard, London Times…)
What does make sense? Your fact-less (and feckless) “rationale discussion” supporting the FED against all evidence. Good thing you’ve got an editor for your book. You need it.
Oh well, you do have a book out.
As for GEORGE AND HIS “EQUATION”…Oh George -
The partial equation I provided is not your. Yours, as I said, is just silly tautologies.
Check out any of the production equations dealing with developmental econ. The one I provided is one of those. It’s not mine. It’s certainly NOT YOURS. But, it IS an equation.
And I like caps!
May 21st, 2009 at 11:13 am
PS – Barry list a reason or two WHY killing the FED would be “unilaterally disarming” as you put it.
What does the FED do for us poor feckless unwashed that PROTECTS us in this so-called global economy?
How would we be damaged or put at risk if we did “disarm”?
What a joke. Purely a scare tactic and propoganda on your part sir.
I await your reasons with bated breath.
Murry Rothbard deals rather nicely with the inflation issue so I wouldn’t bring that old red herring up if I were you.
May 21st, 2009 at 11:53 am
Mark E Hoffer – Nice point to George.
As for Barry, he’s a big boy, I presume, and he can either prove the case for the FED or not. But simply stating as an accepted fact that killing the FED would be “unilaterally disarming” is pure crap.
I don’t like crap, I LIKE CAPS!
May 21st, 2009 at 3:31 pm
To VangelV
I agree that Ron Paul is sincere in his beliefs which makes him a poor politician that lacks power of persuation. But I think the real problem is he spews radical views that are almost unreal. For example, he wants an America that has no Central Bank, and makes accusations that the Fed is run by “thieves”.
Only disenfranchised hombres from the hinterland would buy that. That would never happen. He wants a debt-free America, that too is too unreal … and many more.
May 23rd, 2009 at 1:31 am
G. Voit,
are you going to continue your Masquerade as a Learned individual? given your post @ 15:31 21 May, you may consder giving that Charade a, well deserved, rest.
Sterling logic you exhibit. though, of course, that comment, only, understandable given the sarcasm, with which, it is richly imbued.
~~
1.5quad..,
Yes, of course, Br has a problem w/that Conclusion. It is why he has,previously, and will not now, lay out his Proof. It is, sadly, rather, too laughably, non-existent.
H***, even BR can make an Error. Which is expectable, he is of Us, not the Heavens, alas..