Surprising Call for Return to the Gold Standard 60 comments
Tim Iacono
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The last page of the Wall Street Journal Opinion section once again contained a gem of a "sound money" editorial on Monday - another well reasoned critique of the current monetary order, this one penned by none other than a former vice president of the Federal Reserve Bank of Dallas, Gerald P. Driscoll.
Recall that Judy Shelton contributed a great piece for that page last Friday.
With a title of To Prevent Bubbles, Restrain the Fed, you have a pretty good idea where it's headed, but to hear a former Fed vice president suggest the reinstatement of a gold standard is quite remarkable indeed.
The economy now confronts deflationary forces. If past is prologue the Fed will concentrate on those deflationary forces for too long and rekindle an asset boom of some kind. The fiscal "stimulus" being contemplated by Congress could be another economic accelerant. If both the fiscal and money stimulus efforts kick in just as market forces also kick in, we're likely to see another unsustainable boom that will be followed by a bust.
The incoming administration must think about that possibility because the timing of boom and bust cycles seems to be shortening. The next bust could come five or six years from now -- or about in the middle of an Obama second term. Should that happen, Mr. Obama would be unable to blame Republicans for the mess and would be tagged as the second coming of Jimmy Carter.
To avoid such a fate, Mr. Obama needs to stop the next asset bubble from being inflated by imposing a commodity standard on the Fed. A commodity standard (such as a gold standard) imposes discipline on a central bank because it forces it to acquire commodity reserves in order to increase the money supply. Today the government can inflate asset bubbles without paying a cost for it because the currency isn't linked to the price of a commodity.
With a commodity standard in place, the government would also have price signals that would alert it to the formation of a bubble. Why? Because the price of the commodity would be continuously traded in spot and futures markets. Excessive easing by the Fed would be signaled by rising prices for the commodity. In recent years, Fed officials have claimed that they cannot know when an asset bubble is developing. With a commodity standard in place, it would be clear to anyone watching spot markets whether a bubble is forming. What's more, if Fed officials ignored price signals, outflows of commodity reserves would force them to act against the bubble.
The point is not to deflate asset bubbles, but to avoid them in the first place. Imposing a commodity standard is a practical response to the repeated failures of central banks to maintain sound money and financial stability. What would be impractical is to believe that the next time central banks will get it right on their own.
Remarkable...
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This article has 60 comments:
i too fear the boom/bust cycle. it will come from energy if the economy lights up again as we will not have had enough time to implement alternatives (if we have not forgotten about this subject totally by then).
bubbles are part of capitalism.
whether the currency is backed or fiat, the problem we are faced today are politicians and bureaucrats who are acting irresponsibly while they are administering our financial system.
No absurd leveraged(including 95%mortgages) risks, no bubbles. The need for risk taking is reduced as businesses/economies mature, but paradoxically increases as returns decrease. Until the next railroad/airplane/elec... grid/microprocessor/internet. etc., and maybe even after, we don't need the overstimulation caused by unbridled, heavily leveraged, greed. Regular greed should do pretty well, especially in an instantly connected world.
Most compensation is in the form of stock options. When you are a CEO you only care about driving the earnings of your company during your tenure. There is no long-term consequences to taking outsized risks -- all of the risk lies with the shareholders if you put the company on a path to destruction that will play out years down the road.
When you retire, the guy behind you (next CEO) has to take even bigger risks in order to keep driving earnings upward at an increasing pace to make HIS stock options pay off. Rinse and repeat as you go through multiple CEO's and you have a perfect recipe for overleveraging your balance sheet and taking unwarranted risks to drive as much short term earnings as you can.
I think this is what caused Alan Greenspan to question his belief in the system. His view of the system was that companies would have a motivated interest in their own survival that would prevent them from doing the absurdly stupid. But how can that be when you are going to increase top CEO compensation from the normal $5M - $10M to $10s or 100s of millions for a few extra nickels and dimes of earnings today? The only way to achieve this would be to increase the risk your company is taking . . .
see the comments to Paul's article:
seekingalpha.com/artic...
on what the price of gold would be to back up every US dollar now on the market (over $10,000/oz). fact is: the US has printed so much money over the past years that going to a gold standard is simply not an option. either the price of gold would need to skyrocket, or, ALL the dollars bush has printed in the last 8 years to fund his insane fiscal and foreign policies (and then some) would need to be pulled from the market. either way, gold goes up and the US economy tanks. unsustainable. the US has already gone over the cliff on monetary policy. the only hope is a strategic, long-term, comprehensive energy policy:
thefitzman.blogspot.co...
combined with realistic tax and spend policies (pay-go).
Ah, old is new again.
What is your stance on implementing the Gold Standard? Is it doable in your opinion? Please give me your opinion on what gold would be priced at. Have a great day!
> no wonder we are screwed up. if mr. Driscoll thinks that bubbles
> can be prevented by going to a backed currency i have a bridge to
> sell him in brooklyn. i would like to remind Mr. Driscoll we were
> on a gold standard in 1929.
> bubbles are part of capitalism.
#1 Capitalism DOES NOT cause bubbles anywhere close to what Fed & Banker manipulations have. Monetary expansion in the 20's, with a overdone contraction is what torpedoed the market in '29. AND it was done on PURPOSE so bankers could scoop RE for pennies on the dollar among other atrocities.
#2 America may have officially been on the gold std in 29 but the FED was still printing fiat in excess of bullion. The WAR did NOT end the Great Depression as consumption remained flat. It was business finally being able to see a cessation of Govt caused uncertainty in the future.
Go to the Ludwig von Mises Institute and learn ALL about money, banking and the crooked FED who has been robbing American wealth for 100 years with interest and inflation, neither of which burdened the people with a REAL specie currency that is also unmanipulatable by the private bank and their puppet politicians emplaced for bankers and their shills (govt) max profits.
mises.org - free mp3's and video lectures on American history and the Austrian economics that pegged Central Banking and it's created "business cycles" as he warned the world of the rise of the fiat financed Euro-dictators succumbed to Int'l Banker's perpetual indebtedness - AS ALL the World suffers under now.
Hand - you are plainly indoctrinated. Get the education Govt least wants you to have at mises.org
The rest of you are, well... PATHETIC !!!!
Can you idiots READ the Constitution? Read what Jefferson said about banking? Or Madison? Ever read Jackson's VETO of the 2ndBankUS's recharter and WHY he killed the banks?
IF you haven't, (and I know you have not by your words) then you'd know the truth that Govt has kept from us since compulsory education Bismark style began. Arrrrggghhhhh!
mises.org will enlighten you - but only IF you have the intellectual temerity to have yourselves proven dead wrong.
Money came from free markets. Gold and silver were MARKET chosen as having the best qualities for intermediate commodity of exchange, over say ie. salt or grains.
All of fiat money, leveraging, short selling, futures contracts other hypothecating schemes fail under their own momentum when they disconnect from aggregate individual flow control.
Example: Oil is now under $55 per barrel from a recent high of $142. Why? Because people still control the rate of fuel consumption, and the combination of all their individual reactions to high fuel prices restored fuel flow to the supply by throttling demand, practically overnight.
In a similar manner people balance production and consumption in their domain through monetary choices. Their direct participation is the enabling factor to a responsive economic scheme, and therefore to the success of the underlying monetary system. A gold standard seems to provide such control.
Include the Federal Reserve System, and all the banking it represents, in the list of those disconnected from aggregate individual flow control.
Den of vipers, anyone?
“If the American people ever allow private banks to control issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
—Thomas Jefferson
Another contributor that gets it! Welcome marxbites. Be sure to keep your helmet on tight, there's lots of brick walls around here.
Viva Mises!!!! Right all along!!!!
To really solve the problem, you have to get rid of paper money altogether. If all money must be physically struck in gold or silver of fixed purity, the feedback is immediate: when you go to expand the money supply, you find that you are out of metal and cannot do so. If you want to get more metal, you have to pay miners to do hard, dangerous work, often in remote and inhospitable locations. This leads naturally to the idea that an entity charged with right-sizing the money supply is pointless and powerless, so we might as well just eliminate it and let the market solve that problem too. A constitutional amendment affirming the perpetual right of the people to circulating precious metal money as the sole standard of value would go a long way toward mitigating (not entirely preventing) future bubbles.
we weren't on a gold standard in 1929. The government printed way more bills than gold they had to back it. That's called abandonment of the gold standard and it was the primary cause of the Roaring 20s stock market bubble. When people realized this, they tried turning in their cash for gold and the government said no. They then reset the price of gold to $35. That's not a gold standard. Had they not printed any additional bills that they had no gold to back with, there would have been no stock market bubble in the 20s.
Google the panic of 1837 and you'll find figures showing that banks had extended loans totaling 180% of their capital in aggregate.
When people start showing up at your bank demanding gold coin and you only have 100 coins to pay off 180 IOUs things can get ugly pretty fast.
What we really need is 100% gold backing and 100% reserve requirements to completely stop the boom/bust cycles. That would quite likely mean that we would have to pay for a bank to safeguard our money instead of earning interest on it or the banks couldn't meet their overhead expenses.
I am so excited to see another person "who gets it" as Smarty says.
Life never fails to surprise.
Nearly identical. I don't know for a fact, but I'd be willing to bet that the leverage of loans to reserves in 1893 was less than 2x. Today it is more like 9x and if you include the derivitives as high as 40x.
With less than 2:1 leverage the damage would not be anywhere near as bad as 9:1 leverage. While the process is the same, the excess of debt will impact a larger circle of economic actors this time around before stability is achieved.
Increasing the money supply will only postpone the eventual correction and spread the problems even further.
Maybe you have already read it, but I am reading Murray N. Rothbard's "Americas Great Depression". He explains Mises Trade Cycle Theory and why recessions are NECESSARY to liquidate the malinvestments that a credit induced boom caused.
This would not require the treasury to cover every dollar, which is clearly impossible. But it would tie the dollar indirectly to gold, providing some check on dollar creation. Among other things, inflation (with its run-up in the gold price) would increase gold flow to the treasury. Ron Paul has repeatedly submitted bills to this effect.
On Nov 19 11:53 AM Smarty_Pants wrote:
> "the panic of 1893 -- everything is practically identical ... this
> stuff happens about every 10-20 years." - raytayzmd
>
> Nearly identical. I don't know for a fact, but I'd be willing to
> bet that the leverage of loans to reserves in 1893 was less than
> 2x. Today it is more like 9x and if you include the derivitives as
> high as 40x.
>
> With less than 2:1 leverage the damage would not be anywhere near
> as bad as 9:1 leverage. While the process is the same, the excess
> of debt will impact a larger circle of economic actors this time
> around before stability is achieved.
>
> Increasing the money supply will only postpone the eventual correction
> and spread the problems even further.
Many Joe Sixpacks earn $X/year. Every year they spend $1.3X by borrowing $0.3X to spend on eating out. This 'extra' $0.3X in dining spawns a lively restaurant section of town over a few years time.
Eventually all the Joe Sixpacks wind up $5X in debt and cannot make even the minimum payment on their debt while still affording necessary expenses. So, all the Joe Sixpacks cut back on eating out as it isn't 'necessary'.
The restaurants around town start to see a big reduction in business. The poorly managed restaurants go under until there are few enough left to service the demand of those still eating out.
Borrowing caused the 'boom' in restaurants and when the cost of servicing the borrowing was too high, the 'bust' hit and the artificial spending on eating out ceased, resulting in the restaurants closing.
The mal-investment was the building of all the restaurants in the first place. Entrepreneurs responded to the demand for restaurants that arose from the credit. This demand wouldn't have existed if not for the borrowing.
We are currently entering the phase where the restaurants start to go under.
Banks should only lend from the credit transaction funds, and not from fractional reserves of the credit transaction funds, nor from the claim transactions funds.
2. It is hard to imagine life without electronic accounting and distribution of funds. Most of us are willing to temporarily forfeit the security of gold or silver in hand for the convenience of entrusting the bulk of our funds to 'insured' third-party accounts. It seems possible to retain electronic funding as a subsystem of the monetary system, whereby the funds enter and exit the electronic subsystem as gold or silver (or government backed certificates of same if provided by the monetary system).
This would place the burden on the individual to determine whether to entrust 100% of his monetary wealth to the hazards of physical silver and gold, or to entrust a significant portion of that wealth to the risks of electronic accounting and distribution of his funds (via online banking, direct deposits and direct payments, for example).
I'm not sure we're talking the same thing. When I say bank leverage I mean the ratio of money issued to the gold behind it. Property prices don't directly impact this ratio (though it does impact the land buyers leverage of value to loan). In 1837 banks had loand out 1.8 ounces of paper money for every 1 ounce of actual gold they had in the vault at the peak of the boom.
Before the FED was established banks rarely exceeded leverage of 2x because anybody with a bank's paper money (each bank issued its own bills) could walk in and demand gold in exchange. If you only have 100 oz of gold and you issue more than 200 oz-worth of paper money the odds of having all your gold claimed become very high (which would cause a bank run and put you out of business).
Since most of the gold in the bank was deposited in small amounts, 'excess' loans of paper money were also made in small amounts to reduce the impact that they would be spent with non-depositors who would want to redeem them for gold. Big loans which might be exchanged for gold could ruin the bank in one transaction and were generally avoided.
The arguments against fractional reserve banking are that it is immoral and leads to boom/bust cycles. Basically, it allows banks and borrowers (including the government) to steal from the general public by inflation.
An honest money system need not be a technologically backward one. Honesty is and never can be "old fashioned". Gold and silver are time-honored means of keeping money honest and are nearly fool proof but in principle I don't see their absolute necessity for an honest monetary system.
A solution that should satisfy anyone worth satisfying is "free banking" with competing currencies and no government interference except enforcing the laws against fraud and insolvency. Let those who wish to practice FRB do so but only with their own currency. Let the market place decide if it has value.
(I doubt it does)
On Nov 19 04:04 AM The hand wrote:
> no wonder we are screwed up. if mr. Driscoll thinks that bubbles
> can be prevented by going to a backed currency i have a bridge to
> sell him in brooklyn. i would like to remind Mr. Driscoll we were
> on a gold standard in 1929.
>
> i too fear the boom/bust cycle. it will come from energy if the economy
> lights up again as we will not have had enough time to implement
> alternatives (if we have not forgotten about this subject totally
> by then).
>
> bubbles are part of capitalism.
>
> whether the currency is backed or fiat, the problem we are faced
> today are politicians and bureaucrats who are acting irresponsibly
> while they are administering our financial system.
On Nov 19 08:25 AM Black Rain wrote:
> My theory is our current mess is GREED! It appears to me that risk
> has been mis-aligned with senior executive compensation. There is
> simply too much incentive to drive corporate earnings at any cost.
>
>
> Most compensation is in the form of stock options. When you are a
> CEO you only care about driving the earnings of your company during
> your tenure. There is no long-term consequences to taking outsized
> risks -- all of the risk lies with the shareholders if you put the
> company on a path to destruction that will play out years down the
> road.
>
> When you retire, the guy behind you (next CEO) has to take even bigger
> risks in order to keep driving earnings upward at an increasing pace
> to make HIS stock options pay off. Rinse and repeat as you go through
> multiple CEO's and you have a perfect recipe for overleveraging your
> balance sheet and taking unwarranted risks to drive as much short
> term earnings as you can.
>
> I think this is what caused Alan Greenspan to question his belief
> in the system. His view of the system was that companies would have
> a motivated interest in their own survival that would prevent them
> from doing the absurdly stupid. But how can that be when you are
> going to increase top CEO compensation from the normal $5M - $10M
> to $10s or 100s of millions for a few extra nickels and dimes of
> earnings today? The only way to achieve this would be to increase
> the risk your company is taking . . .
this assumes calm, rational minds currently and always will exist.
absent that guarantee, its time to go back to the gold standard.
While it may not prevent banks from leveraging their depositors' money 60 to one, I'm sure if I could verify their loan amounts against their gold holdings, it would be much easier to decide not to use that bank.
Free markets, when transparent, can and do work. It's the evil men who hide the truth while they siphon the results of their deceptions into their own accounts - that cause the problems. You cannot compel me to believe that man will change, but I can assure you that gold will not change.
best wishes
--ikk
This is a utilitarian argument and any rules made are likely to be broken in a crisis. The moral argument against a government enforced or supported banking cartel is absolute.
> " Calm, rational minds need to examine what went wrong, and enact
> rules to make sure it doesn't happen again."
>
> This is a utilitarian argument and any rules made are likely to be
> broken in a crisis. The moral argument against a government enforced
> or supported banking cartel is absolute.
Not only that, but what happens when the calm, rational minds are the ones whose actions caused things to go wrong in the first place? Might there not be something of a blind spot in the analysis?
I reckon you include their brothers in belief too.
It really strengthens my faith to see that a dishonest monetary system cannot be made to work properly no matter how brilliant the
people who run it are.
people who run it are." - moonbat
The Laws of Economics are wise beyond the learnin' found in books. Most people are selfish enough to bound the selfishness of others to within reasonable limits.
Google the "Fable of the Bees". There is a summary of it on Wikipedia, but you can find the full text elsewhere. Mighty enlightening and first written in 1705. The realization that markets work has been around for hundreds of years, it's the idea that they can be 'directed' by gub'mints that is difficult to eradicate.
Yes, the issue of course goes back to discipline, and who (or what) imposes it. Trusting mere men with managing an economic system, a monetary system, or a political system for that matter is a fool's errand.
When you know that you must cede control over a portion of your life to a system that is run by men and therefore must be corrupt, it only makes sense to keep limit that system as small as possible. Of course, I refer to government.
Government already has a legal monopoly on the use of force; it is obvious that governments cannot be trusted with control of money, and therefore money must be issued by the people themselves, or issued by government only in accordance with a specified standard weight of a universally-accepted material (like gold and silver, as was specified by the Constitution). Government believes it can impose legal discipline on us, but cannot accept any discipline of its own. Children.
And would, tho' Conscious of his own,
In Others barb'rously bear none."
So true but the pious cheats of bankers probably causes more destruction than the rest of us combined since we restrain each other. The obvious source of restraint for banking, the free market is disallowed by the government which is conveniently in bed with it.
"www.xs4all.nl/~maartens/philosophy/...
paultaut
Until the expression "respectable banker" is seen as an oxymoron even for the bankers who are prudent enough to get away with FRB,
is my hope.
Correct! but Herbert Hoover and FDR counteracted a recovery via public works, deficit spending, price controls, restrictive tarrifs (which always fail and are counterattacked with corresponding tarrifs on the other side) and outlawing the ownership of Gold. FDR was no different than Herbert Hoover - he was just on steroids in terms of spending. Why is Gold so wrong if you live in a free market? That is because you didn't live in a free market then and you don't live in one now. When we experience the same said problems in the 60s the deficit spending of Vietnam and the "Great" Society - same responses deficit spending, wage and price controls, but worse no more gold standard. The gold standard doesn't promise perfection, but it does promise a restraint on spending which clearly you do NOT have now. Highest wage earners in the country (UAW paid not to work) whining for welfare - RIDICULOUS LOSERS! Flush them down fast!
On Nov 19 04:04 AM The hand wrote:
> no wonder we are screwed up. if mr. Driscoll thinks that bubbles
> can be prevented by going to a backed currency i have a bridge to
> sell him in brooklyn. i would like to remind Mr. Driscoll we were
> on a gold standard in 1929.
>
> i too fear the boom/bust cycle. it will come from energy if the economy
> lights up again as we will not have had enough time to implement
> alternatives (if we have not forgotten about this subject totally
> by then).
>
> bubbles are part of capitalism.
>
> whether the currency is backed or fiat, the problem we are faced
> today are politicians and bureaucrats who are acting irresponsibly
> while they are administering our financial system.
is my hope.
FRB should be prosecuted as a conversion tort and possibly more. How can someone be allowed to fraudulently enter into a contract to provide deposits on demand, and then immediately give the money away? Furthermore it's dereliction of duty to establish a business that's logically guaranteed to fail, and to do so catastrophically, from the get-go.
This is my first visit to this site (Love it !! thanks) and I can see a lot of solid arguments from all sides, but I can't help myself to wonder how the majority of the 305,125,202+ citizens of the USA and the rest of the "western world", would still accept being blindly ripped off.
PUT SIMPLY.... How can a business call themselves "The Federal Reserve" (have nothing federal and no reserves) and allowed to create money out of thin air... you know, for example, bonds given to fed in exchange for reserve cheque $$ (but where does all this money come from)....
So the feds create money out of thin air, lend it to the government (US Tax payers) and then charge interest on this money that can NEVER be repaid back... NEVER ... EVER ....
Once that can be simply explained and understood by the American taxpayer, I can see the potential for the birth of a new stable system.
Let's not forget where the USA is at....
here is a summary .....
The Outstanding Public Debt as of 20 Nov 2008 - $10, 664, 714, 818, 263
The estimated population of the United States is 305,125,202
so each citizen's share of this debt is $34,951.93.
The National Debt has continued to increase an average of
$3.96 billion per day since September 28, 2007!
Also, Taxpayers are on the hook for a record $57.3 trillion in federal liabilities....a USA Today analysis found. When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than 4 times what Americans owe in personal debt such as mortgages.
Now let's get onto all those new "bail Out" "Rescue" packages...
TARP $700 billion
Bear Stearns $29 billion
Detroit Big Three $25 billion
AIG $123 billion
Fannie and Freddie $200 billion
Mortgage-backed secs. $144 billion
FHA Rescue bill $300 billion
JPM for Lehman $87 billion
Fed’s TAF program $200 billion
Commercial paper $50 billion
Fed currency swaps $740 billion
Total: $2.7 trillion
Further...
GM needs $50 billion more ...
Fannie and Freddie could need $100 billion more ...
AIG gets $150 billion refinancing ...
PLUS Congress has a NEW $100-billion-plus stimulus package on the way! Q: Where will it all end?
A: In the greatest orgy of government borrowing in recorded history!
Let's not forget .... The Bank of International Settlements recently reported that the amount of outstanding derivatives has now reached the $1.14 quadrillion mark ($548 Trillion in listed credit derivatives plus $596 trillion in notional [or face value] OTC derivatives).
and let's do some comparisons and recall some numbers...
* U.S. annual gross domestic product is about $15 trillion
* U.S. money supply is also about $15 trillion
* Current proposed U.S. federal budget is $3 trillion
* U.S. government's maximum legal debt is $9 trillion
* U.S. mutual fund companies manage about $12 trillion
* World's GDPs for all nations is approximately $50 trillion
* Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
* Total value of the world's real estate is estimated at about $75 trillion
* Total value of world's stock and bond markets is more than $100 trillion
* BIS valuation of world's derivatives back in 2002 was about $100 trillion
Anyone thinking that the US will get out of this mess without any MAJOR pain is delusional ..
Food for thoughts... When everything else fails, Gold is Money... Real Money
Mizou
There is already a functioning alternative currency that is a 'gold standard' (www.runtogold.com/gold... I don't know why everyone wants to wait around for governments. All they do is thoroughly screw stuff up anyway.
A major weakness of the gold std was the decision NOT to follow it - by the United States (ref: roaring 20's, Marshall Plan, LBJ - War on Poverty-Vietnam) History knows better, people do not.
Fractional reserve banking is outright FRAUD. Full reserve banking is the only way to limit credit (and bubble) expansion. Credit via franctional reserve lending AND an "un-tethered" money supply are a recipe for DISASTER!
We now classify an economic expansion as one where irrational asset prices fueled by cheap money creat economic "bubbles". Where as the steam engine, electrical machines, the airplane, the automobile are true expressions of economic expansion, we now have the internet, I-phone and I-pod as "productive" entities . Credit distorts true value, making price information opaque and impacting society at large creating a "Caligula" mentality via pain free consumption.
Iam certain that the same affliction that affects us today has been the undoing of all civilizations since time immemorable and that is the ultimate economic acronym of TINSTAAFL (there is no such thing as a free lunch) and gold as well as limiting credit to on hand monetary reserves are the only way to enforce the acronym.
"To Prevent Bubbles, Restrain the Fed"
- Just abolish the Fed and we won't have to restrain them.
> I may be wrong but it seems to me controls for control sake is ignorant
> and only really works as an excuse for what ever happens. In my
> eyes the US problem is really based on a trade deficit which is out
> of balance. The belief in the almighty dollar has caused the trade
> deficit to ballon past where it should have turned around. More
> problems will result.
Trade deficits are certainly a problem. I am shocked we have allowed the for so long, as long as I can remember. But, as Americans were experiencing a wealth affect, so what. But, trade deficits are not biggest problem or the cause of the current crisis.
There are many opinions, but I believe we have shot our money supply into orbit...around a distant galaxy. Now, what does one do with all that extra money? Loan it in the form of credit cards and home mortgages. Do you remember having your mail box stuffed with credit card offers in the 80's and 90's?
Now, take that debt and sell it off and guarantee it. Bring in more money to offer in the form of home loans. What? No one is buying? Offer homes to anyone, anyone! This is far to profitable to stop now, and it's not the only source of liquidity, BTW.
Credit is our problem, essentially, and the derivative game that allowed the financials to generate an unlimited supply of it. It had to go somewhere, and probably into your wallet. The economy thrives on credit (which does drive up trade deficits when trade is not reciprocated.)
This is why there is such a drive to free up the credit markets, so we can get back to business as usual...driving the global economy directly from your and my wallet with money we haven't even made yet. And paying interest in the process.
The problem is, congress has reneged on it's constitutional mandate to control the price of money. All this money, all this credit, has made the dollar worthless. Now, the credit bubble, which this really is, has come a calling, its time to pay the piper. The money that used to back your credit card is now paying off investors. remember, those were guaranteed instruments.
There has been a wealth transfer going on for decades, from our pocket to theirs. Now, there have been rules and oversight in place since the great depression. It's just, as long as Americans are "feeling" wealthy because they can borrow against an asset...their own home...hey, why stop the gravy train.
And that is the stickler...we only 'felt' more wealthy. How did we finance our Hummer? Well, not from our own real wealth, but by borrowing it from those who got wealthy lending to us in the first place. Now, one should sit up and shout when you hear they want $700bn of our tax money, because the money they made on MBSs (our homes) failed.
> Redistribution of wealth is the only real way to interfere
> with this abyss. unfortunately people who use those cures over use
> them to detriment because they think the policy will continue to
> help because it has in the recent past. Reganomics was the right
> thing during the 1980's because the demand by the middle class for
> that produced had become excessive. There was a need to put wealth
> in the hands who did not spend it.
Okay, redistribution of wealth is a fact of life. It occurs, and it's a constant struggle whether it flows down or up. I am hoping Obama will reverse the flow for a few years. Putting it back into the hands of those who do spend it, as you say.
I wont comment on trickle down back in the 80's, those were different times. But, sure as heck, some trickle up is in order today. Why in the heck are we bailing out the credit markets so the consumer can begin to pay interest to those who had money and screwed it up?
I was severely disappointed when congress did not fight...for our own tax dollars...to save our homes, save our retirement, and get business borrowing again. In other words, trickle up for a change.
Look, we might just have some of our own money left over and deposit in banks and have them compete and pay US interest on our own money. And, maybe the big three would be able to borrow from banks instead of begging for a share of our tax dollars. And, anyone who remembers the big bridge collapses in the news is not in a position to argue we could use some infrastructure spending.
It's absolutely crazy. And it seriously makes me wonder if anyone knows what the hell is going on, really, and what to do about it.
> the sign of a healthy economy is a large middle class. The middle
> class has
> been declining for twenty years in the US. The wealthy has been
> increasing markedly. And most of those with wealth have not made
> it by production as much as wealth redistribution. to those already
> wealthy.
Bingo!
> Obama's plan will help.
> The effectiveness will depend on how much wealth comes from the
> wealth
> producers, and how much comes from wealth accumulators. The
> quickest
> fix would be a one time wealth tax of 5% for anybody who owns more
> than 5 million in wealth. But government will probably abuse its
> use if it is used once and works.
Okay, I agree, and I'm a conservative. A pissed off one.
I assert the Fed is necessary, mostly. But, they and congress best get into the fight and get the money supply under control at the first sign of a recovery. Congress is mandated by the constitution to do so. If not, watch out for inflation or hyperinflation. If they don't, I'm moving to Zimbabwe. (Not really, but you get the joke...)
On Nov 20 08:24 PM Robert Nabloid wrote:
> I didn't read all the comments - there are too many. But I'm with
> Top Gun!
>
> "To Prevent Bubbles, Restrain the Fed"
>
> - Just abolish the Fed and we won't have to restrain them.
Creating/destroying money by means of debt "juices" the system both on the upside and on the downside: great for Wall Street traders but tough for the rest of us. (Actually not so tough for me as I issued my first "crash imminent: go to cash this minute" email on June 3, 2008, having been warning my readers of its approach since November, 2006 due to the historic correlation of the collpase of the Housing index with stock market crashes.)
There isn't anything the Fed does for us (except for putting us in deep into debt) that we can't do for ourselves for free.
The human body regulates itself by draining off excess liquidity: we can do the same thing by replacing the Federal Income Tax (and ALL other income-based taxes) with an "infrastructure maintenance fee" of about one-half percent on all electronic transfers (the exact percentage could be set by a computer similar to the way Milton Freidman suggested we get rid of the Federal Reserve and regulate the money supply automatically).
Lastly, the market will keep going down, making new lows (interspersed with the occasional bear market rally) until the death of the "job model" of economic resource distribution is recognized. Neither commodity-backed money nor "trickle down" bailouts will help, though both will be tried. Only when governments start pumping money to the people like the human body pumps blood to the cells (consistently and debt-free) will the crash end. Oil will hit $20 and the DJIA may hit $400 before that happens.
All we have to do is require them to declare their asset-to-debt ratio and quit letting them hide behind FDIC insurance. If the ratio is too low they will lose their conservative depositors, leaving them with speculators who want the juiced returns and are willing to take the risk, as it should be.
The problem is the GOVERNMENT'S legal obfuscation of the actual state of the banks affairs, not the bank's leverage and risk. The problem is on the government side and that is something we can do something about: we can stop socializing the losses and stop hiding the risks that specific banks are taking. And it doesn't take a commodity-backed currency to do that.
Bankers have been hoodwinking and buying politicians for centuries. First they got scrip abolished. Then Continentals arose and were abolished at great profit to the bankers and their friends who bought them for 5% of face value, had their government installed, then legislated exchange of Continentals at 1:1 for the new bank dollars. The same scam was replayed with Lincoln's greenbacks.
Woodrow Wilson was probably more of a useful idiot than a colluder when he legislated the Fed into existence in 1913, but he later regretted it once he understood what he had done. The Fed is a private bank that is owned by its unnamed shareholders. The Federal Reserve Act gave these people the right to issue ALL US legal tender and charge interest for its use. The Fed does not act like an arm's length government enterprise. Fed profits are the property of its shareholders, whoever they might be. Don't ask. You won't find out. Frontmen like Greenspan probably have no idea either.
The Fed is in the debt business. The more debt, the better business for the bankers who create the money as their own property which they "lend" at interest. All US money is issued as debt. Treasury borrows debt-money from the Fed by selling bonds. Firms and individuals borrow debt-money from fractional reserve commercial banks by pledging real assets as collateral. All of this debt-money is pure fiat, created by writing numbers in an account ledger and backed by nothing. If you pay off all the debt there is no money left and an economy needs money to function.
The constitution gives the federal government the authority and responsibility to issue money in the interest of the nation's economy. The Federal Reserve Act ceded that power to the Fed. So instead of the government issuing its own money to pay for its spending needs and to thereby put money into the hands of the people, the government has to BORROW America's own money from private bankers who create the money out of nothing. To repay the money the government has to tax the sweet Jesus out of you and me. But really, the money can never be repaid so it's debt-city forever. We live and work at the pleasure of our banker-masters, the new monarchy.
This is not a conspiracy theory. This is the history of a conspiracy.
Forget going back to gold. Who do you think now owns all the gold? It sure isn't in Fort Know anymore. Dig in the backyard of the BIS and you'll find where the gold went. Asians have also been buying gold for the past couple decades. Treasuries have been selling it. We don't have any gold. So if we go to a gold currency, that means we don't have any "money".
That's probably part of the plan. The "rescue package" that saves international finance will include a return to gold with the BIS as the world central bank. Ownership of the planet will be accomplished. That's not going to happen this time around. Rockefeller said it would take "the right crisis" to get people, especially Americans, to accept world government. This is just another consolidation move. Who do you think will be buying the US economy once the stock market is low enough? Anyone with money or credit, emphasis on credit.
Obama will borrow additional trillions from the Fed to spend us out of this one. Then watch your taxes go up. After China has been raised up and allowed a few years or decades of glory to bring China wholly under the central banking spell it might be time for "the right crisis". All it will take is for the Fed to raise interest rates and the whole debt-castle crumbles along with the economies that are chained to it, which by that time will be all of them.
People who enjoy the power to create money are powerful. Almost anyone can be bought for the right price. Anyone can be ruined, discredited or otherwise silenced for opposing banker control. Ask Lincoln and Harding. Abolishing the Fed and instituting government fiat money and 100% reserve banking is a very simple thing to do in theory. In practice, though, you run up against the most powerful interest on the face of the earth, people with unlimited amounts of money who are relentless in pursuit of their 'righteous' world government. "Who is like unto the beast? And who can make war against him?" Who indeed.
In the above comment I sometimes used "the Fed" to refer to central banking in general. The BIS, by the way, is also a privately owned bank that operates in the interest of its shareholders.