The Federal Reserve Must Die, Part 3 57 comments
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Inflation, Instability, Crisis, & Collapse
Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government. It has done this through defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board and through the corrupt practices of the moneyed vultures who control it.
- Rep. Louis T. McFadden, Chairman of the Committee on Banking and Currency. Congressional Record 12595-12603 (10 June 1932)
In the next election, Congressman McFadden’s opponent received a phenomenal amount of campaign contributions from unknown donors and defeated Mr. McFadden. Never fight the Fed. For those who prefer graphs, below is a picture that requires no words. The United States grew rapidly for 120 years with virtually no inflation. With the creation of the Federal Reserve in 1913, the inflation genie was let out of the bottle. Nixon’s closing of the gold window in 1971 unleashed a tsunami of inflation, covered up by statistical manipulation by the Fed and government.
Source: Wikipedia
For those who prefer seeing what real things cost, below is a chart with some key financial items for the average person. If it feels like your family has fallen behind since 1971, you’re right. Your pay has not come close to keeping up with the cost of a new house, a new car or gas to fill up that car. This is why it takes two parents working to just to keep up with inflation.
Items | 1971 | 2007 | % Increase |
Average Cost of new house | $28,000 | $314,000 | 1121% |
Median HH Income | $10,300 | $58,700 | 570% |
Average Monthly Rent | $150 | $730 | 487% |
Cost of a gallon of Gas | $0.40 | $2.80 | 700% |
Average New Car Price | $3,430 | $28,000 | 816% |
United States postage Stamp | $0.08 | $0.41 | 512% |
Movie Ticket | $1.50 | $7.00 | 467% |
The 14 men who have occupied the position of Federal Reserve Chairman should have occupied the office with a huge dose of humbleness. The complexity of financial markets makes it impossible for anyone to pull the levers of monetary policy in order to generate the result that you wish for. Humans are incapable of understanding the millions of interactions the makeup world commerce. The Federal Reserve cannot control the emotions or irrational behavior of investors. The Federal Reserve mandate of moderate long-term interest rates has clearly not been met. The Fed Funds Rate has plotted a path of extremes over the decades, ranging from 0% to 19%, not exactly stable. The Federal Reserve has consistently set rates too low, leading to credit bubbles, which always end in recession or depression. Free market pricing would not be manipulated or influenced by political considerations or agendas.
Source: Wikipedia
The mandate of maximum employment has also been a miserable failure. The easy credit policies of the Federal Reserve during the 1920’s led to the Great Depression with unemployment rates exceeding 20%. Unemployment has averaged between 5% and 10% consistently since the formation of the Federal Reserve. Government bureaucrats have attempted to hide the true rate of unemployment through the use of deceptive categories and changing the rules of the game. True unemployment, consistent with the way it was measured during the 1930’s, is currently over 16%. This level of “maximum” employment is due to the policies of the Federal Reserve.
Source: Wikipedia
The facts prove beyond a shadow of a doubt that the Federal Reserve has failed in every one of its mandates. Inflation has destroyed the value of the dollar. Interest rates and employment have been violently erratic. The Fed has been manipulated by politicians, showing a complete lack of independence. Only two of the fourteen Chairmen have been truly independent and competent – Paul Volcker & William McChesney Martin. The incompetence and arrogance of the other Chairmen have brought the country to its knees. The final chapter is about to be written.
Bad Moon Rising
I see the bad moon arising.
I see trouble on the way.
I see earthquakes and lightnin'.
I see bad times today.
Don't go around tonight,
Well, it's bound to take your life,
There's a bad moon on the rise.
I hear hurricanes ablowing.
I know the end is coming soon.
I fear rivers over flowing.
I hear the voice of rage and ruin.
Hope you got your things together.
Hope you are quite prepared to die.
Looks like we're in for nasty weather.
One eye is taken for an eye.
Bad Moon Rising - Creedence Clearwater Revival
There have been 18 recessions since the creation of the Federal Reserve, including the worst Depression in the history of the country and today’s ongoing Depression which will set records of its own. Most have lasted 12 to 14 months with a decline in Real GDP of 2% from peak to trough. The amount of fiscal and monetary stimulus as a % of GDP generated by the Federal Reserve and politicians during these recessions has averaged 2.5%, excluding the Great Depression and the recent recessions.
The stimulus response by Herbert Hoover and the Federal Reserve to the economic collapse of 1929 – 1933 was unprecedented at 8.3% of GDP. This was to combat a 27% decline in real GDP. George W. Bush and Alan Greenspan almost reached that level of stimulus at 7.2% to combat a 0.2% decrease in real GDP in 2001. That excessive response ultimately produced the housing bubble and today’s far worse financial crisis. Excessive is too mild of a term to describe the response by George W., Barack O., and Ben B. to the current downturn. Real GDP has declined by 1.8%. In 1953 the economy suffered a 2.7% real decline in GDP. The Eisenhower Administration did nothing. Miraculously, the economy recovered. The fiscal stimulus response to our 1.8% decline in GDP has been 29.9% of GDP. Our downturn has been 1/15th the decline of the Great Depression and our Keynesian response has been 3.6 times as great. If you were to add all of the guarantees by the Federal Reserve, FDIC, and Treasury, the response has been 12 times larger than the response to the Great Depression. This historically excessive response will have unintended consequences. It always does.
|
| Length | Decline in | Stimulus as a % of GDP | |||
Peak | Trough | (months) | real GDP | Monetary | Fiscal | Combined | |
August-29 | March-33 | 43 | 27.0% | 3.4% | 4.9% | 8.3% | |
May-37 | June-38 | 13 | 3.4% | 0.0% | 2.2% | 2.2% | |
November-48 | November-49 | 11 | 1.7% | -2.2% | 5.5% | 3.3% | |
July-53 | May-54 | 10 | 2.7% | 0.0% | -1.4% | -1.4% | |
August-57 | April-58 | 8 | 3.2% | 0.0% | 3.2% | 3.2% | |
April-60 | February-61 | 10 | 1.0% | 0.7% | 1.0% | 1.7% | |
December-69 | November-70 | 11 | 0.2% | 0.3% | 2.4% | 2.7% | |
November-73 | March-75 | 16 | 3.1% | 0.9% | 3.1% | 4.0% | |
January-80 | July-80 | 6 | 2.2% | 0.4% | 1.1% | 1.5% | |
July-81 | November-82 | 16 | 2.6% | 0.3% | 3.5% | 3.8% | |
July-90 | March-91 | 8 | 1.3% | 1.0% | 1.8% | 2.8% | |
March-01 | November-01 | 8 | 0.2% | 1.3% | 5.9% | 7.2% | |
December-07 |
| 15 | 1.8% | 18.0% | 11.9% | 29.9% | * Est. |
Source: Grant’s Interest Rate Observer
The way the system is supposed to work, when times like this come, the solid people, the competent people, take over the assets from the incompetent people and then you start over again from a sound base, this is what South Korea did, this is what Russia did, and they did fine. What they’re doing this time is they’re taking the assets away from the competent people and giving them to the incompetent people and saying now you compete with the competent people with their assets and their money – it’s terrible economics and it’s not going to work, it hasn’t worked before and it’s not going to work this time. The way the system is supposed to work is when you make a mistake you go broke, he refused to let people go broke, he saved his friends and now we’re all having to pay for them.
– Jim Rogers
The moral hazard created by the Federal Reserve’s and the government’s response to every financial difficulty faced by banks and corporations have left our financial system teetering on the brink of collapse. Our largest banks are insolvent. Over 300 smaller regional banks will fail in the next year. Our National Debt is approaching $12 trillion and will surpass $15 trillion by the end of Obama’s term. Foreclosures will exceed 3 million this year. Almost 50%, or 25 million homes, will be underwater on their mortgage loans by 2011. It has gotten so bad that it takes the leader of a socialist country to provide capitalistic free market common sense to American leaders:
This crisis did not come about because we issued too little money but because we created economic growth with too much money and it was not sustainable. If we want to learn from that, the answer is not to repeat the mistakes of the past.
– Angela Merkel
Final Solution
You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.
– George Bernard Shaw
Our fiat currency system has proved to be a wretched failure. Within the next five years a final crisis will bring an end to this diabolical experiment in hubris. Man is not smarter than the free markets. The U.S. dollar is a piece of paper. It only has value because people have trust that the government issuing the paper is financially stable with rational fiscal policies. This does not describe the United States of today. When the next crisis causes the dollar to collapse and uncontrollable inflation to result, abolition of the Federal Reserve will become feasible. Average Americans have been victims of the boom and bust caused by the Federal Reserve policies. The sole beneficiaries have been bankers, politicians, the military industrial complex, and the super rich elite.
Journalist H.L. Mencken understood overbearing government, the ignorant masses and the power of a few brave men:
All government, of course, is against liberty. The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary. Most people want security in this world, not liberty.
The most dangerous man to any government is the man who is able to think things out... without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable. It doesn't take a majority to make a rebellion; it takes only a few determined leaders and a sound cause.
The abolition of the Federal Reserve will not be without a ferocious, possibly deadly, fight. Without a fiat currency, Democrats would not be able to tax and spend on their social program agenda. Republicans would not be able to tax and spend on their beloved military industrial complex and the wars it encourages. A sound commodity backed currency would force government to become smaller and dramatically reduce the obscene profits of bankers. A commodity backed currency would favor saving and investment versus borrowing and consuming. If there is one thing that should have been learned in the last two years is that an unsustainable trend will not be sustained. The actions taken by the Federal Reserve and the Obama Administration have created an unsustainable situation for the U.S. dollar. Representative Ron Paul makes the most persuasive case for abolishing the Federal Reserve:
The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts. With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings should be enthusiastic supporters of this legislation.
Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government.
Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.
In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy.
We have a sound cause. It only takes a few determined leaders to start the rebellion.
Join me at www.TheBurningPlatform.com to fight the Fed.
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This article has 57 comments:
Bernanke can prove to his critics that the US economy doesn't need the Fed's monetization programs and price fixing; that it doesn't need the liquidity injections and the buying up of junk mortgages. ($80 billion last month alone) After all, as Bernanke opines, "The fundamentals of our economy are strong!"
Right. Now prove it.
All Bernanke has to do is boost rates by a point or two and demonstrate that he's willing to mop up some of the $13 trillion he's pumped into the financial markets. With just one announcement, the Fed chair could show our biggest creditor--China--that he's serious about defending the dollar and the trillion dollars of US Treasuries China purchased believing that the US was a responsible trading partner who would never write checks on an account that was overdrawn by $12 trillion. (The National Debt)
So, go ahead, Ben. Raise rates, shut down the printing presses, roll up the corporate welfare.
That fact that the FED is not doing this speaks volumes on a recovery, in my mind.
It has financed worst impulses and insanity we are capable of, always in the name of good. It has done it's work in the dark from the beginning and has driven the formerly strongest, most stable economy in history to the brink.
I fear the funneling of $trillions, mostly unaudited, to cronies and failures, only strengthens those who will stop at nothing. Average Americans must see that the pain of following the present course of hyperbolic debt increase is impossible and that real change is necessary before we're sold out completely.
It was the Fed that forced Nixon to abandon the gold standard wasn't it? I heard someone held a gun to his head. That's a real shame because those gold standards never had any problems with them did they? History shows they always woked well. It's always a good idea to have your monetary policy determined by how much metal has been dug out of the ground recently. That's why every other country in the world still has a gold standard.
If it fails to the point where a new currency is required then a new system and hence and new central bank will be required. I don't think even the half-sane Gold-Bugs would seriously argue against having any agency to regulate money.
I think we must be pretty close to the point where it is time to close the doors.
On Aug 24 01:45 PM oneiron wrote:
> "Jekyll Island, South Carolina" no, Jekyll Island, Georgia yes; just
> a minor point.
On Aug 24 01:27 PM chap08 wrote:
> Yeah let's all balme the Fed because we as individuals and our governments
> are clearly not to blame. We as individuals have never been greedy
> and had no misplaced sense of entitlement. We have always elected
> fiscally conservative governments and held our governments to account
> for any minor, temporary deficits.
>
> It was the Fed that forced Nixon to abandon the gold standard wasn't
> it? I heard someone held a gun to his head. That's a real shame because
> those gold standards never had any problems with them did they? History
> shows they always woked well. It's always a good idea to have your
> monetary policy determined by how much metal has been dug out of
> the ground recently. That's why every other country in the world
> still has a gold standard.
We've had a nice run-up and I hope it continues to real sustainable growth. In the meantime I'll take my paper gains to offset my paper losses from the prior year. The Fed is not going anywhere. We won't be bringing the troops home. The dollar will be continue to be devalued. Thank God the rest of the world allows it or we would've been a 3rd world country decades ago.
On Aug 24 02:39 PM James Quinn wrote:
> Thanks. I'll make the change.
Unfortunately, any breeze will knock down a house of cards.
On Aug 24 12:21 PM conceptwizard wrote:
> Bernanke should welcome the opportunity to show everyone how he's
> pulled the world's biggest economy back from the brink of disaster.
> All he needs to do is stop giving away free money, shut down a few
> of his so-called lending facilities, and stop manipulating interest
> rates by purchasing mortgage-backed securities (seekingalpha.com/symbo...)
> from Fannie and Freddie. How hard is that? The S&P 500 has skyrocketed
> 51 percent since March 9. What's Bernanke waiting for; a 75 percent
> increase; a 100 percent increase??? How high do stocks have to go
> to convince Bernanke that the economy can stand on its own two feet
> without the torrent of cheap liquidity issuing from the Fed?
>
> Bernanke can prove to his critics that the US economy doesn't need
> the Fed's monetization programs and price fixing; that it doesn't
> need the liquidity injections and the buying up of junk mortgages.
> ($80 billion last month alone) After all, as Bernanke opines, "The
> fundamentals of our economy are strong!"
>
> Right. Now prove it.
>
> All Bernanke has to do is boost rates by a point or two and demonstrate
> that he's willing to mop up some of the $13 trillion he's pumped
> into the financial markets. With just one announcement, the Fed chair
> could show our biggest creditor--China--that he's serious about defending
> the dollar and the trillion dollars of US Treasuries China purchased
> believing that the US was a responsible trading partner who would
> never write checks on an account that was overdrawn by $12 trillion.
> (The National Debt)
>
> So, go ahead, Ben. Raise rates, shut down the printing presses, roll
> up the corporate welfare.
>
> That fact that the FED is not doing this speaks volumes on a recovery,
> in my mind.
We will be waiting breathlessly for your analysis.
On Aug 24 02:57 PM VBTS villa owner wrote:
> I had planned to comment about the Jekyll Island mistake but I see
> somebody beat me to it. I, however, am concerned that beneath a minor
> mistake lie other more substantive errors.
I don't understand why so many people don't see this. It's so obvious and right there in front of your face. What happened 75 years ago is EXACTLY what happened now. I know in public school they taught you " the stock market crash caused the great depression", but any investor should see that the explaination doesn't even make sense.
Credit the school of Austrian Economics with spotting and calling the credit boom/bust. What is the Fed? It's the government SETTING THE PRICE OF MONEY... (Interest rates).
As we can see, this creates bigger booms/busts than we would have otherwise. Artificially priced money, creates peverse inventives and economic consquences. It distorts savings, investment, and capital. THE PRICE OF MONEY EFFECTS EVERYTHING. It changes the value of your house in the ground, all the way to future goods and services that haven't even been produced yet.
The guys running the Fed have been exposed. Ben Bernake can't predict what's going to happen in an entire economy any better than any other economist. Why does HE get to set the price and quantity of money?
If people ever tell you we have a "free market", we don't have anything close to a free market... not when the government is setting the price & quanity of money.
Abolish the Fed. Support HR 1207.
Gold has been a currency for 10,000 years and still IS. Love your argument on how the Fed has staved off "many depressions and recessions." I take it you are also a global warming alarmist, and that you would argue that the $787 billion Porkulus bill saved millions of jobs.
All of these positions have one thing in common- post hoc ergo procter hoc.
You Cannot Prove "Because of X Then Y." Don't blame you- they don't teach this in colleges anymore...
On Aug 24 02:29 PM dan phillips wrote:
> great here comes the gold wackos. gold hasn't been used as a curency
> for a long time now. and for one reason - it dosn't work. contrairy
> to popular opinon gold has no value. this is the real world. every
> nation on earth today uses paper. its way superior to gold or silver
> or lead or whatever medal you want to uses. the reason the world
> is so wealthy today is BECAUSe of paper money. the fderal reserve
> system has stemmed of f many depressionsand recessions. you have
> no idea. the reason we have so many things and live so compfortably
> is BECAUSE of the federal reserve. if we had a gold stanard the global
> economy would colapse. most economimsts believe that. so stop your
> ranting and raving and conspiracy therries. your a embarrasment to
> humanity. gold has never worked doesn't work and never will. get
> over it.
On Aug 24 02:57 PM VBTS villa owner wrote:
> I had planned to comment about the Jekyll Island mistake but I see
> somebody beat me to it. I, however, am concerned that beneath a minor
> mistake lie other more substantive errors.
I'm not here to defend the record of the Fed, they've made almost as many stupid mistakes as the American people and the American governments. But you should recognise that:
a) managing inflation is not the only worthwhile economic objective
b) our best periods of growth are associated with moderate inflation
c) the problems of gold standards mean that none has ever survived
d) continuous budget deficits mean that America has no option now but to inflate away the national debt. Going for a hard money option now would be the worst ever time in history that we could choose to do it.
On Aug 24 02:40 PM James Quinn wrote:
> Examine the facts. No inflation for the 1st 120 years with a gold
> standard. Massive inflation since 1913 with a fiat currency. Facts
> are facts.
Go to the BLS inflation calculator and enter $1.00 in 1913 and see what it is worth today. Interesting that the BLS begins the calculator in 1913. Must be a coincidence.
data.bls.gov/cgi-bin/c...
On Aug 24 03:27 PM chap08 wrote:
> Contrary to what Dave Wrixon says above, the Fed's role is not to
> "defend the integrity of the dollar". The Fed's task is to balance
> inflation with other worthwhile objectives e.g. employment.
>
> I'm not here to defend the record of the Fed, they've made almost
> as many stupid mistakes as the American people and the American governments.
> But you should recognise that:
> a) managing inflation is not the only worthwhile economic objective
>
> b) our best periods of growth are associated with moderate inflation
>
> c) the problems of gold standards mean that none has ever survived
>
> d) continuous budget deficits mean that America has no option now
> but to inflate away the national debt. Going for a hard money option
> now would be the worst ever time in history that we could choose
> to do it.
On Aug 24 03:38 PM James Quinn wrote:
> We will not go to a commodity backed currency until the Federal Reserve
> finishes the job of destroying the last 5 cents of value left in
> the USD since 1913.
>
> Go to the BLS inflation calculator and enter $1.00 in 1913 and see
> what it is worth today. Interesting that the BLS begins the calculator
> in 1913. Must be a coincidence.
>
> data.bls.gov/cgi-bin/c...
>
>
You mean the problem that greedy government can't get it's hand all over the printing presses unchecked?
One of the problems with straight gold as money is portability and being able to divide it. Would you want to carry around 700,000 dollars worth of gold when you buy a home? That's why paper money backed by it's weight in gold IE Brittish POUND STERLING was created in the first place. You keep your money safe in bank vaults and trade the paper representing the underlying assets... that's what checks are!
Instead of carrying around 5 pounds worth of Silver ( or gold or anything else), you could carry around a tradeable piece of paper worth it's weight in Silver ( or gold or anything else)... Now, you are just trading green pieces of paper backed by nothing except the confidence in the US Government and it's people. Green pieces of paper.
If you'd look at this history of money, money was privatized... until one day governments started nationalizing the process... taking it over... and stealing money through inflation. Look at old Roman coins. Gold coins stopped being gold when Casear realized he could chip away the edges and put cheaper metals in the gold coins and keep the difference... The response was that people started looking to trade for "better money" instead of "inflated money"... then the government responded that all money was legal tender... So if you had a gold coin that was 1/2 zinc, you still had to accept it anyway because Caesar said so ( and he was the biggest thief of all and very in on the scheme).
Oh yeah, and Rome fell.
Answer: Incrementalism.
Nixon gets a bum rap for sticking a knife in Bretton Woods- although he was a creep for manifold other reasons, he saved SOME of our gold by doing it. (How much? We'll never know. Another reason to support HR 1207). Starting before FDR, and accelerating dramatically during his tenure, the amount of gold backing each dollar was "slipping". Until the 1960s, when Charles de Gaulle started demanding transfer payments in gold instead of greenbacks. THE FED CHEATED EVERYONE. THEY PRINTED MONEY THEY DID NOT HAVE THE CONSTITUTIONAL AUTHORITY TO PRINT. But the American people could not convert back to gold, although the other Bretton Woods adherent nations could. Hence the unilateral destruction of the accord.
Unilaterally, the Fed itself destroyed the gold standard. Not just for the US, but for EVERY OTHER WESTERN NATION.
On Aug 24 03:27 PM chap08 wrote:
On Aug 24 02:38 PM James Quinn wrote:
> Is that you Ben Bernanke? Are you trying to throw me off by spelling
> like a 1st grader?
1. I see that you're not actually disputing any of the points I made.
2. Atleast we agree that a commodity backed currency is irrelevant now.
3. So what if the dollar has lost 95% of value in that time? Have you seen what's happened to GDP? To the DJIA? To standards of living etc etc?
On Aug 24 03:38 PM James Quinn wrote:
> We will not go to a commodity backed currency until the Federal Reserve
> finishes the job of destroying the last 5 cents of value left in
> the USD since 1913.
>
> Go to the BLS inflation calculator and enter $1.00 in 1913 and see
> what it is worth today. Interesting that the BLS begins the calculator
> in 1913. Must be a coincidence.
>
> data.bls.gov/cgi-bin/c...
>
>
On Aug 24 05:34 PM chap08 wrote:
> James
>
> 1. I see that you're not actually disputing any of the points I made.
>
> 2. Atleast we agree that a commodity backed currency is irrelevant
> now.
> 3. So what if the dollar has lost 95% of value in that time? Have
> you seen what's happened to GDP? To the DJIA? To standards of living
> etc etc?
I voted for Ron Paul !
As your extensive criticism illustrates, the problem isn't really the Fed. It's the Fed's ability to be manipulated by the executive and legislative branches practically at will. Why was the last competent chairman only in office for eight years? Not health, he's still kicking ass now. He's too independent. That's not in the job description.
So by whacking the Fed and going to a gold standard, we would really be fiscally restraining practically the entire government.
Two comments:
This is a question- Would eliminating fiat currency also eliminate fractional reserve banking? The ability to leverage the gold supply through FRB is almost as handy a tool for creating inflation as printing money.
R.P. "Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings."
J.Q. "A commodity backed currency would favor saving and investment versus borrowing and consuming."
Notice the slight difference between the statements. Ron Paul says nothing about investments. In an economy without inflation, there is no real need for investment, which is basically a sophisticated form of gambling. With inflation, investments are a must to stay even in net wealth. I would much prefer not having to gamble my savings just to maintain.
Anyway, it's too easy to harp on the Federal Reserve. Pretty much everyone knows it's not legal and fails at every job it does. In fact, it's even failing at it's job of holding proper government bond auctions, thus the QE gambit where it fixes it's own auctions by buying tyhe notes up itself. I mean, really, is there nothing they won't stoop down to? How about loaning out at zirp rates and then paying above zirp rates for bank deposits? They do that too? And you wonder why banks don't need to loan to you anymore lol. Go figure.
On Aug 24 07:19 PM James Quinn wrote:
> Yes. None of them have outpaced inflation.
On Aug 25 06:54 AM chap08 wrote:
> Simply not true. As you said yourself, look at the facts. GDP and
> the stock market have exceeded inflation. Our standard of living
> is well above that in 1913.
Great works, as always.
On Aug 24 10:37 PM TinyTim wrote:
> Outstanding article highlighting the egregious errors of the Fed
> since its founding. Since I have little confidence in economics as
> an operating manual, even though I'm fascinated by it, I would agree
> that the Fed appears to have done more damage than good. Certainly
> the inflation stats are proof enough.
>
> As your extensive criticism illustrates, the problem isn't really
> the Fed. It's the Fed's ability to be manipulated by the executive
> and legislative branches practically at will. Why was the last competent
> chairman only in office for eight years? Not health, he's still kicking
> ass now. He's too independent. That's not in the job description.
>
>
> So by whacking the Fed and going to a gold standard, we would really
> be fiscally restraining practically the entire government.
>
> Two comments:
> This is a question- Would eliminating fiat currency also eliminate
> fractional reserve banking? The ability to leverage the gold supply
> through FRB is almost as handy a tool for creating inflation as printing
> money.
>
>
> R.P. "Stabilizing the currency will also give Americans new incentives
> to save as they will no longer have to fear inflation eroding their
> savings."
>
> J.Q. "A commodity backed currency would favor saving and investment
> versus borrowing and consuming."
>
> Notice the slight difference between the statements. Ron Paul says
> nothing about investments. In an economy without inflation, there
> is no real need for investment, which is basically a sophisticated
> form of gambling. With inflation, investments are a must to stay
> even in net wealth. I would much prefer not having to gamble my savings
> just to maintain.
On Aug 25 08:40 AM BobFD wrote:
> James, researched and brilliant as usual; this piece should be forwarded
> to for review by all of our corrupt government officials prior to
> Bernanke's confirmation. I know, it won't matter, but at least the
> facts are part of the record----as it stands now, most people are
> afraid to say anything, lest they be crushed by the Chicago mafia.
>
>
> Great works, as always.
But you can't find the numbers ANYWHERE.
Keep on blaming "military" and ignore the rest, that will work for us.
On Aug 24 02:46 PM waf76 wrote:
> Our economy has always been based on this type of manipulation by
> the Fed. I would assume the vast majority of Americans do not have
> a clue on how the Fed works and they could care less. That's why
> problems like these will never be solved unless the world economy
> completely collapses. Not just on the verge of collapsing, I'm talking
> a complete collapse. We will always be heavily taxed in order to
> maintain our vast imperialistic military machine. I believe the military
> accounts for 51% of the total Federal tax one pays.
>
> We've had a nice run-up and I hope it continues to real sustainable
> growth. In the meantime I'll take my paper gains to offset my paper
> losses from the prior year. The Fed is not going anywhere. We won't
> be bringing the troops home. The dollar will be continue to be devalued.
> Thank God the rest of the world allows it or we would've been a 3rd
> world country decades ago.
The only thing I would add is that Bernake (and Greenspan before) HAD to create this bubble or the sheeple would have seen what "free trade" had actually done to our country, our wealth and our sovereignty.
After the one-second problem, trillion dollar, millions of employees industry was finished (Y2K), thanks to Clinton and greedy Republicans with multi-nationals in their pockets, there was no real economy left.
We sent our real economy to China and in exchange the elite banked trillions and the rest of us got cheap socks and massive debt.
Abolishing the Fed needs to be done (but won't), but the real issue continues to be jobs for the masses.
If I hear one more politician, multi-national CEO or Ivory Tower Academic tell me that "green" and "high tech" jobs will fix this, I'm going to hurl.
Apparently none of these over-educated fools have looked at IQ averages in America (dropping like stones-for the college educated), nor have they read a term paper.
Just WHO is going to be capable of doing these jobs (IF they would actually materialize anyway) AND just HOW do we support a population where at least 50% are not even capable?
Our "education" system is as big a failure as are our money & political systems.
Look around, evidence is EVERYWHERE, but those at the top refuse to see and surely will not explain it to the common man who is incapable of figuring it out.
Again, very nice article. While I have dabbled in the history of this country's fiscal/political corruption, I learned a few new things today and for that I am grateful.
I hope you are writing a book, your satire is tops.
Who cannot agree with the lions share of what you have said? The problems with the USA are not unlike many other "superpowers" or empires throughout history. Inflation and currency debasement seem very recurrent throughout history, and we will not be saved this harsh lesson.
Mike Moskowitz
stockcharts.com/charts...
What would my grandkids rather have- $50,000 in tax free gold (far exceeding that value numismatically, BTW), or $30,000+ in taxable stock? Even if dividends bump that all the way up to $100,000 (highly optimistic given historical payout ratios) it's a breakeven after capital gains taxes.
This entire argument is absurd, by the way. To even talk about STOCKS (risk investments) KEEPING EVEN WITH A DECLINING CURRENCY IS PATENTLY ABSURD. You make a great case for shunning risk and fleeing to hard currencies. At least the charts bear that one out.
Standard of living increases- thank innovators, technology, gains in efficiencies, cheap energy, and exploiting cheap foreign labor. Not the Bankster Criminals.
On Aug 24 05:34 PM chap08 wrote:
> James
>
> 1. I see that you're not actually disputing any of the points I made.
>
> 2. Atleast we agree that a commodity backed currency is irrelevant
> now.
> 3. So what if the dollar has lost 95% of value in that time? Have
> you seen what's happened to GDP? To the DJIA? To standards of living
> etc etc?
On Aug 25 10:14 AM Albert Meyer wrote:
> You sent it to 50 senators? Not much good, 'cause they are all illiterate
> - voted into power by a bunch of coach potatoes. You need to put
> this into video format and then send it to the Senators. Enlist me
> for the rebellion.
On Aug 24 01:27 PM chap08 wrote:
> Yeah let's all balme the Fed because we as individuals and our governments
> are clearly not to blame. We as individuals have never been greedy
> and had no misplaced sense of entitlement. We have always elected
> fiscally conservative governments and held our governments to account
> for any minor, temporary deficits.
>
> It was the Fed that forced Nixon to abandon the gold standard wasn't
> it? I heard someone held a gun to his head. That's a real shame because
> those gold standards never had any problems with them did they? History
> shows they always woked well. It's always a good idea to have your
> monetary policy determined by how much metal has been dug out of
> the ground recently. That's why every other country in the world
> still has a gold standard.
For long term real returns on the stock market, go to Shiller's site:
www.irrationalexuberan.../
If you want to work the data go ahead. The graph shows you that stock market returns have far exceeded inflation.
To prove GDP go to the FRED site. This has GDP back to 47 rather than 13 but it will be the same long term story of GDP exceeding inflation.
For quality of life, use GDP per capita as a proxy. Using the same GDP figures, population from the census bureau and inflation from the site you pointed to; this shows that from 1947:
GDP per capita growth = 5.5% pa
Inflation = 3.5% pa
Compounded over that time, this represents a massive difference.
This is the proof that you are wrong that you asked for. I know that if you bother to reply, you will create some fantasy version of reality where you are right, but in the real world you are wrong.
On Aug 25 08:40 AM James Quinn wrote:
> Prove it.
Actually, it's proof of NOTHING. Your point was that the fiat standard is superior to the metallic standards in terms of economic growth. Well, what was per capita GDP growth from 1787-1913? I'm sure it exceeds 2%, the implied spread in your numbers, and during a period of ZERO net inflation. And, how are you measuring "inflation"? Are you using the broken, manipulated BLS basket or comparing against Real Money? When stacked up against physical gold in hand, as riskless as you can get, the whipsaw-laden DJIA shows crappy returns over the last 80 years (see my comment above).
Since the ridiculous concept of a barbaric-relic-backed currency died, gold has remarkably held its own in purchasing power. And again, I would hope more Americans would actually preserve their savings by holding a significant portion of their wealth in metals. They are untraceable, portable, and not IRS-reportable if traded in small lots. Along with real estate debt, they are about the best inflation hedges a middle-class family can have. Equities are a nightmare at current levels.
On Aug 25 12:14 PM chap08 wrote:
> OK, It's not hard to prove this.
>
> For long term real returns on the stock market, go to Shiller's site:
>
>
> www.irrationalexuberan.../
>
> If you want to work the data go ahead. The graph shows you that stock
> market returns have far exceeded inflation.
>
> To prove GDP go to the FRED site. This has GDP back to 47 rather
> than 13 but it will be the same long term story of GDP exceeding
> inflation.
>
> For quality of life, use GDP per capita as a proxy. Using the same
> GDP figures, population from the census bureau and inflation from
> the site you pointed to; this shows that from 1947:
>
> GDP per capita growth = 5.5% pa
> Inflation = 3.5% pa
>
> Compounded over that time, this represents a massive difference.
>
>
> This is the proof that you are wrong that you asked for. I know that
> if you bother to reply, you will create some fantasy version of reality
> where you are right, but in the real world you are wrong.
As a PS - The government has systematically understated CPI for 20 years, resulting in an overstatement of GDP.
Open your mind to reality and check out Shadowstats for the Real GDP over the last 20 years. Not a pretty picture.
www.shadowstats.com/ch...
On Aug 25 12:14 PM chap08 wrote:
> OK, It's not hard to prove this.
>
> For long term real returns on the stock market, go to Shiller's site:
>
>
> www.irrationalexuberan.../
>
> If you want to work the data go ahead. The graph shows you that stock
> market returns have far exceeded inflation.
>
> To prove GDP go to the FRED site. This has GDP back to 47 rather
> than 13 but it will be the same long term story of GDP exceeding
> inflation.
>
> For quality of life, use GDP per capita as a proxy. Using the same
> GDP figures, population from the census bureau and inflation from
> the site you pointed to; this shows that from 1947:
>
> GDP per capita growth = 5.5% pa
> Inflation = 3.5% pa
>
> Compounded over that time, this represents a massive difference.
>
>
> This is the proof that you are wrong that you asked for. I know that
> if you bother to reply, you will create some fantasy version of reality
> where you are right, but in the real world you are wrong.
If you'd read what I had to say, before criticising it, you would have seen that my point was to show that James Quinn was wrong. He claimed above, in relation to stocks, GDP and standard of living, that "none of them have outpaced inflation". I showed that this is not true.
You would also have seen that I used the bls inflation calculator as directed by James.
A few other points for you:
1. I have nothing against gold, I actually own physical gold myself. But you do not help yourself by denying that stocks have greatly outperformed gold over time. If you dispute Shiller's data then let's see yours. I have seen a number of long term comparisons, and every time, stocks beat gold. Gold gives you inflation like returns. Stocks give you a lot more. Logically, stocks should give you inflation plus real GDP. This is very close to what the historical figures show.
2. In your example, you pick the worst time in history to buy stocks. Sorry, that's just not credible. You need to compare across all periods.
3. There are costs to holding gold, even if you hold physical. If you want your gold to be secure, you have to pay for security/custody. This small cost significantly erodes your returns over time.
4. Gold is not "riskless". It can be confiscated by governments. It has been before. They will decide what deal you get, if any. Foreign governments might want your gold as part of our impending debt settlement.
5. As I said above, there is more to life than inflation. For example: unemployment. Why is inflation the holy grail of economics in your book? What about unemployment? Perhaps you don't care about human misery and social cost, so think about all that unused resource sitting idle and costing tax payers. Inflation and unemployment sometimes have to be traded off against each other. Inflation should not be minimised at all costs.
On Aug 25 01:39 PM Whippet wrote:
> Figures you'd use Shill-er for your data. Good real estate analysis,
> but the creep is part of the CFR that promoted giving the Fed even
> more power...
>
> Actually, it's proof of NOTHING. Your point was that the fiat standard
> is superior to the metallic standards in terms of economic growth.
> Well, what was per capita GDP growth from 1787-1913? I'm sure it
> exceeds 2%, the implied spread in your numbers, and during a period
> of ZERO net inflation. And, how are you measuring "inflation"?
> Are you using the broken, manipulated BLS basket or comparing against
> Real Money? When stacked up against physical gold in hand, as riskless
> as you can get, the whipsaw-laden DJIA shows crappy returns over
> the last 80 years (see my comment above).
>
> Since the ridiculous concept of a barbaric-relic-backed currency
> died, gold has remarkably held its own in purchasing power. And
> again, I would hope more Americans would actually preserve their
> savings by holding a significant portion of their wealth in metals.
> They are untraceable, portable, and not IRS-reportable if traded
> in small lots. Along with real estate debt, they are about the best
> inflation hedges a middle-class family can have. Equities are a
> nightmare at current levels.
>
> On Aug 25 12:14 PM chap08 wrote:
GDP per capita growth = 5.47% pa
Inflation = 3.26% pa
You will note that this is an even bigger gap than the previous figures. The reason for this is that, while you were right to highlight the falls in GDP during the 30s, you seem to have forgotten a little something called deflation that happened at the same time.
End result: you're still wrong.
As for shadowstats, I'm not surprised that you're now trying to move the target. If your whole argument is based on "shadow" organisations and statistics, you should be honest about that up front. Note also that whatever side you believe on shadow stats, they are mostly arguing about "quality" adjustments. Nobody is arguing that the quality hasn't improved.
On Aug 25 02:22 PM James Quinn wrote:
> Look who is living in the fantasy world. How convenient that you
> want to measure GDP from 1947. Yes, let's leave out 1929 to 1939,
> the worst period of GDP in US history. Measure it from 1913 big guy
> and you are wrong.
>
> As a PS - The government has systematically understated CPI for 20
> years, resulting in an overstatement of GDP.
>
> Open your mind to reality and check out Shadowstats for the Real
> GDP over the last 20 years. Not a pretty picture.
>
> www.shadowstats.com/ch...
According to the Census website, real GDP in 1947 was 14.054 and at the end of 2008 was 105.331. This is an increase of 7.49.
The CPI according to the BLS was 21.5 in 1947 and 215.303 at the end of 2008. This is an increase of 10.01.
Interesting result. You have quite a bit of faith in your government to not believe they have manipulated the CPI for two decades, reducing it by 4% to 5% per year. Keep the faith.
On Aug 25 04:36 PM chap08 wrote:
> Sounds like you're starting to get a bit desperate now James. Unfortunately
> you are still wrong. The reason I went from 1947 was (as I stated
> in the comment) that the FRED database goes back to 47. Since you
> made a big deal of it, I went and dug up the earlier figures. The
> answers from 1913 are:
>
> GDP per capita growth = 5.47% pa
> Inflation = 3.26% pa
>
> You will note that this is an even bigger gap than the previous figures.
> The reason for this is that, while you were right to highlight the
> falls in GDP during the 30s, you seem to have forgotten a little
> something called deflation that happened at the same time.
>
> End result: you're still wrong.
>
> As for shadowstats, I'm not surprised that you're now trying to move
> the target. If your whole argument is based on "shadow" organisations
> and statistics, you should be honest about that up front. Note also
> that whatever side you believe on shadow stats, they are mostly arguing
> about "quality" adjustments. Nobody is arguing that the quality hasn't
> improved.
Let us not forget what Woodrow Wilson said after signing the Federal Reserve Act.
"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men."
Woodrow Wilson, after signing the Federal Reserve into existence
Enable shockwave flash or equivalent.
www.youtube.com/watch?...
www.youtube.com/watch?...
www.youtube.com/watch?...
Links to some videos at the end of the text.
publiccentralbank.com/
More good reading
www.michael-hudson.com...
Link leading to more information about H.R. 1207
www.opencongress.org/b...
Info on the global monetary system
www.theundergroundinve.../
HardToLove
I'll leave you to whistle in the dark. If, at some stage, you decide to turn your attention to something more meaningful, you should look at national debt and the deficit. That's what's really killing America and you don't need a gold standard to sort that out. It's also why inflation is the only solution that America has left.
On Aug 25 05:25 PM James Quinn wrote:
> Looks like you're confusing GDP with real GDP.
>
> According to the Census website, real GDP in 1947 was 14.054 and
> at the end of 2008 was 105.331. This is an increase of 7.49.
>
> The CPI according to the BLS was 21.5 in 1947 and 215.303 at the
> end of 2008. This is an increase of 10.01.
>
> Interesting result. You have quite a bit of faith in your government
> to not believe they have manipulated the CPI for two decades, reducing
> it by 4% to 5% per year. Keep the faith.
>
>
>
>
>
>
>
>
>
>
>
>
>
>
On Aug 26 06:29 AM chap08 wrote:
> James, there's no confusion on my part. Anyone capable of thinking
> for themselves can check my figures using publicly available data.
>
>
> I'll leave you to whistle in the dark. If, at some stage, you decide
> to turn your attention to something more meaningful, you should look
> at national debt and the deficit. That's what's really killing America
> and you don't need a gold standard to sort that out. It's also why
> inflation is the only solution that America has left.
>
> On Aug 25 05:25 PM James Quinn wrote:
I think what he's saying is that since the grave we dug ourselves is so deep, inflation is the only tool that will allow us to dig ourselves out. It's a one time only weapon, and it'll destroy our credibility as a nation and empty the american citizen of all their savings. But we may not have any other choice.
On Aug 26 09:16 AM James Quinn wrote:
> Inflation will solve our National Debt and Deficits? I thought spending
> less than you bring in is how you solve too much debt. Silly me.
>
On Aug 26 02:21 PM mna wrote:
> I don't think he's disputing that spending less than you earn is
> the only way to be responsible and the only long term way to solve
> the currency problem.
>
> I think what he's saying is that since the grave we dug ourselves
> is so deep, inflation is the only tool that will allow us to dig
> ourselves out. It's a one time only weapon, and it'll destroy our
> credibility as a nation and empty the american citizen of all their
> savings. But we may not have any other choice.
>
> On Aug 26 09:16 AM James Quinn wrote:
You point out that I picked the "worst time in history to buy stocks" in my comment. In sooth, there have been many "worst times in history." However, an argument could be made that PROSPECTIVELY, 2009 and 1929 could have a lot of parallels. P/Es were actually LOWER before the crash in '29 than they are now. Could stocks outperform gold over the next 80 years? Maybe, maybe not. In the late 70s, gold seriously outperformed equities as an inflation hedge. Do I argue "buy and hold forever" for gold? No. But I'm quite long the Au/DJIA ratio right now. I'm certain this will reverse at a point in the future.
And about unemployment- prove to us the nation had as bad of an unemployment problem pre-Fed as it has post-Fed. I would argue the converse- flooding the world with cheap money in the early 2000s led to record low unemployment in coincidence with one of the biggest bubbles the world has ever seen. High unemployment NOW is an Unintended Consequence of Fed policies. You are correct in asserting that there is more to life than inflation; but there is not the direct tradeoff you (or Keynes) claim. Not when you look at history.
On Aug 25 03:18 PM chap08 wrote:
> Whippet
>
> If you'd read what I had to say, before criticising it, you would
> have seen that my point was to show that James Quinn was wrong. He
> claimed above, in relation to stocks, GDP and standard of living,
> that "none of them have outpaced inflation". I showed that this is
> not true.
>
> You would also have seen that I used the bls inflation calculator
> as directed by James.
>
> A few other points for you:
>
> 1. I have nothing against gold, I actually own physical gold myself.
> But you do not help yourself by denying that stocks have greatly
> outperformed gold over time. If you dispute Shiller's data then let's
> see yours. I have seen a number of long term comparisons, and every
> time, stocks beat gold. Gold gives you inflation like returns. Stocks
> give you a lot more. Logically, stocks should give you inflation
> plus real GDP. This is very close to what the historical figures
> show.
> 2. In your example, you pick the worst time in history to buy stocks.
> Sorry, that's just not credible. You need to compare across all periods.
>
> 3. There are costs to holding gold, even if you hold physical. If
> you want your gold to be secure, you have to pay for security/custody.
> This small cost significantly erodes your returns over time.
> 4. Gold is not "riskless". It can be confiscated by governments.
> It has been before. They will decide what deal you get, if any. Foreign
> governments might want your gold as part of our impending debt settlement.
>
> 5. As I said above, there is more to life than inflation. For example:
> unemployment. Why is inflation the holy grail of economics in your
> book? What about unemployment? Perhaps you don't care about human
> misery and social cost, so think about all that unused resource sitting
> idle and costing tax payers. Inflation and unemployment sometimes
> have to be traded off against each other. Inflation should not be
> minimised at all costs.
>
> On Aug 25 01:39 PM Whippet wrote:
www.thenation.com/doc/...
Got the right idea. Unfortunately, he wants to give the Fed functions to Congress. The economy would be FUBAR in five years.
Another great concern of mine is the effects of overpopulation/demogra... and the results they have on opportunities for employment and hence, economic prosperity and stability.
If increasing productivity requires fewer workers, and the population continues to increase every year without pause, it would seem to me that we have a growing and unsustainable impass on our hands as it relates to progress in the human condition worldwide.
We are reaching a point that having a decent job is becoming a privilige for mostly the lucky and well connected few. Ability will always play a part, no doubt, but less so every year that passes, and that's a major problem in my view.
Would like someone of your journalistic ability and skill address this issue with the same gusto and robustness that you have so illustratively achieved with this fine series of articles.
If you choose not to address this concern , please comment as to your reasons for not doing so.
Thanks again for your hard work and excellent historical overviews of critical and vastly important subjects to all of us.