By Alan Caruba
I have not been kind to Ron Paul and his participation in the Republican primary campaigns and it has taken me a while to understand why he is doing this. It is clear that he wants to be around to influence the Republican platform and the issue about which he is abundantly correct is the Federal Reserve.
Anyone taking notice of Obama’s latest budget has to conclude that his mission is to crash the nation’s economy and turn America into a Socialist worker’s paradise. The only problem is that Socialism has been a dismal failure everywhere it has been tried.
One only has to look at the collapse of the Soviet Union for confirmation of that, the Chinese abandonment of Communist economic theory, and Obama’s odd notion that a nation can spend itself out of ever-increasing debt.
I am not a fan of Paul’s isolationism, but he is absolutely right about getting rid of the Federal Reserve.
Established in 1913, the same year income taxes were instituted, the Reserve is not part of the federal government. It is, in fact, privately owned by a consortium of banks and that might include foreign banks as well.
In a remarkable essay, “10 Things That Every American Should Know About The Federal Reserve” by Michael T. Snyder, it is clear that the Constitution intended to have the U.S. Treasury to be soley responsible to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.”
Snyder points out that the Federal Reserve System (the Fed) is a privately owned banking cartel and one granted the right to create money out of thin air.
It is, says Synder “a perpetual debt machine because “whenever more money is created, more debt is created as well.” On top of its ability to create money, the government then borrows it, increasing the cost to taxpayers by way of the interest that must be paid to the Fed.
The government issues U.S. Treasury bonds with which to secure a loan from the Fed and it, in turn, sells them to others. Money from nothing; interest on that money, and earnings from the U.S. Treasury bonds it then sells!
Synder noted that in fiscal 2011 the U.S. government paid out $454 billion just in interest on the national debt. “The truth is that our current debt-based monetary system was designed by greedy bankers that wanted to make enormous profits by using the Federal Reserve as a tool to create money out of thin air and lend it to the U.S. government at interest.”
“On July 1, 1914 (a few months after the Fed was created) the U.S. national debt was $2.9 billion dollars. Today it is more than 5,000 times larger.”
If Rep. Paul can convince enough people to end the Federal Reserve Americans might actually learn how many trillions it loans to “too big to fail” Wall Street banking institutions as well as to foreign banks, generally without oversight by the Congress.
The previous Chairman of the Fed, Alan Greenspan, confessed to be totally astonished by the housing bubble that led to the 2008 financial crisis, His successor, Ben Bernanke, the current Chairman of the Fed, has been consistently wrong about the economy since taking office. In 2005 Bernanke said that housing prices had never declined on a nationwide basis and predicted full employment as far as the eye could see.
Those mysterious financial instruments, derivatives, were perfectly safe said Bernanke.
In 2008, he was still predicting housing prices would probably keep rising. In 2007 he saw no problem with the subprime mortgages that two “government sponsored entities”, Fannie Mae and Freddie Mac, kept pressuring banks to make. “A few months before Fannie Mae and Freddie Mac collapsed, Bernanke said ‘The GSEs are adequately capitalized. They are in no danger of failing.’”
Any CEO or CFO with a record like that would be out on the street looking for a job. And this man is still in charge of the Federal Reserve.
The latest budget put forth by the Obama administration demonstrates the same level of incompetence and wishful thinking. “All the voters need to do is suspend belief for another nine months. And ignore the first four years,” opined The Wall Street Journal.
The budget essentially says that what a government that is deeply in debt---with the size of it growing daily---has to do is to borrow and spend more! And, oh yes, Obama wants to raise taxes on everyone and everything.
While I would not vote for Rep. Paul to be President, I applaud his lonely campaign to get Americans to think about ridding the nation of the Federal Reserve and to begin exercising fiscal restraint before we become the next Greece, Spain, Portugal, Italy or France.
© Alan Caruba, 2012
12 comments:
An "isolationist" would not advocate unconditional trade relations with any country - without prejudice.
If a nation's unwillingness to preemptively engage countries militarily was the identifying trait of "isolationism," the United States would be pretty lonely among the non-isolationist countries.
@Dayne: I do not have to agree with EVERYTHING Paul says. Nor any other candidate. The process is called thinking for oneself.
I support getting rid of the Fed. A question that the Anti-Feds must answer though is, what will the Fed be replaced with?
Backing the dollar 19th century style with a pure gold standard (100% of the dollars in circulation are backed by gold at the treasury) is not a panacea. It was issues with a gold standard that drove the movement to create the Federal Reserve:
In the 1870's, the United States had a booming population, was opening up vast tracks of land to agricultural development, and was undergoing an industrial revolution. Yet the economy slipped into depression. Why?
IMO: The govt. demonetized silver and froze the issue of the United States Note (fiat money issued by the Treasury which after 1874 could be exchanged for gold). The USA was on a true gold standard.
The economy actually expanded during the depression, but the money supply, gold, did not (or not enough to keep up with the growth in GDP). This created a deflationary environment, which can be as destructive as an inflationary one.
Now, if you are a lender, deflation can be good! The money you are paid back is actually worth more in purchasing power (before interest) than when you lent it out. If you are a borrower, you have to sell more goods, work more hours, grow more crops than you originally planned to pay back the debt. So farmers borrow money for seed, business borrowing money to purchase capital equipment, etc. all got burned. Burned to the tune where over 18 thousand business went under during the Great Depression.
In response, silver was re-monetized and the United States Note was not fully withdrawn from circulation. Still, the lack of flexibility (ability to issue credit) helped aggravate various financial panics. The Treasury at one point had to be bailed out via a loan from J.P. Morgan. Morgan later became a champion of setting up a Federal Reserve to bring STABILITY to the value of the dollar and the availability of credit. Unfortunately, we replaced deflation with inflation, and a dollar is worth less than 5% of what it was in 1913.
So the Fed is gone, what shall we replace it with? 100% pure gold standard? A bi-metal standard (both gold and silver)? Shall the Treasury re-issue the United States Note? A fractional reserve gold standard (i.e. Bretton Woods Agreement)? If we go with a pure metal standard, how will the money supply be increased should the economy grow at 5%, but the availability of new gold and silver only grows at 1%*?
* I asked this question of a Ron Paul gold standard supporter. The answer I got was basically "all debt is bad", which is a silly answer. Lines of credit allow business to meet payroll and vendor invoices while waiting for their receivables. An economy such as ours cannot survive without long term and short term credit.
It sounds like you'd vote for Obama before Paul, is that so? I guess it's purely a hypothetical question, but the answer would be telling.
I question the notion that after 100 years of rampant governmental growth we could not abide 4 years of libertarian isolationism while constitutional order is at least partially restored.
Paul would bomb tyrants with free trade and heated competition, a far more effective strategy than this psuedo-military BS we have tolerated for more than a decade. It worked with the Soviets and it would work with the Saudis.
In response to "Hell_is_Like_Newark," the money supply need not grow in proportion to productivity and GDP. Rothbard taught that in a regime of stable money, we would observe gently falling prices.
Think of gently falling prices as a dividend on progress. Each year, dairy farmers become more efficient at delivering a dozen eggs, and technologists become more efficient at making micro-processors. It is thus natural if a dollar commands more goods and services as time passes. The notion that this progress dividend chills economic activity is as false and pernicious as the notion that carbon dioxide will warm the planet.
It is stunning how Keyens' breezy ruminations about deflation have shackled minds for a century.
@Gustav. You are incorrect in assuming I would vote for Paul.
That is what I was asking: Would you prefer Obama to Paul? It is still not clear, because I was not assuming you'd vote for Paul.
@Gustav. Is English your second language? I have written about Obama for three years and all of it highly critical.
Just for you: I would NOT vote for Obama no matter who the GOP candidate will be.
"The Creature From Jekyll Island" by Griffin - a fascinating read.
English is my first language. I read and write it for a living.
@Gustav. I was wondering why you didn't get what I was saying in the commentary...hence the sarcasm.
And what is you write for a living? If you say journalism you are going to hate my latest post.
Sorry'bout that.
Out of the frying pan and into the fire is decidedly not the way to go, however hot is the frying pan.
Having a gold standard which worked well happened at a time when lots of gold and silver were being mined and smelted, providing enough money to support a quickly expanding economy. Then, the only uses of gold and silver were for jewelry and decore.
The price of either could be fixed by the US government.
But when the increase of either metal was not enough to support an ever growing economy, troubles began. Worse yet, both metals began to find uses in industry, so prices could not be fixed anymore.
Post a Comment