The Federal Reserve

If you’re interested in learning how to drive a stake into the heart of the welfare and warfare state then read this post…

As my original post and follow-up post explained, until a year ago I didn’t have hardly any real understanding of the monetary (and banking) system. You might find it helpful to listen to the this talk given by G. Edward Griffin. It caused a paradigm shift to occur with how I understood these matters and how I now invest. It may be one of the most important hours you ever spend studying a secular topic. You can listen to it straight off Google videos. Make the time to listen to it.

After listening to his talk watch the following helpful video on the Federal Reserve. For some unknown reason the video doesn’t automatically begin so give it a tiny nudge forward and it will begin playing.

Read the following books on the topic.

The Creature from Jekyll Island: A Second Look at the Federal Reserve

End The Fed

The Case Against the Fed

Educate yourself. After all it’s October. It’s ok to be shocked and scared straight!

141 Responses to The Federal Reserve

  • David Jones says:

    Art Deco – In stead of asking what astrologers think of central banking… A more important and relevant question would be to ask what our Founding Fathers thought of central banking and why? Refer to the second video and respond.

    I notice how you didn’t address any of the facts about how the Fed was formed and how it works. Is the Fed a banking cartel, like a banana cartel? Explain to me how it works for the common good? It’s easy to explain how it’s good for a statist or collectivist. Refer to the first audio and respond.

  • Gabriel Austin says:

    J.K. Galbraith argued that the Federal Reserve should be kept limited to its original purpose: replacing worn out coins and paper currency.

    It has rather, taken over uncontrolled powers to escape congressional oversight, i.e. oversight by the unwashed mob, aka democracy.

  • Linus says:

    If you include Alexander Hamilton and George Washington as “founding fathers,” then obviously they did not have serious compunctions about central banks. Hamilton of course strongly favored central banking, and it is notable that he came arguably from the least “aristocratic” background of any of the founders.

    It also must be noted that gold has no more “intrinsic value” than paper fiat currency, unless you count shininess as an intrinsic value. At one time silver was considered more valuable than gold, and platinum is still considered more valuable (as are many other commodities).

    Gold boosterism comes often from those who have hoarded it as a safe investment over the years, counting on economic armageddon to occur in their lifetimes. That does not mean that the “gold bugs” are wrong by any means, but a little disclosure could bring a lot of clarity to the discussion, no? The case against the Federal Reserve, especially as it now exists, can be made quite separate from any argument for a return to the gold standard.

  • Blackadder says:

    A more important and relevant question would be to ask what our Founding Fathers thought of central banking and why?

    As with many issues the Founding Fathers were not all of one mind on central banking. However, given that a central bank was established in 1791, one has to conclude that a majority were in favor.

  • T. Shaw says:

    Mr. Gordon’s ideas:

    Thom Jefferson was an intellectual insulated from the real world. He hated commerce, he hated speculators, he hated the grubby business of getting and spending. Most of all, he hated banks, the symbol of concentrated economic power. He was the founder of an enduring political movement and his influence is felt today.

    A central bank guards the money supply — regulating the economy thereby — is lender of last resort to regular banks in financial distress. Central banks are very large and powerful. They need to be to be effective.

    Jefferson’s chief political rival, Alexander Hamilton, grew up in a counting house managing the place by the time he was in his middle teens. He had a profound and practical understanding of markets and how they work.

    Hamilton wanted to establish a central bank modeled on the Bank of England. The government would own 20% of the stock, have two seats on the board, and the right to inspect the books at any time. It would be owned by its stockholders.

    To Jefferson, Hamilton’s idea was “a giveaway to the rich.” He fought it, but Hamilton and the Bank of the United States was established in 1792. It was a big success and its stockholders did well. It also provided the country with a regular money supply with its own banknotes, and a coherent, disciplined banking system.

    Federalists lost power and the Jeffersonians became the dominant party. Bank’s charter was not renewed in 1811. The near-disaster of the War of 1812 caused President James Madison to realize the virtues of a central bank and a second bank was established in 1816. President Andrew Jackson, a Jeffersonian, killed it and the country had no central bank for 73 years.

    Without a central bank there was no way to inject liquidity into the banking system to stem a panic. Panics of the 19th century were far worse here than in Europe. In 1907, J.P. Morgan, probably the most powerful private banker who ever lived, acted as the central bank to end the panic that year.

    After 1907, realized the largest economy in the world could not do without a central bank. The Federal Reserve was created in 1913. But, again, they fought to make it weaker rather than stronger. Instead of one central bank, they created 12 separate banks located across the country and only weakly coordinated.

    The reason an ordinary recession that began in the spring of 1929 turned into the calamity of the Great Depression was the inability of the Federal Reserve to do its job. It was completely reorganized in 1934 and the U.S. finally had a central bank with the powers it needed to function. That is a principal reason there was no panic for nearly 60 years after 1929 and the crash of 1987 had no lasting effect on the American economy.

    While the Constitution gives the federal government control of the money supply, it is silent on the control of banks, which create money. In the early days they created money both through making loans and by issuing banknotes and today do so by extending credit. Had Hamilton’s Bank of the United States been allowed to survive, it might well have evolved the uniform regulatory regime a banking system needs to flourish.

    Without it, banking regulation was left to the states. Some states provided firm regulation, others hardly any. Many states, influenced by Jeffersonian notions of the evils of powerful banks, made sure they remained small by forbidding branching. In banking, small means weak. There were about a thousand banks in the country by 1840, but that does not convey the whole story. Half the banks that opened between 1810 and 1820 had failed by 1825, as did half those founded in the 1830s by 1845.

    Many “wildcat banks,” so called because they were headquartered “out among the wildcats,” were simple frauds, issuing as many banknotes as they could before disappearing. By the 1840s there were thousands of issues of banknotes in circulation and publishers did a brisk business in “bank note detectors” to help catch frauds.

    The Civil War ended this monetary chaos when Congress passed the National Bank Act, offering federal charters to banks that had enough capital and would submit to strict regulation. Bank notes issued by national banks had to be uniform in design and backed by substantial reserves invested in federal bonds. Meanwhile Congress got the state banks out of the bank note business by putting a 10% tax on their issuance. But National banks could not branch if their state did not allow it and could not branch across state lines.

    Unfortunately state banks did not disappear, but proliferated as never before. By 1920, there were almost 30,000 banks in the U.S., more than the rest of the world put together. Overwhelmingly they were small, “unitary” banks with capital under $1 million. As each of these unitary banks was tied to a local economy, if that economy went south, the bank often failed. As depression began to spread through American agriculture in the 1920s, bank failures averaged over 550 a year. With the Great Depression, a tsunami of bank failures threatened the collapse of the system.

    The reorganization of the Federal Reserve and the creation of the Federal Deposit Insurance Corporation hugely reduced the number of bank failures and mostly ended bank runs. But there remained thousands of banks, along with thousands of savings and loan associations, mutual savings banks, and trust companies. While these were all banks, taking deposits and making loans, they were regulated, often at cross purposes, by different authorities. The Comptroller of the Currency, the Federal Reserve, the FDIC, the FSLIC, the SEC, the banking regulators of the states, and numerous other agencies all had jurisdiction over aspects of the American banking system.

    The system was stable in the prosperous postwar years, but when inflation took off in the late 1960s, it began to break down. S&Ls, small and local but with disproportionate political influence, should have been forced to merge or liquidate when they could not compete in the new financial environment. Instead Congress made a series of quick fixes that made disaster inevitable.

    In the 1990s interstate banking was finally allowed, creating nationwide banks of unprecedented size. But Congress’s attempt to force banks to make home loans to people who had limited creditworthiness, while encouraging Fannie Mae and Freddie Mac to take these dubious loans off their hands so that the banks could make still more of them, created another crisis in the banking system that is now playing out.

    While it will be painful, the present crisis will at least provide another opportunity to give this country, finally, a unified banking system of large, diversified, well-capitalized banking institutions that are under the control of a unified and coherent regulatory system free of undue political influence.

    Mr. Gordon is the author of “An Empire of Wealth: The Epic History of American Economic Power” (HarperCollins, 2004).

  • David Jones says:

    How long did the original central bank exist before it was abolished? How many central banks have we had in our history? Look at the drama around their history… and ask yourself the question why.

  • T. Shaw says:

    Probably the smartest (fallen) man that ever lived invented the “gold Standard.”

    Oil vs. GLD – no change over many years

    Gold is not consumed; large stock relative to annual production; usefulness – preserve purchasing power; communication enables economic calculation; GLD = money

    Not an investment – doesn’t appreciate, accrues no interest, value is from usefulness. GLD supply grows at 1.75% p.a. same as population and wealth creation.

    1694 – Bank of England invents paper currency. Gold held in vault. Issue bank notes. Currency is a liability of the bank. Created payment risk.

    1696 – First banking crisis – too much paper currency issued vs. gold in vault.

    1700 – Isaac Newton invented the gold standard – Bank of England will give GLD for currency at the set rate. This worked until 1914.

    Gold Corp. may be used to play bullion. See goldmoney.com

  • Linus says:

    Mr Shaw, the entirety of your lengthy post on the history of central banking is merely a prolonged begging of the question contained in your second paragraph, stemming from the following whopper: “A central bank guards the money supply.”

    What money supply? From whence does this “money” come? How, why and for whom is this “money” produced and “protected”? After you answer those simple questions then you can continue with your display of modern financial acuity.

  • Art Deco says:

    A more important and relevant question would be to ask what our Founding Fathers thought of central banking and why? Refer to the second video and respond.

    No, it is not an important question in this context. Metaphysical and moral and aesthetic questions abide. The practical means to achieve particular ends (in the regulation of the money supply and the allocation of credit) are subject to evolution due to technical development. The 1st Congress established a currency peg and chartered a bank to function as a depository of public funds and a source of short term credit for the government. Central banking as we know it was an idea in gestation.

    J.K. Galbraith argued that the Federal Reserve should be kept limited to its original purpose: replacing worn out coins and paper currency.

    That was not the original purpose of the Federal Reserve and if Galbraith ever said that he was being facetious.

  • Blackadder says:

    How long did the original central bank exist before it was abolished?

    It wasn’t. The First Bank had a twenty year charter, which expired in 1811. It was chartered again in 1816, again with a 20 year charter, which expired in 1836 and was not renewed.

    I would say that by 1836 you are no longer dealing with the Founding generation.

  • T. Shaw says:

    I have no life. Earlier, I listened to most of that one hour video. I checked Wiki: that genius alos has the cure for cancer.

    Linus, I apologize.

    Not my second paragraph, an author named Gordon’s second paragraph.

    What happened after (demagogue/dualist) Jackson vetoed (because the profits went to a few hundred rich Americans and foreigners – he was the earliest Dem class envy wielder) the renewal of the Second Bank’s charter was state chartered, “wildcat” banks (thousands) issued their own bank notes as legal tender with virtually no (hard asset/gold) backing and no credit behind them. Much was fraud. There was financial chaos.

    Sorry about the long post. I have no life and the general subject tangentially involves my work.

    The second post (3:51pm) is a more succinct depiction of the issuance of paper money without hard asset backing and how Newton (taking time off from inventing Calculus) invented the GOLD STANDARD.

    “1694 – Bank of England invents paper currency. Gold held in vault. Issue bank notes. Currency is a liability of the bank. Created payment risk.

    “1696 – First banking crisis – too much paper currency issued vs. gold in vault.

    “1700 – Isaac Newton invented the gold standard – Bank of England will give GLD for currency at the set rate. This worked until 1914.”

    The facts about gold were confusing in that discussion, too.

  • Blackadder says:

    Andrew Jackson destroyed the Second Bank of the United States because he was an economic illiterate. This led to the Panic of 1837 and the first great depression in US history which lasted from 1837-1843.

    On the other hand, it was the actions of the Federal Reserve that caused the Great Depression (this is according to the current Fed Chairman), which was the biggest depression in U.S. history. So pretty much any system can go seriously wrong.

    Personally, I think that Hayek’s idea of competing currencies is closer to Austrian principles than the gold standard. I compound this heresy by noting that the current system of floating national currencies bears a good deal of resemblance to Hayek’s idea.

  • Art Deco says:

    On the other hand, it was the actions of the Federal Reserve that caused the Great Depression

    The Federal Reserve’s freedom of maneuver was constrained by the gold standard. It was only when Britain went off the standard (in September 1931) and the United States went off the standard (in the Spring of 1933) that the central bank could supply the necessary liquidity to the economy to ignite a recovery. The thing is, the Austrian program is to do away with discretionary central banking and institute an of a gold standard called a ‘currency board’. Argentina instituted a currency board in 1992. They also suffered (over the period running from 1999 to 2004) the most horrendous economic depression seen in the occidental world in the last 35 years. It is not an idiot proof system.

    One justification (there were others) for instituting a currency board has been that central bankers subject to political pressure would not act to establish and maintain price stability. That would have been a reasonable supposition ca. 1980, but subsequent events in Europe and Latin America (and the United States) have discredited that hypothesis.

  • T. Shaw says:

    “The goals of monetary policy are spelled out in the Federal Reserve Act, which specifies that the Board of Governors and the Federal Open Market
    Committee should seek “to promote effectively the goals of maximum
    employment, stable prices, and moderate long-term interest rates.”

    Also, see the Humphrey-Hawkins Full-Employment Act of 1978.

    The popular mistake that inaction by President Herbert Hoover caused the Great Depression “is drastically to misread the historical record,” wrote the late economist Murray Rothbard. Hoover in fact was an interventionist on a scale never before seen in U.S. national politics.

    In A Monetary History of the United States, 1867-1960, Milton Friedman (RIP)and Anna Jacobson Schwartz (RIP) repeatedly fingered government policies as the culprit in the Great Depression:

    · The Federal Reserve reduced the amount of credit outstanding, and therefore the stock of money, in 1931 and again in 1933;

    · Congress passed and President Hoover approved a major tax increase in June 1932;

    · Rumors that President-elect Roosevelt would devalue the dollar (which he later did) caused the final banking panic; and

    · The national banking holiday declared by Roosevelt on March 6, 1933, undermined public confidence so greatly that 5,000 banks didn’t reopen after the holiday expired, and 2,000 closed permanently.

    · In the 1930s, the Smoot-Hawley Tariff Act caused a collapse in global trade.

  • Linus says:

    Mr–or perhaps Ms? If so then pardon my presumption–Shaw, no worries. I will gladly put my paucity of a social life up against yours in friendly competition any day ;)

    Again, a discussion of returning to the gold standard is rather moot, in my opinion. We as a nation will return to a uniform “gold standard” only in a nightmarish post-apocalyptic scenario that nobody in their right mind wants to see. If you’ve been buying gold for years in anticipation of dollar depreciation then we can all safely agree at this point that you’ve made a good, but hopefully not life-saving, investment, and yet past performance is no indication of future blah blah blah…at any rate, I meant no offense to the gold bugs out there.

    What we can also agree on, I hope, is that the Federal Reserve in its current incarnation is, at best, an albatross on real material economic growth and, at worst, a serious national disaster waiting to be discovered.

    The most pragamatic of libertarian/Austrian economic thinkers are asking for mere common sense at this point: transparency in the form of a thorough auditing of the Fed by those who are Consitutionally obliged to hold such an accounting, the US Congress. What has been occurring for many decades is an unconscionable dereliction of duty by pigs at the trough, and the American people are catching on. The thought of massive civil unrest resulting from the eventual–and inevitable–public disclosure of massive corruption and collusion at the top levels of government and the banking cartel might cause some perverse souls in militia country to feel vindicated, but there are those of us who predict dire consequences only in the hope that some folks might listen and we can be proven wrong for the sake of the country as a whole.

  • Art Deco says:

    The Federal Reserve reduced the amount of credit outstanding, and therefore the stock of money, in 1931 and again in 1933;

    The monetary base underwent a slight decline over the period from 1929-32 during which time there was rapid increase in the demand for real balances. The result was rapid deflation. Again, the devaluation of the dollar and the end of the convertability of the dollar into gold were aspects of reflation. There was no deflation in 1933; federal policy was inflationary from 1932 onward.

    · Congress passed and President Hoover approved a major tax increase in June 1932;

    True. The thing is, the ratio of federal taxes to domestic product was at that time around .03, so the contractionary effect of the taxes were a modest part of the whole.

    · Rumors that President-elect Roosevelt would devalue the dollar (which he later did) caused the final banking panic; and

    Reasonable supposition.

    · The national banking holiday declared by Roosevelt on March 6, 1933, undermined public confidence so greatly that 5,000 banks didn’t reopen after the holiday expired, and 2,000 closed permanently.

    The triage implemented by the Comptroller of the Currency during the banking holiday was crucial to restoring confidence in the system by identifying and closing insolvent banks.

    · In the 1930s, the Smoot-Hawley Tariff Act caused a collapse in global trade.

    You will remark that our recent financial crisis was coincident with an implosion in world trade even though there was a complete absence of trade warfare (google ‘baltic dry index’ for an aspect of this implosion). The United States in 1929 produced for its domestic market and only exported about 5% of its output. The Smoot-Hawley tariff was bad policy and injurious to Canada (which was dependent on exports to the United States), but the dead-weight loss associated with it was a small part of the injury to total output and had nothing to do with injuries to intra-European trade.

    Again, coincident with the bank holiday, the devaluation of the dollar, and the erection of agencies provided for in the Glass-Steagall Axt the economy began to grow vigorously. By the end of 1936, real output was within 5% of 1929 levels.

  • David Jones says:

    A Spooked Economy in October by Dr. Ron Paul
    http://www.thedailybell.com/1439/Ron-Paul-A-Spooked-Economy-in-October.html

    “The Fed has been wreaking havoc and devaluing our monetary unit steadily since 1913, and greatly accelerating it since the collapse of the Bretton Woods agreement in the 1970s. This severing of the dollar’s last tenuous link with gold allowed the Fed to create as much new money as it pleased, and it has taken full advantage of this opportunity.

    In 1971, Gross Domestic Product (GDP) was $1.29 trillion. Today it is $14.6 trillion, nominally. But adjusted for all the inflating the Fed has been doing, it is only $2.73 trillion, which constitutes only a 1% real increase per year! So with all this extra money going around, we may appear nominally wealthier, but the reality is, we have barely moved at all. This is unfortunate especially for the prudent, conscientious savers, whose nest eggs are constantly being devalued…”

  • David Jones says:

    This is a very interesting discussion and I’m learning a lot. Thanks for the extensive and detailed comments.

    T-Shaw – Mr. Gordon’s comments seem to me to be very pro Fed and banking. Libertarians/Jeffersonians tend to be very anti-Fed. The truth is probably somewhere in the middle.

    Donald – There is an alternative view of history regarding President Jackson and his battle with the Central Bank… One that paints him in much better light.

    Linus – I stand with you, I think.

    To all – I think we all agree that there should be an “audit” of the Fed. There should be full disclosure and accountability of what they’re doing. Something smells by their refusal to permit one. Having an audit does not serve their interests nor the politicians they own but are those folks working for the common good? Let’s do an audit to see.

    Clearly T-Shaw and others in this conversation are much more educated and smarter on this topic than I will ever claim to be.

    Here’s my concern for those that are calling for an “End to the Fed”. If all the other nations of the world have Central Banks how can we then compete with them? By ending the current system it would severely limit our ability to conduct government operations (domestic & foreign aid) and provide for our defense. It would severely limit both. How would that not put us at a national security risk? It’s one thing to say we need to balance our budget and live within our means, but another to recommending demolishing the monetary system that the entire world works on.

    My concern about the Fed is rooted in a concern for the common good. Does the Fed serve the interest(s) of the common man or what is best for the banks. Those are not always the same.

  • David Jones says:

    Fed Mandates Inflation by Peter Schiff
    http://www.lewrockwell.com/schiff/schiff121.html

    “The Fed defines inflation differently than I do, as an increase in consumer prices rather than the amount of dollars in circulation. By my definition, massive inflation has already been created, which is reflected in the fact that prices for houses, consumer goods, stocks, and bonds haven’t fallen steeply and stayed down since the dot-com and mortgage bubbles popped.

    But even by the Fed governors’ definition, they acknowledged that we are experiencing inflation – just not enough for their taste.

    Apparently, according to the renegade policy of the Fed, we’re not paying enough for food, energy, clothing, healthcare, or education. No matter that nearly 20% of the population is unemployed or underemployed, that each US taxpayer’s share of the federal debt is now some $121,000, or that average tuition at a private university is set to rise 4.5% this year to $27,325…”

  • j. christian says:

    But adjusted for all the inflating the Fed has been doing, it is only $2.73 trillion, which constitutes only a 1% real increase per year!

    This is comedy, right? Tell you what: You can have 1970 health care, 1970 cars without seatbelts and airbags, and 1970 home computers. After all, we’ve basically been in an economic standstill since then.

  • Mike Petrik says:

    j. christian is correct. All this talk that real incomes have been stagnant since 1970 can be rebutted by anyone alive in 1970 with a memory. Part of the problem with measuring inflation is that it is difficult to keep the measuring basket truly constant. While a banana may still be a banana, health care is not remotely the same. Nor are electronics, cars, homes, food options or even bathroom fixtures. Most homes built in 1970 had one or two baths and most households had one car (two at most). There is no market today for builders looking to build one or two bath homes, although I do think most households today continue to have about the same number of cars as bathrooms interestingly enough.

  • Mike Petrik says:

    David,
    I don’t care what Ron Paul says, it is abundantly clear that while the dollar does have decreased purchasing power real wealth has increased substantially.

  • There are two big reasons why you’d want inflation in the standard sense of rising prices in a situation like this, and neither has to do with “wanting things to be more expensive” for people.

    First off, inflation can overcome the problem of “sticky wages” and thus prevent job losses. The idea is: it’s seldom possible to go to workers and say, “Last year I was paying you $30/hr, but now I’m going to pay you $25/hr.” Most employers will lay workers off instead to avoid the massive ill will that results from cutting wages. With inflation, an employer can see its real labor costs go down a few percent without having to lay anyone off or cut wages. This relief can, at the margins, be enough for them to avoid layoffs. Now obviously, it’s not fun for workers to see their wages remain the same while prices go up — but generally speaking this results in less ill-will than having their wages cut 5% while prices remain the same (and is functionally identical) and it’s arguably also better for them than for 5% of them to be laid off entirely and have no income.

    The other benefit to inflation in such a situation is that for a certain period of time during which people re-adjust their price expectations, a raise equivalent to inflation will “feel” like more money. Thus, if you have 3% inflation, and people get raises of 3%, they will have a greater sense of security and well being than if their wages (and prices) had remained flat. This sense of security and well being will often translate into behavior which results in economic growth, while a sense of stagnation resulting from flat wages and prices would result instead in people becoming more conservative in their spending and hiring decisions, which might in turn keep the economy from recovering.

  • But why does it matter if the dollar loses value so long as people get more dollars in the process?
    Since inflation is priced into interest rates and wages, it doesn’t matter that the the dollar devalues over time.

  • David Jones says:

    Explain how a weaker Dollar is better for the common man? How does a weaker Dollar improve the real wealth of average Americans?

    How is the destroying the value of our currency a good thing?

    Is the destruction of the Dollar rooted in a desire to move the world’s reserve currency off the Dollar?

  • David Jones says:

    DarwinCatholic – One of the problem lies in the Dollar losing value is this… The assumption that people get more Dollars is a false one. It doesn’t work nearly that quickly. Even if they do its well after prices increase. So only if purchase before the increase does your real wealth increase if you can sell what you purchased at a lower cost.

  • Well, I listed to major reasons why you’d want mild inflation during an economic downturn a couple comments back — both of which do help the common man.

    Also, be aware: a “weaker Dollar” is generally a measure of the dollar’s value relative to other currencies, not of whether the dollar inflates or deflates. It may be that inflation would result in a weaker dollar relative to other currencies, but if they also are experiencing inflation, it would not necessarily do so.

    Phrases like “destroying the value of our currency” is probably a bit misleading. The currency is basically just a means of measurement and exchange, and controlled inflation (so long as it’s low) doesn’t necessarily interfere with that. Nothing is “destroyed”, it just kind of grows.

    Nor is this likely to result in the world not using the dollar as a reserve currency, so long as the US remains one of the largest and most stable economies.

  • David Jones says:

    Who does the Dollar losing its value hurt the worse? And directly related to that is this question. Who does inflation hurt the worse? Those that can least afford it. The working poor and middle-class. People who are trying to do the right thing, but have limited funds to survive and prosper.

    If the Dollar collapses who will be destroyed as a result? The middle-class.

  • Mike Petrik says:

    On balance, inflation hurts creditors and helps debtors, and creditors tend to be wealthier than debtors. But if inflation is modest and reasonably consistent markets build in mechanisms to account for it and thereby protect creditors adequately.

    I agree with Darwin that mild inflation tends to benefit labor insomuch as it can allow for real price adjustments (as opposed to layoffs) to accomodate reduced demand. Also, aiming for mild inflation hedges against the risk of deflation which can raise havoc in credit markets. It is far easier for such markets to accomodate inflationary assumptions than deflationary risks. In deflationary environments a market “real” interest rate might well have to be negative — something that can be hard to accomplish.

  • Who does inflation hurt the worse? Those that can least afford it. The working poor and middle-class. People who are trying to do the right thing, but have limited funds to survive and prosper.

    Well, this is what I think inflation hawks fail to understand about the multi-dimensionality of the problem — inflation does not hurt one class of people more than another, so long as we’re talking about the sort of modest <3% inflation which has predominated since the 80s. Obviously, if inflation takes off and becomes rapid or is combined with wage or price controls, that's a whole other ballgame. But modest controlled inflation of the sort the Fed targets is neutral in its effect on people: their wages go up and prices go up and it mostly goes on beyond people's notice because it's gradual and it is hard to distinguish from real growth.

    If the Dollar collapses who will be destroyed as a result? The middle-class.
    If the dollar collapses, everyone will be hurt — but modest inflation is not going to cause the dollar to collapse. Why would it? It’s not as if there is some objectively right price for a given thing like a loaf of bread, and if over fifty years the value of the dollar pushes prices far enough off from that objectively right price, the whole currency will collapse. Modest controlled inflation does not cause currencies to collapse, though hyperinflation can.

  • Blackadder says:

    The assumption that people get more Dollars is a false one. It doesn’t work nearly that quickly. Even if they do its well after prices increase.

    Wages are a price.

  • Blackadder says:

    One thing I would add to Darwin’s comments is the importance of predictability. If a society expects 3% inflation next year then this will get build into wage increases, interest rates, prices, etc. There is still a small effect on the propensity to save, but so long as inflation is low this effect is minor and probably offset by the positive effects Darwin mentioned above.

  • David Jones says:

    The assumption that the working poor and middle-class will receive raises at all, let alone comensurate with inflation is a false one. Even if they do receive a raise, will it be 2-3 years after prices have increased therefore they take continous hits on the chin as a result? Probably so. If they’re prudent with their purchase decisions and are able to save anything, how will their savings not decrease in value due to the low interest rates compared to the average inflation rate? So the little guy is getting scr-wed no matter what he does.

    What causes hyperinflation? How is the Fed’s current policies not leading us in that direction? In fact they have been rather direct in stating they want inflation…

  • j. christian says:

    “Wages are a price.”

    David, seriously consider BA’s comment, the supply and demand for labor, and ask yourself if what is happening to wages (as you describe) is really a result of inflation, or a result of many other real factors affecting the economy — factors such as immigrants and women entering the labor force, changes in technology affecting labor productivity, and increases in non-cash compensation “crowding out” cash compensation. There are so many real factors changing over time, and generally not in a direction favoring real wage increases, it’s rash to assume that the stagnation in wages can be laid completely at the feet of the Fed.

  • David Jones says:

    J.Christian – I have never made the claim or even alluded to that the Fed is completely to blame for stagnation of wages. Like you said all of this is a very complex issue. The Fed are in charge of keeping our currency stable though and the fact remains that its (the Dollar’s) value has decreased substantially over the last several decades. One can make the reasonable charge that this is a direct result (not solely though) of their own policies.

  • j. christian says:

    A dollar’s value in terms of what? I’m pretty sure that a dollar buys you fewer gallons of milk today than it did 40 years ago, but I’m also willing to bet that most people aren’t spending more of their income on milk than they did 40 years ago.

  • Mike Petrik says:

    Agreed, j. christian. And that statement is true not just for milk, but pretty much everything. Of course some things go up faster than wages, such as health care, but that is largely because “health care” encompasses so much more today. The fact that Americans pay less in terms of percentage of income for virtually everything they buy than they used to (when comparing apples to apples) belies the assertion that wage inflation somehow cannot keep up with price inflation. Of course, the truth is that inflation in both is pretty much the same; the excess of wage increases over price increases is simply productivity gains.

  • j. christian says:

    I think the cost of gold is going up because demand is going up as the gold bugs flip out.

    Besides, I can’t eat gold. How many calories does a dollar buy me? If we’re going to talk about “wealth” and “value,” we need to be clear about what really matters. The truth is, when you hold technology and product quality constant, a dollar’s value hold up pretty well. Like I said before: You can go to your local drug store and buy the entire corpus of health care circa 1913 off the shelf for a pittance. Problem is, most of us don’t want 1913 health care. Unless you factor in that kind of “inflation,” you’re missing the big picture.

  • The assumption that the working poor and middle-class will receive raises at all, let alone comensurate with inflation is a false one. Even if they do receive a raise, will it be 2-3 years after prices have increased therefore they take continous hits on the chin as a result?

    Say you’re a fast food worker and you make $8/hr. Inflation tends to run 1-3%. This means that for your wages to keep up with inflation, you need a raise of $0.08 to $0.24 per hour every year. If we look back over the last couple decades, we find that people who work those jobs are in general managing to see that kind of increase in their wages. (Incidentally, if they didn’t, people’s ability to purchase goods would decrease, sales would fall, and companies would cut prices in order to try to win business. It’s a dynamic system.)

    Also, think about how at a functional level inflation happens. Either more money is lent out to institutions borrowers than before, or the government spends more money that previously didn’t exist (printing money). This gets money into the pockets of institutions which seek to improve their businesses by expanding. Expanding typically means buying durable goods and hiring workers. Doing this (given a fairly fixed labor market) drives up wages. This increase in wages mean that people have more money in their pockets, so they go out and spend. This spending means that demand has gone up, so the prices of consumer goods also rise.

    That’s how inflation works — if wages don’t go up, then inflation doesn’t happen.

    If they’re prudent with their purchase decisions and are able to save anything, how will their savings not decrease in value due to the low interest rates compared to the average inflation rate? So the little guy is getting scr-wed no matter what he does.

    Savings do not decrease in value due to inflation under normal, controlled inflationary circumstances because interest rates include an inflation element. One of the reasons that you’ll get virtually no interest on your savings account right now is that despite money being pumped into the economy, inflation in the sense of rising prices and wages is not happening. Thus no inflation is priced into the interest rates and interest rates are low. Back in the 70s when inflation was quite a bit higher, interest rates were also quite a bit higher, because inflation was priced into them.

    I agree with you that savers don’t want to see their savings decreased by inflation, but that’s why interest rates and inflation are so closely related.

    What causes hyperinflation? How is the Fed’s current policies not leading us in that direction? In fact they have been rather direct in stating they want inflation…

    Hyperinflation is caused when there are massive and unpredictable increases in the money supply. People lose faith in the currency and seek to turn to currency alternatives. If they do accept currency, they demand higher prices in order to account for the expectation that the money will soon be worth less. This becomes a vicious cycle, as people jack prices up higher and higher to protect themselves, and the increased prices (and wages) result in more inflation. So for example, if you want to buy a $5 loaf of bread from me today, but I’m worried that tomorrow the dollar will be worth half what it is today, I’ll charge you $10 now (or ask you to pay in some other currency). Of course, what that does is make the dollar world half what it is today immediately instead of later, it becomes a self-fulfilling prophecy.

    Typically hyperinflation is kicked off when a government tries to pay off massive amounts of debt by simply printing more money.

    There are those who fear the possibility of hyperinflation for the US, either because they believe the only way the government will pay off the debt is through printing money, or because they fear that with the Fed increasing the money supply to try to alleviate the recession, when people do finally start spending again the money supply will be too big and things will get out of control. One assumes that if such a thing started to happen, the Fed would reverse policy in order to slow things down.

    However, short of those kinds of fears, the sort of moderate inflation targetting which the Fed normally does will not at some point have the cumulative effect of kicking off hyper inflation, because it is done in a predictable and mild way. It’s sudden, unexpected and drastic expansions to the money supply which could trigger hyperinflation, and that’s the sort of thing which the Fed specifically seeks to avoid.

  • The thing is, even a gold based currency will flex quite a bit through the economic cycle, especially if there is no central bank. Think about the situation right now. People are afraid that if they lend out money, the money will be lost. So they tend to sit on money and not lend it.

    While the total amount of gold might remain fixed, if people decide to just sit on 20% of the country’s gold, the effective money supply would decrease by 20%. Now you’ve got deflation, since there’s less circulating gold available, the gold which is circulating is worth more. Suddenly the $100,000 you owed on your house is effectively $120,000. Plus, your employer finds that his payroll has effectively gone up 20%, so he lays off 20% of the workforce. Of course, now 20% of people are unemployed, so they aren’t spending much money. Prices fall further as people desperately try to sell their goods and services, and as the economy worstens, more people who do have gold decide to sit on it, thus contracting the money supply further.

    So it’s not as if having a fixed or gold-based money supply necessarily means that there’s economic stability. You actually have inflationary and deflationary currency shocks even in a gold-based economy.

  • David Jones says:

    I applaud those that are giving detailed comments. This is very helpful to me and I hope others.

    Does everyone agree with my point that first an audit of the Fed should be conducted? Second, that moving off a fiat biased currency would result of an economic instability for our country and put our national security at risk?

  • Art Deco says:

    The Federal Reserve already publishes summary statements of its balance sheet as well as minutes of the Federal Open Market Committee. An audit might reveal that they had published inaccurate figures or had lied. I am not sure what Ron Paul thinks they are concealing or why.

  • David Jones says:

    Is The US Destroying the Middle Class?
    http://the-american-catholic.com/2010/10/11/is-the-us-destroying-the-middle-class/

    The crisis of middle-class America
    http://www.ft.com/cms/s/2/1a8a5cb2-9ab2-11df-87e6-00144feab49a.html

    “The slow economic strangulation of… millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the ‘personal recession’ that ordinary Americans had been suffering for years. Dubbed ‘median wage stagnation’ by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the ­multiple is above 300.

    The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility…”

  • David Jones says:
  • j. christian says:

    David,

    One thing to keep in mind about wage stagnation is that wages are not the same as total compensation, which includes non-cash forms of compensation such as health benefits. Total compensation has increased in recent decades. People like their benefits; if they realized that benefit dollars look just like wage dollars to the employer, they might understand what’s happening and why purely cash compensation has seen flat growth.

  • Art Deco says:

    Wages are not total compensation. Also, statistics on wages will at times exclude salaries and commissions. There has been some redistribution of the workforce from wage-earning positions to salaried position and some improvement in the position of salaried employees vis-a-vis wage earners. For a good run of years, the proportion of national income manifest in wages and salaries declined as well (from ~70% to 59%, IIRC). Considerable improvement in aggregate standard of living was logged but not reflected in the statistic on median wages. (And, since it reflected improvement in the position of salaried workers and the holders of capital assets and land, rather less of notice to the wage-earning majority).

  • David Jones says:

    J. Christian – what you say is very true. This leads to discussion about the negative effects that Obamacare will have on employers giving benefits to their employees… Increased costs mean less jobs, etc.

  • Art Deco says:

    Dollar’s drop is more than a passing trend

    We have been running large balance of payments deficits for a generation. A declining dollar will make our exports more competitive abroad. Our debts are not Argentina’s debts. They are denominated in our own currency.

  • David Jones says:

    Getting back to the topic of the original post. What you would say is that the Federal Reserve is a necessary evil? We have no option but to have a central bank. In fact, the Fed is not “evil,” but good… For me I keep going back to the point on how can/could we compete in a global economy without one? How could we provide a strong national defense without one?

  • Linus says:

    David Jones, it’s a good thing that you’re not too certain about our alliance because I myself am not sure where I stand. That’s the whole point: how could anyone be sure what to really think, since the Federal Reserve is totally opaque and secretive if not outright deceptive? That’s exactly what they want: ignorance, uncertainty and widespread stagnation, while they collect all the money.

    The Bush-Obama-McCain bailouts of 2008 occurred in the following manner: Hank Paulson pulled a dozen craven, cowardly legislators into an office and told them that if they didn’t sign a blank check (to the initial tune of $700 Billion) for him to distribute to his bankster buddies then the economy would be summarily executed by them.

    Our fearful leaders acquiesced to this now-obviously-holllow threat, and apparently Richard Fuld (former Lehman CEO) didn’t pick the right golfing buddies because he now works out of a broom closet looking for freelance consulting work in mid-Manhattan, while the rest of the New American Oligarchs are sitting fat dumb and happy (check today’s Wall Street Journal for a report on how the banking cartel is bringing back bonuses with a vengeance this year).

    Our media culture has created an environment where people are lucky to be capable of following a news storyline for one month, let alone one year or several years. But the story of the Great Recession is not over by any means. Obama’s hiring of a twelve-year old tax dodger as Treasury Secretary tells me everything I need to know about how seriously America’s economy is being taken by our so-called leaders. They are in it for themselves, and are no patriots by any measure.

    This story is still being written and I, along with tens of millions of other Americans, at the very least, are waiting for any sign that the stewards of our nation actually give a damn about us.

  • Art Deco says:

    Getting back to the topic of the original post. What you would say is that the Federal Reserve is a necessary evil? We have no option but to have a central bank. In fact, the Fed is not “evil,” but good… For me I keep going back to the point on how can/could we compete in a global economy without one? How could we provide a strong national defense without one?

    Relating what the Federal Reserve does to normative questions of justice or ethics or what have you will have to be the task of a more erudite and agile mind than mine. A properly operated central bank avoids the unpredictable inflations and deflations inherent in a currency peg as well as the injuries to the real economy which can arise from them. It also functions as a lender-of-last resort to distressed banks, very helpful when you have a systemic crisis (as we did in 2008-09). If you are defending an overvalued currency, that does damage competitiveness, but that is less likely to occur when you have floating exchange rates. The only relevance to the strength of the military is that it is difficult to finance public services when economic activity is rapidly imploding, which it is less likely to do if you do not have a currency peg.

  • David Jones says:

    Art Deco & others – You guys are much smarter than I am so allow me to explain what I mean. You tell me if I am on track or not. Central Banking is beneficial for both bankers and politicians. Bankers can loan out money which they don’t actually have in their reserves and charge interest it. Politicians can use it to expend money on various government programs, domestic or foreign, without raising taxes. Taxes tend to anger voters. Central Banking is a win-win for both banks and politicians. In the history of war, especially since 1400s to present, governments must finance war by all means necessary, i.e. taxes, pillaging, etc. Often wars ended because either because one or both parties were no longer able to finance their war(s). With the advent of Central Banking and fiat currency, governments could expand both government programs and conduct war with very little limitations. A government who went back to a Gold-based monetary system would seriously limit its ability to finance its programs, i.e. national defense, etc. Other governments who were on a fiat monetary system could continue to significantly finance weapon systems and its military. This could cause a real disparity between those nations. Does this make sense?

  • Linus says:

    “Relating what the Federal Reserve does to normative questions of justice or ethics or what have you will have to be the task of a more erudite and agile mind than mine.”

    It will also require psychic ability, since the Federal Reserve refuses to discloses exactly what it does, and for whom, even to Congress.

    That was the entire point of Congressman Ron Paul’s push to audit the Fed, although his actual bill was of course watered down to total impotence by the time it reached those legislators who remain firmly in the pocket of the banking cartel, i.e. almost all of them.

    What the Federal Reserve does is manipulate the natural and unavoidable business cycle, from relatively mild ebbing and flowing into massive booms and busts that are entirely predictable only to the small cabal of insiders who are plugged into the Fed’s cartel operation. So while the majority of the country is washed back and forth in total financial uncertainty and bewilderment, a few fat-cat insiders make fortunes trading among themselves with inside information deliberately withehld from the public.

    See for yourself, right from the horse’s ass’s mouth:

  • Art Deco says:

    What the Federal Reserve does is manipulate the natural and unavoidable business cycle, from relatively mild ebbing and flowing into massive booms and busts that are entirely predictable only to the small cabal of insiders who are plugged

    That is simply not true. The decline in the rate at which goods and services were being produced during post-war recessions is as follows:

    1948q4 – 1949q4: 1.55%
    1953q2 – 1954q1: 2.65%
    1957q3 – 1958q1: 3.73%
    1960q1 – 1960q4: 1.58%
    1969q3 – 1970q4: 0.63%
    1973q4 – 1975q1: 3.19%
    1980q1 – 1980q3: 2.23%
    1981q3 – 1982q4: 2.72%
    1990q2 – 1991q1: 1.36%
    2008q2 – 2009q2: 3.83%

    Your ‘massive bust’ is a mean economic contraction of 2.4%. Most quarterly changes in output since 1947 have been between 0.2% and 1.2%

  • I don’t think it’s correct that a central bank significantly increases a nation’s ability to spent money without getting it from taxes or borrowing. Mostly it just serves to smooth out currency expansions and contractions and the economic cycle. It’s an economic benefit, but not a national security one.

  • Art Deco says:

    The capacity to fight a war is derived from the manpower and the productive capacity at the disposal of the government in question. Governments are financed through a mix of taxation and bond issues. I am not aware that central banking v. a specie based currency matters much in that equation. I think currency pegs are commonly abandoned during war time (as was the case during the civil war in the United States) and that inflation is a common feature of war time (driven, presumably, by massive deficit spending).

  • David Jones says:

    Art Deco, Darwin Catholic & Others – The picture you’re painting of the Fed is one of being passive and benign, if not outright benevolent, when in fact it is much more powerful than you portray. An acorn which grows into a tree is still of the same nature. You have never addressed the history on how the Fed was formed. If was formed through fraud and deception of the American people by the monied interests. The Fed was not created to protect the common good. It was created to protect banking interests and the politicians who received the benefits of this relationship. Over the years the Fed has continuously grown more and more powerful. They are not serving the common good. Linus is correct.

  • Art Deco says:

    That’s funny. I thought it was created through an act of Congress in 1913, as a prophylactic against the sort of financial crisis that erupted in 1907. Again, discretionary central banking is the norm in this world and its practices emerged in increments over a period of more than 200 years, beginning with the founding of the Bank of England in 1694. It would seem the fraudsters have been very prevalent and persistent.

    You want to replace central banking with a currency board or specie standard? Why don’t you ask folk in the Argentine finance ministry how that worked out for them?

  • David Jones says:

    Art Deco – to be honest with you I don’t know what we could replace it with… Refer to my position above in which I state we are more or less forced to live with it. It’s a necessary evil. It’s part of living in a global economy, but it doesn’t mean it’s not without fault or not accountable to the American people. An audit should be allowed. Let’s look under the hood. If everything is on the up-and-up then there should be nothing to hide. Secrecy leads to suspicion… Perception is reality.

  • Linus says:

    Art Deco, if you actually take at face value the economic statistics put out by the Fed itself, the Treasury Dept (run by “Turbo Tax Timmy”), the BLS, the BEA, etc. then I’ve got some commercial real estate in mid-Manhattan that I’d love to sell you.

    You’re talking about the same folks who publish a “Consumer Price Index” that is supposed to disclose the rate of inflation, even though it deliberately excludes the two main costs of any household, food and energy?

    Remember, friend, there are liars, damn liars, and statisticians. Use your common sense, and feel free to answer any of the very simple questions that I’ve posed openly to any of the Pro-Federal Reserve boosters on here.

  • Art Deco says:

    You’re talking about the same folks who publish a “Consumer Price Index” that is supposed to disclose the rate of inflation, even though it deliberately excludes the two main costs of any household, food and energy?

    The Consumer Price Index does in fact include food and fuel prices. The Bureau of Labor Statistics also produces a statistic called ‘core inflation’ which excludes these numbers, because food and fuel prices are volatile.

    I think for most households, charges for housing (rent, mortgage payments, &c) exceed grocery bills. I think for nearly all, charges for housing exceed the sum of charges for gasoline, natural gas, and home heating oil.

    if you actually take at face value the economic statistics put out by the Fed itself, the Treasury Dept (run by “Turbo Tax Timmy”), the BLS, the BEA, etc. then I’ve got some commercial real estate in mid-Manhattan that I’d love to sell you.

    Waal, there is that elderly business consultant trained at Dartmouth who claims he produces better statistics at his desk than does the Federal Reserve, the Bureau of Labor Statistics, and the Bureau of Economic Analysis. John Medaille is a fan. (And you can take that any way you want).

  • Art Deco says:

    Quantitative Easing? Make that Quantitative Looting

    There was an abrupt increase in the demand for real balances in the last four months of 2008 and the country began to experience serious deflation. Quantitative easing was a response to that, and a sensible one.

  • T. Shaw says:

    Hey, is this conversation extant?

    I had to take (I majored in econ) a course called “Money and Banking” 40 years ago. There were (must ought to be) some readable books on the subject.

    Here’s how the US banking system used to “create” money.

    In theory, Mr. Jones deposits his $100 paycheck in his bank checking account. Let’s say the Fed requires the bank to maintain 4% required reserves against check acccts. The bank lends $96 to ABC Tire Co. (adds the money to ABC check account), to buy a wheel alignment machine. The selling company deposits the $96 sales proceeds in another bank’s check account. The new bank lends $92 and change (.96 * 96). And on it goes. The lower the required reserve ratio, the more money can be “created.” There are also velocity and turnover factors depending on economic activity. I thinks that’s it – was 40 years ago.

    Outside the US gov, assets must equal liabilities plus equity. Every bank loan is advanced from money it has in its accounts – usually deposited at another bank or the Fed.

    Linus, If you own commercial RE in mid-town Manhattan, do you have a daughter? I have two eligible sons . . . no wait . . . one . . . 25 years old, the most beautiful (other two close) man on Earth . . . The other two are “taken.”

    I was mistaken. Ron Paul is an economist. I thought he was a groinecologist.

  • Linus says:

    Sooo, Mr Deco, I suppose I can take that as a “No, Linus, I’m not going to answer any of your questions”?

    I’m afraid I won’t be diverted by debating the difference between the two steaming loads of nonsense known as the “Consumer Price Index” and “core inflation.”

    Not only are you continuing to dodge my original questions, posed to Mr Shaw and open to any Fed-lovers, but I can’t even tell if you are attempting to seriously defend the accuracy of government statistics or not.

    Helicopter Ben, is that you? I wouldn’t be surprised. Opacity, deception, obfuscation and corruption: thy names are “the Federal Reserve.”

  • Art Deco says:

    Not only are you continuing to dodge my original questions, posed to Mr Shaw and open to any Fed-lovers, but

    Which would those be?

    I can’t even tell if you are attempting to seriously defend the accuracy of government statistics or not.

    I have no reason to take exception to the means by which government statistics were generated and calculated.

    I’m afraid I won’t be diverted by debating the difference between the two steaming loads of nonsense known as the “Consumer Price Index” and “core inflation.”

    No debate is necessary. The distinction between the two can be stated simply and plainly.

  • Art Deco says:

    Ratings agencies have not yet downgraded U.S. Treasury issues. That aside, changes in the markets assessment of the risk of sovereign default are derived from fiscal policy. The Federal Reserve sets monetary policy.

  • Just to be clear, David: that article is not stating that US bonds have actually been stripped of their triple-a rating, he’s just saying that by some measures traders are acting as if it’s no more attractive to them than double-a debt.

    If Moodey’s or some other ratings agency downgraded US debt, that would be messive, massive news. But I don’t think anyone expects to see that soon.

  • Andyes, as Art points put, that has nothing to do with the Fed. Arguably, one of the reasons for the Fed not to be more accountable to congress is because the government has been far more irresponsible in what it controls (fiscal policy) than the Fed has in what it controls (monetary policy).

  • Linus says:

    Art Deco-

    My original questions were posed in response to a quote from T Shaw, that apparently was quoted from someone else.

    Rather than re-hash that exchange, if it’s alright with you, I will ask you a few similar, simple questions. I hope you’ll take the time to answer them because you are clearly well-educated on modern economic theory (and take that how you wish):

    1. What is money?

    2. What purpose should money serve in a contemporary society?

    3. Based on the answers to the above questions, who should control the money supply in a democratic republic, and how?

    No tricky math needed. I eagerly await your incisive, statistic-free answers to these simple questions.

  • I’m waiting waiting for the microwave here at the office, so I’ll take the opportunity to dash off a quick answer though it wasn’t addressed to me:

    1. What is money?

    Money is some widely accepted unit of exchange which allows people to more easily do business with people to whom they do not directly provide goods and services.

    2. What purpose should money serve in a contemporary society?

    The same. Given the difficulties of a mass society, it is a benefit if it:

    - Is easily convertable into other major currencies.
    - Is widely accepted.
    - Has a predictable and stable value (this doesn’t necessarily mean that it’s worth exactly the same as 50 years ago, since that would be impossible to measure anyway, but rather that it is not subject to sudden and unexpected swings in value)

    3. Based on the answers to the above questions, who should control the money supply in a democratic republic, and how?

    I would tend to argue that it should be controlled by a independant and non-elected entity which is given responsibility for economic stability and growth — not an elected or responsive entity. Traditionally, when either people or rulers get their hands on the money supply directly, you have either debtors trying to inflate the currency in order to make their debts easier to pay off, or creditors trying to force an overly tight money supply in order to maximize their gains. It becomes a football and you get wide swings in the money supply. I think independant central banks have actually done a very good job over the last 70 years of remaining out of the fray, though one can certainly quibble with some of their decisions as regards trying to control/smooth/stimulate economic growth.

    Now, if you disagree with the above, please explain how and why.

  • David Jones says:

    The Hail Mary by Peter Schiff
    http://www.campaignforliberty.com/article.php?view=1154
    “Since the US economy has failed to recover as widely predicted, pressure on the Federal Reserve to conjure a solution has increased. In fact, the Fed now faces the hardest choices in its history. It can either redouble its past efforts to re-inflate America’s bubble economy (risking the destruction of the US dollar) or it can stop pumping and let the economy deflate to a self-sustaining level. Unfortunately, both choices guarantee severe economic pain — but only one offers the possibility of ultimate success…”

  • Art Deco says:

    Nominal prices for equities are about what they were ten years ago, real prices lower. Real estate prices have been stable for about a year or so (after a 30% drop). They are, in real terms, about 17% higher than they were a decade ago (per the Case-Shiller Index). What bubble is he speaking of now?

  • Linus says:

    1. i) “Money is some widely accepted unit of exchange which allows people to more easily do business with people to whom they do not directly provide goods and services.”

    This is incredibly vague and begs my question. “Allows people to more easily do business”? How does one conduct business at all without money? And what is “business”? The last part of your answer implies that money is not used in the course of direct exchange of goods and services.

    In other words: Wrong.

    2. i) “The same.”

    Hmm, well, to paraphrase Fred Hayek, the same definition applied to two totally different things is no definition at all.

    “Given the difficulties of a mass society…”

    Huh. What are “the difficulties of mass society”? I would propose that, to most people, money seems to be the cause of most such difficulties, not any kind of solution. But I’ll let you explain further if you’re still game.

    “…it is a benefit if it:
    - Is easily convertable into other major currencies.
    - Is widely accepted.
    - Has a predictable and stable value (this doesn’t necessarily mean that it’s worth exactly the same as 50 years ago, since that would be impossible to measure anyway, but rather that it is not subject to sudden and unexpected swings in value)”

    Agreed. None of which requires a central bank, incidentally.

    3. i) “I would tend to argue that it should be controlled by a independant and non-elected entity which is given responsibility for economic stability and growth — not an elected or responsive entity. Traditionally, when either people or rulers get their hands on the money supply directly, you have either debtors trying to inflate the currency in order to make their debts easier to pay off, or creditors trying to force an overly tight money supply in order to maximize their gains. It becomes a football and you get wide swings in the money supply. I think independant central banks have actually done a very good job over the last 70 years of remaining out of the fray, though one can certainly quibble with some of their decisions as regards trying to control/smooth/stimulate economic growth.”

    I definitely disagree with most of this, not least your misspelling of “independent” (sorry, couldn’t resist.) But it’s hard to address this bold opinion when I don’t feel that we’re anywhere close to establishing the nature and purpose of money in ontological terms.

    Maybe you should follow the Federal Reserve’s and Art Deco’s lead and just ignore the concerns posed by myself and at least about 100 million other Americans.

    “No. Half educated, much of it in excess of 25 years ago.”

    Well, I applaud your layman’s commitment in that case.

  • David Jones says:

    America’s Currency Crisis is Now Underway
    http://inflation.us/currencycrisisunderway.html

    “According to minutes that were just released this week from the Federal Reserve’s meeting on September 21st, the Federal Reserve is now trying to figure out ways to boost inflation expectations. The mainstream media is reporting that the Federal Reserve wants to publicly declare their intention to seek a higher inflation rate so that Americans are encouraged to spend more before their money is worth less. Unfortunately, what the mainstream media fails to realize is, not only will their money soon be worth less but it will literally become worthless.

    If the Federal Reserve doesn’t immediately raise interest rates dramatically, there is serious risk of the current ‘meltup’ turning into hyperinflation before the end of 2012. The Federal Reserve’s words can no longer control the present situation. They are saying they want inflation so that when massive inflation does arrive, it appears as though they still have control. With gold up 19% and silver up 38% since NIA’s July 28th article ‘Gold and Silver Capitulation is Near’ in which we said, ‘the big move to the upside (for gold and silver) is right around the corner’, it is obvious that the Federal Reserve has completely lost control of inflation and a major currency crisis is already underway…”

  • 1. i) “Money is some widely accepted unit of exchange which allows people to more easily do business with people to whom they do not directly provide goods and services.”

    This is incredibly vague and begs my question. “Allows people to more easily do business”? How does one conduct business at all without money? And what is “business”? The last part of your answer implies that money is not used in the course of direct exchange of goods and services.

    In other words: Wrong.

    What is business? I this case, meant trade, exchange, etc.

    How does one do business at all without money? One exchanges goods or services directly. If I owner a brewery, and you come by wanting a barrel of beer, I expect you to give me something I want in return. Perhaps you herd sheep, and so you agree to provide me with a certain quantity of wool in return for a barrel of beer. Unless one defines the wool and beer as being currency, we have just engaged in business/trade without the use of money.

    However, even in a situation where there is no officially issued currency, items which are of the most universal value will tend to be adopted as money. For instance, in R. A. Radford’s classic paper, he describes how cigarettes came to be the currency (eventually formally so) for POWs in a WW2 prison camp.

    When I distinguished between using money vs. the direct exchange of goods and services I was drawing the distinction between giving you a loaf a bread in exchange for two dollars, and me giving you a loaf of bread in exchange for you sweeping out my store. In the former case we have an exchange of goods in return for currency, in the latter case we have a direct exchange of services in return for goods. Lacking money, people would have to exchange goods and services only. With money, you can purchase goods or services from someone while providing currency in exchange, rather that figuring out a good or service you can provide in return.

    2. i) “The same.”

    Hmm, well, to paraphrase Fred Hayek, the same definition applied to two totally different things is no definition at all.

    You asked me first what money is (which will necessarily involve a great deal of discussion of its purpose) and then what the purpose of money is in contemporary society. Why do you expect the two explanations to be substantially different? If money in general is totally different from money in contemporary society, then we are using the same word for two totally different things.

    “Given the difficulties of a mass society…”

    Huh. What are “the difficulties of mass society”?

    What I was thinking of in this case is that in a mass society, one runs into a lot more problems relating to knowledge and information when dealing with highly localized items. Say my brewery is in Columbus and you come into town from another city and want to buy beer from me. You offer to pay me with a local currency issued by a bank in your city. Why should I accept this money? Do I know if the bank is sound? Do I know if there even is such a bank? Even if your currency consists of silver coins, how do I know that you haven’t adulterated the metal?

    Also, obviously, in a mass society engaging in barter for goods and services becomes far more impractical than in a highly localized society — so relying on something other than currency for engaging in trade/exchange is far more impractical.

    Thus, money is more essential in a mass society, and having that money be widely acknowledged and accepted rather than being highly localized is also a great benefit.

    I would propose that, to most people, money seems to be the cause of most such difficulties, not any kind of solution. But I’ll let you explain further if you’re still game.

    I hope the above cleans this up, if not, please feel free to specify the question in more depth.

    “…it is a benefit if it:
    - Is easily convertable into other major currencies.
    - Is widely accepted.
    - Has a predictable and stable value (this doesn’t necessarily mean that it’s worth exactly the same as 50 years ago, since that would be impossible to measure anyway, but rather that it is not subject to sudden and unexpected swings in value)”

    Agreed. None of which requires a central bank, incidentally.

    No, not necessarily. I think that the Fed (as it is administered) has resulted in a more stable and useful currency than most other means of achieving this, but it’s certainly not the only way of doing it.

    Maybe you should follow the Federal Reserve’s and Art Deco’s lead and just ignore the concerns posed by myself and at least about 100 million other Americans.

    Perhaps I’m hopelessly elitist, but I find it hard to believe you could find 100 million Americans who could give anything like a clear account of what the Fed is and what it’s function is, much less have any sort of informed concern about it.

    But I’m certainly not trying to ignore you, just engage in a little discussion and perhaps achieve some measure of understanding.

  • David Jones says:

    DarwinCatholic – Thanks for reminding me… I was listening to it at work, but never got too far into it. I have now downloaded it and will listen to it on my commute. I am not an economist, but I have written Dr. Robert Murphy, Dr. Gary North, Dr. Tom Woods & Lew Rockwell about it. I hope one (or all) respond to it.

  • David Jones says:
  • David Jones says:

    From T Shaw (there must be a lag in the system?)

    Hey, is this conversation extant?

    I had to take (I majored in econ) a course called “Money and Banking” 40 years ago. There were (must ought to be) some readable books on the subject.

    Here’s how the US banking system used to “create” money.

    In theory, Mr. Jones deposits his $100 paycheck in his bank checking account. Let’s say the Fed requires the bank to maintain 4% required reserves against check acccts. The bank lends $96 to ABC Tire Co. (adds the money to ABC check account), to buy a wheel alignment machine. The selling company deposits the $96 sales proceeds in another bank’s check account. The new bank lends $92 and change (.96 * 96). And on it goes. The lower the required reserve ratio, the more money can be “created.” There are also velocity and turnover factors depending on economic activity. I thinks that’s it – was 40 years ago.

    Outside the US gov, assets must equal liabilities plus equity. Every bank loan is advanced from money it has in its accounts – usually deposited at another bank or the Fed.

    Linus, If you own commercial RE in mid-town Manhattan, do you have a daughter? I have two eligible sons . . . no wait . . . one . . . 25 years old, the most beautiful (other two close) man on Earth . . . The other two are “taken.”

    I was mistaken. Ron Paul is an economist. I thought he was a groinecologist.

  • Well, I would be curious as to your thoughts on if if you get the chance. It’s really hard to recommend EconTalk enough — the host, Prof Roberts, is definitely a fellow with his own opionions, but he is very good at interviewing people (even those he disagrees with) fairly, and he’s also very good about making sure the mostly academic guests explain their ideas at a level accessible to the layman.

    If you enjoy pit, some good additional episodes ion the Fed and on currency are:

    http://www.econtalk.org/archives/2008/11/selgin_on_free.html

    http://www.econtalk.org/archives/2008/06/gene_epstein_on.html

    http://www.econtalk.org/archives/2008/05/meltzer_on_the.html

    http://www.econtalk.org/archives/2010/01/belongia_on_the.html

  • David Jones says:

    DarwinCatholic – I have listened to the first 40 minutes of the EconTalk on the Gold Standard and the Great Depression. Here are my initial observations:

    1. It’s a great program. Russ Roberts does a great job so regular folks can follow the discussion. Once again my education and experience is not in finance or economics. I look forward to listening and re-listening to these programs.

    2. The Gold Standard didn’t cause the Great Depression. France not following the standard established rules help to cause the Great Depression. Maybe we need an international organization or committee to inspect a nation’s reserve of Gold to ensure they are playing by the established rules. An organization similar to the international one which inspects nuclear weapons, stock-piles, etc.

    3. The reasons for the Great Depression are complex… It cannot be reduced to one cause.

    4. I now have even greater respect and admiration for the Gold standard. It works to naturally limit a government’s monetary policy and keeps everything (trade between nations) in equilibrium.

    5. WWII would have occurred regardless of the Great Depression. Any military historian or student of WWI would tell you this…

  • David Jones says:

    The Currency War Promotion
    http://www.thedailybell.com/1448/The-Currency-War-Promotion.html
    “As we have pointed out endlessly the financial crisis is not merely another cyclical recession (or even depression). The current economic difficulties stem from the implosion of the current, unanchored fiat-money system of the late 20th and early 21st century. The system essentially ended in 2008 and only hyperactive central bank money printing and enormous cash infusions into ruined banking entities managed to prop it. (This goes for Europe as well as America.) Without the price fixing by central banks, the system would have fallen apart, literally. It has held together, but that does not mean it is healthy. It is like a terminally injured patient on life support. It will die. It just depends on when the plug is pulled…”

  • Linus says:

    How does one do business at all without money? One exchanges goods or services directly. If I owner a brewery, and you come by wanting a barrel of beer, I expect you to give me something I want in return. Perhaps you herd sheep, and so you agree to provide me with a certain quantity of wool in return for a barrel of beer. Unless one defines the wool and beer as being currency, we have just engaged in business/trade without the use of money.

    You could have just said “barter.”

    And when has a “pure barter” system ever existed in the course of civilized history? Coinage had been around since at least ancient Greece. Maybe the Sumerians?

    The answer I was looking for is: money is any medium of exchange that facilitates an efficient division of labor. That ties both questions together neatly.

    You asked me first what money is (which will necessarily involve a great deal of discussion of its purpose) and then what the purpose of money is in contemporary society. Why do you expect the two explanations to be substantially different? If money in general is totally different from money in contemporary society, then we are using the same word for two totally different things.

    Of course the answers, if lengthy, should be substantially different. Example: What is a gun? (sample answer: a piece of equipment, usually made from metal, that uses combustion to fire a projectile) Then: What is a gun’s purpose in a modern society? (self-defense, hunting for food, etc.) There should definitely be two substantially different answers to those questions. A comprehensive sentence could perhaps address them both, but they are easily separable in nature.

    Please don’t take personal offense, but you are right now illustrating perfectly how so many people who are well-versed in academic “economics” do not even seem to have a comprehensive understanding of what money actually is and what purpose it should serve.

    I’m not even contending that there is only one “correct” answer, but clearly most people, especially “educated” people, have never even given the question any thought.

    Of course, economics is not solely the study of money, but how can one begin to expound on economic matters without establishing firmly that essential foundation?

    Perhaps I’m hopelessly elitist, but I find it hard to believe you could find 100 million Americans who could give anything like a clear account of what the Fed is and what it’s function is, much less have any sort of informed concern about it.

    You could not find 1,000 Americans, including Congress and the Senate, who could give a clear accounting of the Fed and its function, that’s my whole point. It’s a recipe for disaster. But you could definitely find 100 million who are getting more and more curious to know.

    And yes, your viewpoint does seem elitist, but I never give up hope on anyone.

    I know I haven’t responded to all your answers, and I appreciate you taking the time to engage me. I don’t think this is the ideal place to continue this discussion, but I sincerely ask you to consider the following:

    We can surely agree that money is absolutely vital to modern, industrialized society. We could probably agree that it is the single most important element to a free society. By defending the Federal Reserve system of quasi-central banking, you are contending that a totally unaccountable, unresponsive, secretive body remain in control of society’s most basic vital element. That’s all well and good, but under no circumstances can such a situation be compatible with any reasonable notion of democracy or republicanism. History books, if they are written accurately, will marvel at how we have deluded ourselves as a nation for seven decades. It’s the reign of Tiberius all over again. And I’m alluding to the accounts of Tacitus, not the Bible, in this particular case.

  • Art Deco says:

    The Gold Standard didn’t cause the Great Depression. France not following the standard established rules help to cause the Great Depression. Maybe we need an international organization or committee to inspect a nation’s reserve of Gold to ensure they are playing by the established rules. An organization similar to the international one which inspects nuclear weapons, stock-piles, etc.

    Did it occur to you that if the world economy could be cratered by the misconceived monetary policy of the 4th or 5th ranking economic power, the monetary system in question was rather fragile?

    Again, both the British and American economy began a rapid recovery coincident with the abandonment of the gold standard. Maybe it was just serendipity.

    See Barry Eichengreen on one point: the demand shock the world economy suffered at the close of 2008 was as severe as that in 1929. What has differed is the policy response. I would submit to you that that is why we have had a stagnant economy these last two years and not a rapidly imploding economy. One necessary tool in stabilizing the economy has been the ability to expand the monetary base, which was lacking in 1929-33.

  • David Jones says:

    Art Deco – I hope you are correct about 2008… I really do, but I don’t think we’re out of the tunnel yet. It is far too early to tell.

  • David Jones says:

    Tune in on Monday at 6 pm ET for the first broadcast of The Peter Schiff Show. Not only will he tell you what’s going wrong, but he will offer real alternatives that can help the country, and allow listeners to get back on track. The ideas-driven program will equip Americans with the knowledge not only to benefit personally, but provide a fresh shot of reason that may help America reclaim a free, prosperous heritage.

    http://schiffradio.com/

  • Art Deco says:

    I really do, but I don’t think we’re out of the tunnel yet. It is far too early to tell.

    The danger at this point is a wave of sovereign defaults. The MERS mess may also prove troublesome.

  • Art Deco says:

    Murphy contends that several countries experienced a recovery in 1932-33 without abandoning the gold standard. It is true that the industrial production in the United States was at its nadir in July 1932 and began a brief and mild recovery. It is also true that it began to decline again by the end of the year. The devaluation of the dollar in the Spring of 1933 was co-incident with a rapid recovery which saw real output return nearly to its 1929 level by the end of 1936.

    He does not mention that the Federal Reserve was experimenting with open market operations in 1932 or that the Reconstruction Finance Corporation was pumping money into the banks that year.

    He makes reference to two economists: Paul Krugman and Barry Eichengreen. Dr. Eichengreen is an eminent historian of finance who does not have Krugman’s record of malicious and dodgy dealings in public print. I suppose it might have perturbed some of his libertarian readers had he been critiquing the work of Milton Friedman or Alan Walters, which he would have to do to make a retrospective case for the retention of gold in 1933.

    I am quite baffled by your affinity for these characters. You cannot properly apprehend an academic subdiscipline by monomaniacally poring through the popular writings of fringe enthusiasts. ‘Nuff said.

  • Blackadder says:

    The first part of the Murphy article argues that there wasn’t a connection between going off the gold standard and economic recovery. The second part argues that there was a connection, but that it was still the government’s fault. This is an acceptable way to argue if you are a defense attorney, but not if you are an economist.

  • Blackadder says:

    David,

    If I may add, you remind me a bit of where I was in my thinking a couple of years ago. I’ve read a lot of Robert Murphy, Tom Woods, Rothbard, etc., and I still think that this was very valuable to me in terms of my economic education. What I found as I studied matters further, however, is that the above authors are very result driven. They start with their conclusion (anything bad that happens is the fault of government, the market always works best, etc.) and then they provide the best argument they can for that conclusion. The problem is that this sometimes requires them to oversimplify matters or to ignore compelling counter-arguments to what they are saying.

  • Linus says:

    Ther are two or three separate issues being cross-discussed here.

    I have never said that I am in favor of abolishing the Federal Reserve or against central banking, though I am certainly willing to hear and entertain arguments to that effect. I have not even made a case for or against the gold standard.

    The issue is how, and for whom, the Federal Reserve operates. I am most definitely against a private, secretive, unelected and unaccountable group of career bankers having total monopolized control over our national currency. I don’t see how anyone but the most misanthropic of elite monarchists could even argue for such a thing on moral or philosophical grounds.

    And j. christian, in case you’re actually anticipating a response from me, I don’t click on unexplained hyperlinks offered in lieu of actual critical thinking and argumentation. But thanks anyway.

  • David Jones says:

    Art Deco – The concern about the policies of the Fed goes way beyond “fringe enthusiasts,” libertarians and/or Austrian Economists. Refer no farther to the WSJ, CNBC, Fox Business, Bloomberg, etc.

    Blackadder – I agree with you. My next post will try to explore what say. Hopefully it forces folks to dig a little deeper…

    Linus – Keep preaching brother!

  • Art Deco says:

    The concern about the policies of the Fed goes way beyond “fringe enthusiasts,” libertarians and/or Austrian Economists. Refer no farther to the WSJ, CNBC, Fox Business, Bloomberg, etc.

    Some people have concerns about the precise value of the interest rate or the size of the monetary base. Some people’s ‘concerns’ are such that they hold the Federal Reserve entirely responsible for the financial crisis, maintaining that everything has its source in the violation of the Taylor Rule for interest rates in 2002-03. A subset of the third group wish to replace central banking entirely. You have conflated the three sets of the concerned, as if their complaints had a similar valence.

    Your citations above are as follows:

    -13 to the regular business press
    (mostly to articles about commodity prices and
    currency values)

    -13 to the goldbugger nexus
    (‘Daily Bell’, von Mises Institute, Llewelyn
    Rockwell &c., Ron Paul &c., Peter Schiff &c.)

    -3 to a financial pundit named Keiser associated with several off-brand broadcasting networks, among them al Jazeera

    -2 to conspirazoids
    (Alex Jones and the broadcasting network who
    distributes his stuff).

    -3 miscellaneous (Wikipedia, Youtube, recursive)

    The crew in question does not exactly cover the waterfront and the only individual of which you made mention who might have actually produced original research in economic history, monetary economics, or general macroeconomics was Robert Murphy.

    You did not ask, but I will tell anyway. You need to survey some textbooks and absorb how economists conceive of problems in macroeconomics and monetary economics. The textbooks will have citations. The academic library nearest you will likely have bibliographies which can direct you to research. You can also peruse the Journal of Economic Literature. There is also EconLit, the database of economic literature, but databases are most useful when you have a general idea of the sort of literature you are seeking and a set of search terms.

  • Linus says:

    Some people have concerns about the precise value of the interest rate or the size of the monetary base. Some people’s ‘concerns’ are such that they hold the Federal Reserve entirely responsible for the financial crisis, maintaining that everything has its source in the violation of the Taylor Rule for interest rates in 2002-03. A subset of the third group wish to replace central banking entirely. You have conflated the three sets of the concerned, as if their complaints had a similar valence.”

    No, you are denying the reality that one person can easily hold all three of the opinions that you enumerated (and an increasing number of people do):

    1. One can be against central banking but accept that it is currently a fact of modern life.

    2. One can accept that central banking is currently a fact of modern life and that the Federal Reserve is completely incompetent and/or corrupt, as are most central banks.

    3. One can accept that most central banks are corrupt and/or incompetent, incuding the Federal Reserve, and that the precise value of the interest rate and the size of the monetary base at any given time can be used to demonstrate this fact.

    Art Deco, you are attempting to separate issues that do not need to be separated. Many people hold all three of the above opinions simultaneously. You’re obviously quite intelligent, so I can only assume that you are doing this as a sort of rheotrical dodge and obfuscation tactic to avoid actually having to defend the Federal Reserve’s actions and existence in honest and forthright terms.

  • Linus,

    I’m unclear on how my attempting to give a more comprehensive answer to your question, rather than regurgitating a standard Econ 101 type one sentence answer, is supposed to demonstrate that educated people have thought less about what precisely money is, either in general or in modern society, thN you think appropriate.

    Indeed, one of the reasons I was seeking to provide a comprehensive explanation focused on money as a medium of exchange, and how it stood in place of other means of exchange, is that from the context in the conversation it seems to me that you were attempting to fish for a “”money is some thing to which everyone assigns the same intrinsic value, and which can thus be used as a means of exchange”, which seemed to fit with the overall goldbug position you were taking in the conversation. If that’s nit your position, I guess I needn’t have bothered — though of course, I enjoy the exercise.

    I would agree with you that money is essential to the function of a modern society — though in a sense I think that’s trivially true, in that I think a means of exchange would tend to spring up naturally in any remotely developed society regardless. I’m less clear about what you mean in regards to it being an essential element of a free society. after all, non free societies also have money, and it is not some difference in the money itself which is responsible for making Cuba or China or Venezuela un-free.

    In this same regard, I’m not at all clear why the fact that we are, for very good reasons a republic should mean that currency should be controlled through some democratic means. Indeed, one of the reasons that I follow the Romans and the founding fathers in supporting a Republic over a pure democracy is that I think there are some elements of the republic which are better not left up to the public sway. I’m far from being a fan of everything the Fed has done in recent years, but I don’t tend to think that greater democratic control is what has been the problem. If anything, I think the Fed has been too responsive to pressure to spur growth and smooth out the business cycle, and did some unwise things during the early 2000s as a result that helped lead to the recent crisis.

  • David,

    I guess what I got from it was rather different: The gold standard was a somewhat useful system so long as the rate of gold discovery/production basically equalled the rate of world economic growth, and served a positive role so long as matching the gold standard forced countries not to inflate their currencies much faster than the rate of gold acquisition. However, even so, it had the effect of fixing interest rates in such a way that it hurt countries in an economic downturn (no export advantage as a result of inflation).

    What I’m unclear on is why the gold standard is necessarily preferable to simply having a fairly sensible and responsible central bank managing a fiat currency. If anything, it seems like it’s more of a poor substitute for that if you know that you’re incapable of managing a fiat currency responsibly — rather the same a some countries use dollar pegs today.

  • Art Deco says:

    Many people hold all three of the above opinions simultaneously.

    I plead guilty to not drawing Venn diagrams for you.

    You’re obviously quite intelligent, so I can only assume that you are doing this as a sort of rheotrical dodge and obfuscation tactic to avoid actually having to defend the Federal Reserve’s actions and existence in honest and forthright terms.

  • David Jones says:

    Marc Faber has a Ph.D. in Economics and graduated magna cum laude. He’s a financial consultant and puts his money where his mouth is. Jim Rogers is one of the world’s foremost experts on commodities. He is a self-made millionaire. Once again he is someone who talks the talk and walks the walk. Peter Schiff is another example. So is Max Keiser. So is Gerald Celente. Ignore their advice at your own peril.

  • Linus says:

    DarwinCatholic, I’ve stated at least three times that I am not necessarily in favor of a gold standard, in fact my very first post in this discussuion was a criticism of goldbuggery. I don’t have a dog in the gold-standard fight.

    And you’re correct: my ideas are simplistic and basic, not worthy of the high level of economic discussion taking place here and elsewhere in modern America. I will follow Art Deco’s lead and stop pretending to be interetsed in further sincere discussion on the matter. Sorry to be rude.

  • Art Deco says:

    Marc Faber has a Ph.D. in Economics

    I hear you, but your link is to a piece of business journalism. Him saying what his black box tells him does not educate you unless you are committed to taking stock picks from him. A sequence of literature on the elements of microeconomics, the elements of macroeconomics, and monetary economics might be helpful for you.

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