End the Fed?

DAILY SHOW: The Big Bank Theory (Must watch video!)

BLOOMBERG – Majority of Americans Say Fed Should Be Reined In or Abolished

BLOOMBERG – Poll Shows Most Americans Discontented With Fed (Video)

RASMUSSEN REPORTS (Dec. 10, 2010) – Americans Still Strongly Favor Audit of the Fed

RON PAUL’S TEXAS STRAIGHT TALK (Dec. 13, 2010) – Audit the Fed in 2011 (Audio) & (Text)

FP – Can this man kill the Fed?

LEWROCKWELL.COM – Will Ron Paul Be Able To End The Fed?

USAA – The Fed’s New Bond-Buying Plan

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  1. David,

    I really see no reason why we shouldn’t end it, and plenty of reasons why we should. I’m willing to hear a good, strong argument for the absolute necessity of the Fed, but I haven’t really heard one yet. All I hear is, basically, that we need the Fed to deal with problems caused by the Fed.

    A friend of mine told me about this book too: Murray Rothbard’s “The Case Against the Fed.”

    http://mises.org/books/fed.pdf

  2. Inflation. Decreasing the value of money by increasing its quantity. Also caused by fractional reserve banking.

    I’m sure now you’ll explain either how the Fed doesn’t cause inflation, or say that it does and explain why inflation is good, or whatever. I’m sure it will be very interesting, and I’m ready to hear it.

  3. I believe the Fed has done more harm than good with its printing up of money and lowering the interest rate to an all-time low for a lengthy period of time. I believe the actions taken will cause inflation. I am okay with ending the Fed.

  4. Decreasing the value of money by increasing its quantity.

    It is useful for the quantity of money to increase in line with the growth in trade. The difficulty with specie-based currencies is that the pace of discovery by the mining industry enters into the equation.

    Also caused by fractional reserve banking.

    Bankers borrow from their depositors and lend to business proprietors, real estate developers, aspirant home-owners, and consumers. Fractional reserve banking is an antique institution (and one which prospers quite nicely in circumstances of price stability.

  5. Joe:

    I think the Fed does cause inflation.

    It’s just that even with its flaws, it either causes it less than alternative systems, or causes less of other, worse, problems than alternative systems.

    Or so I am told.

    I cannot say that I am competent to argue the matter either way.

    But as I (foggily) understand it, the ongoing constant production of value (goods and services) which can be purchased in dollars is not entirely offset by the gradual eroding of value through the decay of goods or through services becoming unavailable. As a consequence, the total amount of stuff that people want to purchase with dollars is always rising. If the number of dollars doesn’t rise in a commensurate way, then you get deflation.

    To quote Megan McArdle, “Deflation does rather devastating things to anyone who has debt, since they now have to repay what they borrowed in more expensive dollars. Deflation [also] means that, thanks to the above mentioned sticky wages, the economy has to deal with demand shocks by lowering output.”

    So we don’t want that. Ideally, then, one increases the quantity of dollars in circulation to keep pace with the stuff those dollars are chasing.

    But of course it’s hard to know exactly how much stuff those dollars are chasing. You can try to have 0% inflation, but you’re going to err a bit on either side, which means sometimes you’ll have 1% inflation, and sometimes you’ll have 1% deflation. 1% inflation isn’t particularly bad, but 1% deflation is, for the aforementioned reasons.

    So you’re better off trying to have 1% inflation as your target, since that means you’ll sometimes have 0% inflation (which is your real target) and you’ll sometimes have 2% inflation (which more than you want, maybe, but is not as bad as 1% deflation).

    The above numbers aren’t quite right. Your error isn’t actually exactly plus or minus 1%. It’s more like plus or minus 1-3%. But the same idea applies; I was just using 1% for simplicity’s sake.

    Anyhow, if we’ve decided that we want to try to target 1% or 2% inflation in order to approximate zero inflation while simultaneously avoiding deflation, then the next question is, how do we do this? How do we ever-so-slightly increase the money supply to keep pace with the “stuff supply?”

    Well, you either have some fallible, possibly venal, doofus of a human being in charge of “printing money” (yes, I know it’s actually electronic “on the books”) very carefully; or, alternatively, you peg the value of the dollar to some commodity, such as gold.

    But the problem is that commodities are notoriously unstable in value. It’s not as if the amount of new gold produced annually happens perfectly to coincide with the increase in the amount of value of all other stuff that folk might want to buy with that gold (or with the dollars it represents).

    Actually that’s just one of the problems; others have to do with the unwieldiness of the gold exchanges between countries required to keep things stable in matters of trade. There was usually a delay which led to liquidity problems and businesses not being able to make payroll, that kind of thing, back when the gold standards were in force worldwide.

    Anyhow, as I understand it, while it’s true that the Fed’s errors have caused bubbles, thus producing a “boom-and-bust” economy, it isn’t half as bubble-prone, and the booms and busts not half so large, as things were before the Fed.

    So it may be that having monetary policy exercised by the Fed is a bit like having government in the form of a constitutional democratic republic. That is: Just as the latter is absolutely the worst form of government except for all the others, the former is the worst form of monetary system except for all the others.

    Or so, as I said before, I am told.

    This may in fact be incorrect.

    But it wouldn’t surprise me if it were true, because it has that ring of truth that I’ve grown accustomed to in this fallen world: You know: That sense of, “Crap. That’s the best we can do? What a pisser…” which always leads us to the temptations of grass-is-greener-ism, only to find, when we give in to temptation, that the grass was just as brown on that side, after all.

  6. Art,

    Except for extraordinary times (famines, blockades or other such events) there is no inflation when you have hard currency – it is only with fiat money that you get inflation and one must remember what inflation does…it takes wealth from those who produce it by making, mining and growing things and gives it to people who merely manipulate fiat currencies.

    Why did the world turn to an economic model which is dependent upon steady inflation? Because the world bankrupted itself in the First World War and the financial and political elite of that time didn’t want to pay the piper (would have been unpopular with the voters to tell them that after spending all their blood and treasure fighting a war they now had to go through a generation of poverty until lives and wealth could be rebuilt..much easier to just print money and pretend all is well…what we have today is mere “ad nauseum” to that). It is a bad idea and doesn’t do anything for the regular folks who just want to earn a decent living and raise decent families. Ending the Fed is just one of many steps we have to take to return to a rational economy.

  7. No, you can have periods of inflation and deflation with a gold-standard and in a world where growth of trade exceeds the output of the mining sector there is a deflationary bias. Prices in the latter third of the 19th century dropped by half. The Populist movement and the disputes over ‘sound money’, bimetallism, &c during the 1890s were in that context. With a gold-standard, you are also constrained from responding to certain sorts of economic shocks. We had a severe experience of that in 1929-32. A (very rapid) economic recovery began in 1933 when the Roosevelt Administration devalued the dollar (among other measures).
    Thirty years ago, advocates of a gold standard had an argument that the policy makers had lost the ability to superintend monetary control in a responsible way. That thesis was discredited after 1979 all over the occidental world and I see no reason to behave as if it was not.
    Low grade inflation (2% per annum) is useful to have in order to ease economic adjustments in recessions. If we had compensation schemes which allowed nominal adjustments in the face of changing economic circumstances (as they do in Japanese industry) we could get by without low grade inflation. Japan has had complete price stability since 1993; as far as I am aware, the unempoyment rate has not exceeded 5.5% in that time.

  8. As we the people (and Ron Paul) decide whether or not to dismantle the Fed, we the people need to understand what purpose we need the Fed (or any central bank) serves. Do we need it to serve as lender of last resort and provide liquidity (money supply) in a systemic crisis? Do we need it act to maintain full employment? Do we need it to ensure stable prices and market interest rates? Clearing checks shouldn’t be a problem . . .

    And, if the Fed failed the needed purpose (are some of the above mutually exclusive?), we need to identify why it failed and how could it have succeeded.

    The first (modern) central bank was formed in 1694 – The Bank of England. It invented paper currency. It held gold held in vault and issued bank notes. Paper currency (here and now: Federal Reserve Notes) are liabilities (IOU’s) of the central bank. That creates payment risk.

    Within two short years, by 1696 for liberals, England suffered the first banking crisis – The BoE had issued too much paper currency relative to the gold it held in vault.

    Think about the Fed today. Not just today but since 1913.

  9. J.K.Galbraith believed that the FED should be limited to replacing worn out currency – paper or coin. He felt that giving it more power without Congressional supervision would lead to the chaos which is all too evident today.
    It is also based on the false assumption that there are wise and grave [usually more grave than wise] men who can be relied upon to do the right thing.

  10. J.K.Galbraith believed that the FED should be limited to replacing worn out currency – paper or coin

    Let go of my leg. The U.S. Mint and the Bureau of Engraving and Printing are divisions of the Treasury, not the Federal Reserve.

    He felt that giving it more power without Congressional supervision would lead to the chaos which is all too evident today.

    The chaos is in your head.

  11. Joe – I think Ron Paul is being realistic, reasonable and prudent about his future actions as Chairman of his sub-committee which has oversight of the Fed. He wants more transparency of the Fed. The Fed is a creation of Congress, the President appoints its leader and Congress approves. Oversight of monetary policy is responsibility of the the Congress. Ron Paul will assure that we follow the Constitution.

    Refer below for recent articles of interest:
    WSJ – Fed Sticks to Bond-Buying Policy
    Central Bank Keeps Rates Low, Says Economy Recovering but Not Fast Enough to Cut Jobless Rate

    Seeking Alpha – Can Bernanke Contain Inflation?

    The Market Oracle – The Fed’s Final Days, The Temple Of Paper Money Is Under Seige

  12. The Fed MUST be ended. We’ve only got ten to fifteen years left with the Fed in charge of the money supply. If we don’t end it, it will end us.

    Fractional reserve banking is a problem. Deposits are NOT bonds, they should not be treated as such. If you want to lend an investors money to pay interest, then you should state it and sell a debt instrument. It is disingenuous to sell a bond as a bank DEPOSIT.

    The Fed cartelizes and legitimizes and unethical activity. The market will naturally check it and regulation (at the state and local level) can curtail fractional-reserve banking, but not with the Fed, or any monopoly bank in place.

    Save for ignorance (which is a lame excuse) the usury of cartelized-private, state-backed banking is incompatible with Catholic social teaching.

    Hard money is not perfect (nothing in this world is) it is not a panacea for economic problems, yet, it is far better than a fiat-paper illusion that causes nothing but chaos, confusion, violence, warfare, greed, avarice, covetousness, poverty and slavery.

    As we await the birth of Christ Who came to us because God so loved the world as to send His only begotten, we must recall that He came to set the captives free. We are all captives of this immoral economic system and it is our duty to try to do away with it, whether we do or not is in His hands.

    If ever in human history the framework and the technology becomes available for the Beast to put his mark on all of God’s children, it is now. This is not stuff to play with.

    Some states are already making plans to coin their own currency to compete with the ‘legal tender’ of the usurers and there are over 250 local, private competing currencies. The wealth of the people of these United States does not subsist in the paper money of the Fed or the US government, which is and has been bankrupt. Our wealth is in the material resources with which God has blessed us and the innovative spirit of the American entrepreneur and people. America is not broke, the federal government and the Fed are. It is way past time to end it.

  13. The banking system needs a unified, coherent regulatory system free of undue political influence.

    Money and US Constitution – “Create a more perfect Union.” Article I, Section 8 “The Congress shall have Power to . . . ; To coin Money and regulate the Value thereof, and of foreign Coin, and fix the Standards of Weights and Measures;” Nowhere does it say create money.

    Coinage Act 1792 – established the Mint and regulated coinage. Established the dollar as the unit of money, declared it lawful tender, and created a decimal system for U.S. currency.

    Eagles ($10), half and quarter Eagles were specified weights of gold. Dollars down to half dismes were specific weights of silver; lower coins were copper.

    1900 – The Gold Standard Act established gold as the only standard for redeeming paper money, stopping bimetallism (which had allowed silver in exchange for gold). The Act fixed the value of the dollar at 25 8?10 grains of gold at 90% purity, equivalent to 23.22 grains (1.5046 grams) of pure gold.

    1913 – the Fed . . .

    AK: With what would you-all replace the Fed and federal reserve notes – money?

    Would you also abolish federal deposit insurance?

  14. Watch FIAT EMPIRE. This documentary is available for free. To understand what our Constitution actually says about monetary policy and the historical background behind it I would refer folks to a great Constitutional lawyer and scholar, Dr. Edwin Vieira, Jr. He was interviewed in the documentaries above and below.

    Watch online (or order) their newest film as well ~ CORPORATE FASCISM – The Destruction of America’s Middle Class.

    This 101-minute documentary — featuring Ted Baehr, Pat Buchanan, G. Edward Griffin, Ron Paul and Edwin Vieira — explores the endless consolidation of corporations and the effects of NAFTA. CORPORATE FASCISM explores how easy and endless fiat currency, created by the Federal Reserve System, has allowed Congress to literally be purchased by corporate entities and special interest groups and how REGULATORY CAPTURE is ruining our nation. But Big Corporations are only half the story. Big Government, facilitated by a bastardization of the COMMERCE CLAUSE by an activist Supreme Court, has allowed a totally new kind of fascism to form: corporate fascism where huge multinational corporations combine with huge and ever-pervasive government to ignore the will of We the People and the Republic for which we stand.

  15. FWIW . . . This fight has been raging since the founding of the Republic.

    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 POWER TO INSPECT THE BOOKS at any time. It would be owned by its stockholders.

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

    Federalists lost power. 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, another Jeffersonian class hater, 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. Thousands of wildcat banks sprang up and failed as they issued bank notes that were either fraudulent or not backed by hard assets. US Panics of the 19th century were far worse than in Europe.

  16. T. Shaw,

    I am not enough of an expert to propose the solution definitively; however, I know enough to determine that the Fed is illegitimate, unethical and immoral. The power to regulate coinage is the responsibility of the people’s Congress and NOT private bankers. The gold standard has proved to be the best, although not perfect, money for over 6,000 years. I am not so sure we need to replace the Fed with anything, this power is enumerated to Congress in the Constitution and should remain there. Of course, that does not mean that state-level and private currency should be abolished.

    FDIC is not insurance by any definition of insurance. In fact, it is the opposite. It does not transfer risk, it creates a moral hazard. It most certainly should be done away with, which is going to happen anyway. It will be stretched beyond its capacity in 2011 and will fail. Sadly many people will lose their savings because of the false illusion of insurance that it creates.

    The Fed’s system is a total failure, it is bankrupt, dangerous and it is finished we just haven’t realized it yet. It is long past time to wake up.

    And the kings of the earth, who have committed fornication, and lived in delicacies with her, shall weep, and bewail themselves over her, when they shall see the smoke of her burning: 10 Standing afar off for fear of her torments, saying: Alas! alas! that great city Babylon, that mighty city: for in one hour is thy judgment come.

    11 And the merchants of the earth shall weep, and mourn over her: for no man shall buy their merchandise any more.

    14 And the fruits of the desire of thy soul are departed from thee, and all fat and goodly things are perished from thee, and they shall find them no more at all. 15 The merchants of these things, who were made rich, shall stand afar off from her, for fear of her torments, weeping and mourning. 16 And saying: Alas! alas! that great city, which was clothed with fine linen, and purple, and scarlet, and was gilt with gold, and precious stones, and pearls. 17 For in one hour are so great riches come to nought;

    20 Rejoice over her, thou heaven, and ye holy apostles and prophets; for God hath judged your judgment on her.

  17. The so-called wildcat banks, weren’t unregulated, free banking wasn’t free. The regulatory environment gave cover to thieves. Most of the panics were fabricated by those who control the market and have the most to gain from the ‘crisis’ which results in calls for more government control and then usurpation of government’s legitimate authority by the corporatists.

    Who spoke out against the banking bill from 1910 to 1913 most vociferously? The same Wall Street bankers who concocted the scheme in secret at Jekyll Island 100 years ago this past November 22. Why? Because the American populace distrusted bankers, especially New York bankers even more than Philadelphia lawyers. This was mass propaganda, if the Wall Street bankers are against the banking bill, then it must be bad for them and good for the people, so do it. The bankers got exactly what they wanted and not 1 in 1,000,000 Americans can even understand the alchemy of the powers behind the Fed. Ignorance, comfort, complacency and lukewarmness have lead us here. We are now reaping what we have sown for 97 years and it ain’t pretty. The time is short to correct our course or simply vanish into obscure slavery, perhaps comfortable and entertaining, but slavery none-the-less. Bread and circuses have always been the tools used to distract by those with a lust for power. We are no different than every other empire that has failed and our salvation is not in our hands.

    It is time to overturn the tables of the money changers and restore the order of Christ. End the Fed.

  18. From The Liberal Hour , by John Kenneth Galbraith (pp. 75-76). Galbraith writes:
    “In 1933, as part of the Glass-Steagall Banking Act of that year, the Congress provided for the insurance of bank deposits. This changed a highly decentralized banking system into a relatively interdependent one. It marked – that is to say it truly marked – the end of an era. Never again would the long lines form outside the banks in response to the rumor that something was wrong inside. Never again would the failure of one bank bring down another and that one yet others in a tenpin effect. Never again would there be the grief and panic so grimly associated with bank failure. It is hard to imagine a reform more important than this.”

  19. The illusion of ‘insurance’ created by FDIC is just that, an illusion. Now instead of banks failing because they are managed poorly, all of them are broke, but it looks like they aren’t (well, except the couple of hundred that failed in 2010 and the staggering number coming in 2011 – get your money out of the banking system now). Theft occurring right out in the open and with the consent of the robbed. It doesn’t get any crazier than this.

    As for an interdependent instead of a centralized system, that is pure poppycock. The Federal Reserve Bank of New York IS the central and only bank, everything else, including the so-called other regions of the Not-Federal No-Reserve Scheme are beholden to New York.

    Warburg drafted the plan with the specific intent of making it seem decentralized, independent of political influence and seemingly to fight inflation and unemployment. In fact, the fed IS responsible for inflation and causes unemployment, instability, graft, corruption, corporatism and the end of accountable government, with all power and control in New York for the benefit of the Wall Street elite. While we sit back and blame the party we don’t belong to, the root of the problem is not the Demopublicans or the Republicrats, it is neither and both. Congress can end the Fed with a one-page bill, just the same as they can end the genocide of abortion with a one-page bill. They lack the will.

    Control over the money supply is the center of all power, this is precisely why the Framers placed that power, to coin money and set weights and measures in the people’s House (keep in mind at that time one Congressman represented 35,000 people only).

    We need a restoration of the original system with some minor tweaks to update. What we are being sold is that the Constitutional system has failed and we need something better like a regional economy, a North American Union with one currency so that Canada becomes our Spain and Mexico becomes our Greece. Yeah, that sounds great, let’s do that.

    In many ways I think a total economic collapse will be good for the Republic, may be then people will finally wake up and see how wrong this is. Hopefully the double Paul attack in January will expose the Fed and people will wake up before the ultimate collapse.

    It would be wise to call on the intercession of St. Nicholas (feast day Dec. 6, the patron saint of bankers, to help us here rather than ridiculing him as a jolly, fat elf on the Solemnity of the Nativity of Our Lord Jesus.

    One way or another, this will all end soon. Thanks be to God.

  20. Where to start?!

    FDIC insures we the people’s deposits, not banks . . . Banks pay FDI assessments (insurance premiums) not one penny of taxpayer money has ever been used by the FDIC to pay insured depositors money. Eventually, banks will repay all the money the FDIC lost and will restore the FDI fund to a set percentage of estimated aggregate US insured deposits.

    Too much . . .

    You boys need to get a grip on reality. I suggest a start: stop listening to/reading hateful, raving lunatics like T. Di Lorenzo and G. E. Griffin.

  21. The definition of insurance is a transfer of risk. The consumer transfers a risk they cannot or do not want to cover to an entity that has the means to cover it for a fractional premium.

    The ‘premium’ paid to FDIC is insufficient and a transfer of risk cannot be based on the ability to counterfeit the assumed loss, it must be transferred to truly cover the assumed loss.

    FDIC is nothing more than a fraud, it is a shell game and it will be revealed for its lie and soon. FDIC creates a moral hazard, it does not transfer risk.

    Do you really think that $250,000 of your money at one bank held in one title is actually insured? I wonder who really needs a grip on reality.