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Visiting Ron Paul's Fed-Free Utopia
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Fintan
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PostPosted: Sat Jan 02, 2010 5:01 pm    Post subject: Visiting Ron Paul's Fed-Free Utopia Reply with quote

Quote:


Many feel that Ron Paul's gold-based, Fed-free Ecomnomics
would be the the salvation of America --if implemented.


But would it?

Here's a contrary view.

Is this a well-aimed criticism,
or just an overly-trite dismissal?

Quote:
Visiting Ron Paul's Fed-Free Utopia

by Justin Fox
December 29, 2009

After being urging to do so by several readers, I finally read Ron Paul's End the Fed.

I was about to buy it for the Kindle I got for Christmas, but when I got to work Monday morning there was a package in my mailbox from Gary Howard at Paul's Campaign for Liberty with two copies of the book. I gave one to my colleague Stephen Gandel, and started reading the other. I had told Hunter Lewis that I was going to read his Where Keynes Went Wrong first, but when I saw how short End the Fed was (and how few words per page it contained) I figured I could finish it in a couple of hours.

It took about three, and it was worth the time and effort. I didn't learn anything new about monetary economics or the Federal Reserve, but I did learn a lot about the thinking of Ron Paul. It turns out to be a curious mix of the sensible and the delusional.

To put it differently, Paul has wrapped a mostly cogent critique of central banking in general and the Fed in particular inside a decidedly utopian view of what a world without central banks would look like. At one point in the first chapter he warns that "ending the Fed is not a magic pill to usher in Utopia." Then, throughout the rest of that chapter and the rest of the book he describes how ending the Fed would usher in a state of affairs that sounds an awful lot like, well, Utopia.

Here's the list of happy consequences that Paul says ending the Fed would bring, with my annotations in italics:

1. "It would bring an end to dollar depreciation."

You betcha. Paul wants to replace the Fed with a return to a strict gold standard—in which dollars would be redeemable in gold. If that happened, and we stuck to it, the dollar would indeed maintain its value better than it has since the Federal Reserve was created in 1913. (More on this in item 4.)

2. "It would take away from government the means to fund its endless wars" and its "massive expansions of the welfare state that has turned us into a nation of dependents."

Paul is right that governments in the U.S. and elsewhere have often printed money to pay for major wars. They've done that even without the help of central banks (as the U.S. did during both the Revolution and the Civil War), but having a central bank institutionalizes the mechanism for money-printing and thus presumably makes it easier to get away with. As for his welfare state argument, there's surely something to it, but not nearly as much as Paul seems to think. In the post World War II era, Germany has followed much more of a hard-money (that is, Ron-Paulish) line than the U.S., yet it has a much bigger welfare state. So the growth of government can be a political choice, not just the result of the machinations of central bankers.

3. It would "stop the business cycle."

Really? Paul utterly fails to back this claim up in the book, because he can't. We've had recessions and depressions in the U.S. both with central banks (the Fed and its two predecessors, the First and Second Banks of the United States) and without them. It's true that Fed backers have repeatedly claimed through the decades that wise central bankers had figured out how to stop the business cycle, and repeatedly been wrong about that. There's also an argument to be made—although the evidence is mixed at best—that central banks exacerbate the business cycle. But saying that we would have no more economic ups and downs if the Fed were shut down is utopian fantasizing.

4. It would "end inflation."

Correct. If we returned to a gold standard and stuck to it, there would be periods of inflation and periods of deflation, but over the long run prices would hold more or less steady. Unless we discovered that alchemy worked or the moon was made of gold, in which case we would get raging inflation. Paul also completely ignores all the economic problems that deflation, especially sharp deflation as we had in the early 1930s, can bring with it. He's apparently been too busy with his beloved Austrian economists to ever read any Irving Fisher (pdf!).

5. It would "build prosperity for all Americans."

Paul does a pretty good job of explaining why the Fed's money-printing can't build prosperity, but in general this country's record of building prosperity has been about as good in the Fed era as in the pre-Fed era. Which leads me to think that monetary policy may not be the key variable in determining prosperity over time.

6. It would "end ... the corrupt collaboration between government and banks that virtually defines the operations of public policy in the post-meltdown era."

He's onto something about the corrupt collaboration, of course, but he's also being either naive or disingenuous. Does he think there wasn't any corrupt collaboration between government and banks in the 19th and early 20th centuries, before there was a Fed?

7. It would "put the American banking system on solid financial footing" and "customers' deposits would be safer than they are today."

The argument here is that if banks didn't have a government safety net, they'd be more careful and their customers would be too. Jim Grant makes this case far more exhaustively in his wonderfully cranky book Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken. The flip side is that lots of banks failed and lots of depositors lost most or all of their money in the pre-safety-net days. That's what made the survivors careful. The bank-failure solutions offered up by Washington—the Fed and the FDIC, mainly—have created new problems of their own.

But banks are naturally unstable, because they borrow on a short-term basis from depositors and turn around and hand most of that money back out as longer-term loans. Paul nods to this in a brief discussion of the evils of fractional-reserve banking, but fails to acknowledge that fractional-reserve banking predated the Fed and is both a product of and enabler of free-market capitalism. Banning it would thus represent a pretty severe encroachment on the economic liberty he so cherishes. It would probably also be a serious economic downer.

8. It would "end the way in which our electoral cycles have been corrupted by monetary manipulation."

There's no hard evidence of such corruption since Arthur Burns' tenure as Fed chairman in the 1970s, but Paul is right that the risk is always there. Then again, a Fed that was more closely controlled by Congress—which Paul advocates as an intermediate step before the Fed is completely abolished—might be even more prone to election-year shenanigans.

9. "The national wealth would no longer be hostage to the whims of a handful of appointed bureaucrats whose interests are equally divided between serving the banking cartel and serving the most powerful politicians in Washington."

Instead, it would be hostage to the ups and downs of the gold-mining industry, because under a gold standard the supply of money is determined by the supply of gold. The economic argument for central banks was that wise technocrats could do a better job of managing the money supply than gold miners could. That faith may have been misplaced, and a lot of people more hard-headed than Ron Paul have been calling lately for at least a partial return of gold to the global monetary system. But returning to gold almost certainly wouldn't be the silver (gold?) bullet that Paul makes it out to be.


There's lots of wisdom in Paul's Fed critique, and his espousal of the virtues of prudence and saving and hard work. But in this book, at least, he succumbs to the temptation of promising an easy way out. Guess he's more of a typical politician than I'd been led to think.

http://curiouscapitalist.blogs.time.com/2009/12/29/visiting-ron-pauls-fed-free-utopia/

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Peter



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PostPosted: Sat Jan 02, 2010 5:43 pm    Post subject: Money from nothing and the bills are fees... Reply with quote

Judging from the typical (lethal) response of the bankers to politicians' attempts to displace or undermine the FR, why do you suppose that Paul has been around for so long?
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GaryGo



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PostPosted: Sat Jan 02, 2010 6:27 pm    Post subject: Re: Money from nothing and the bills are fees... Reply with quote

Peter wrote:
Judging from the typical (lethal) response of the bankers to politicians' attempts to displace or undermine the FR, why do you suppose that Paul has been around for so long?

Isn't that what everyone says about AJ?

And isn't Ron Paul really just the Political equivalent of Alex Jones?

Thats pretty much how I have always viewed RP
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howg



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PostPosted: Sat Jan 02, 2010 11:10 pm    Post subject: Reply with quote

The Austrians are completely incoherent - which is why they have become the (un)official opposition!

1) On fiat currency

First of all, we do not have a monetary system that uses fiat money!

This is so fundamentally misleading & dishonest that it, in effect, undermines any of their (Austrians) other so-called solutions to our economic woes.
In fact, rather than clarifying the issue, it obfuscates the entire debate.

Our government does indeed create a little fiat money - true.
But only about 5% of our money supply - cash money.
The other 95% is not created by government at all - it is borrowed!!

As such, all of our money is neither fiat nor any other kind of money.
All of our money is units of debt.

The true creators of fiat money are private banks.
The Fed is not the Central bank of the United States - rather, it is masquerading as such.
The Fed is a private bank, and all private banks, of any size, regardless of who they lend to, (all levels of government, individuals or corporations), create fiat money, out-of-thin-air, then lend it to us.

Thanks to the magic of fractional reserve banking, these lending institutions do not need to have the money they create & lend - they only need a small fraction thereof.

The implications of this are enormous, on a great many levels of society - not only the economic sector.

To quote Bernard Lietaer:

Money is created when banks lend it into existence.
When a bank provides you with a $100,000 mortgage, it creates only the principal,
which you spend and which then circulates in the economy.
The bank expects you to pay back $200,000 over the next 20 years, but it doesn't create the second $100,000 - the interest.
Instead, the bank sends you out into the tough world to battle against everybody else to bring back the second $100,000...

In other words, some have to lose in order for others to win.
Some have to default on their loans for others to get the money needed to pay them off.

We use today's principal to pay off tomorrows interest - a gigantic pyramid, a Ponzie scheme from the get-go.

This is true regardless of government spending, regardless of the amount of debt, private and public, at any given moment.
The amount we actually owe, be it a lot or a little, is beside the point.

We owe it all - plus interest!

It is all debt - economists call it "credit".
I don't know about you, but I'd much rather have a lot of credit than a lot of debt.
It sounds a lot better - doesn't it?

All of our efforts, all of our productivity, all of our assets, are monetised into debt.
And if the entire debt were to magically be payed off today, there would be no more money in circulation!

However, there are economic theories that do propose the use of fiat currency created by government, (real central banks).
These monetary systems are generally known as social credit monetary systems.

If the Austrians wish to critique such, that's fine.
But mixing up the two is inexcusable.
Interestingly, we do have historical examples of such, and by all accounts they worked a lot better than the Austrians would have us believe.
For more info, please see Helen Brown's website: www.webofdebt.com.

I am not suggesting that social credit would be a slam-dunk success by any means.
These are very complex issues. However, at the least, it is not a debt-based monetary system.

2) Back fiat money with gold.

If it would or could help to stabalise a currency, I'm all for it.
However, history and current events have shown that a commodity based currency can be easily manipulated through speculation, over supply, or scarcity.
Just as with petro-dollars, any country's economy can easily be manipulated, (by internal or external forces).

A currency should reflect our collective labour, creativity and productivity in some fair & equitable manner.
I'm not quite sure why / how gold should play any part in this at all?

In fact, when Spain became super-rich by stealing gold and silver from the Americas, it actually bankrupted the country!

3) Reduce government and let us go about our business in freedom & liberty.

Well this sounds great - I'm 100% for it, sentimentally, that is
However, we do not have a government any more than we have fiat currency.

We do have a governing body, and many if not all of us do indeed resent their ever increasing encroachment into our lives.
But it is not our government at all.
It is a government of the elite, of the powers that be, of corporate interests.
It is not our government in any way, shape or form.

This government is not corrupt at all - this is a misnomer and very misleading.
This government is doing exactly what it is supposed to do, exactly what it is paid to do.

It is there to rob you of your freedom and your money.
And rather than being incompetent, it is actually very good at what it does.

The idea that even less government is what we need is absurd.
We have no government at all right now!!
And ironically, the system we do currently enjoy is precisely the result of having no government whatsoever, rather than the result of having one that is too large or to powerful.
Again, the implications of this distortion are enormous.

4) Laissez-faire economic theory

Discussing and debating economic issues is both constructive and necessary for change.
However, very few economists of any school have come to terms with the industrial revolution.

We can now produce just about anything with astonishing efficiency, using but a tiny fraction of the manpower it used to take.
I do not have an answer for this problem, but we should not forget that it is a very, very important aspect of economic theory, and must be addressed by any serious commentator.

One thing for sure - a laissez-faire economy would not magically redress this problem.
Rather, we would see a small percentage of the workforce being paid subsistence wages, with the vast majority unemployed.
In other words, starving masses who would work for any wage, and the resulting social chaos that would surely ensue.

On this particular issue, I cannot fault the Austrian School more so than many others.
This is a very difficult and complex problem, and we will have to be very creative in addressing it satisfactorily.
That is, in a way that provides for a society that can exist and grow in justice and harmony for all...

IMHO Wink
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atm



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PostPosted: Sat Jan 02, 2010 11:54 pm    Post subject: Reply with quote

howg

you've hit the nail right on the head. I've seldom seen the money-as-debt fraud put so succinctly.

Bravo

atm Very Happy
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Nemo



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PostPosted: Sun Jan 03, 2010 5:40 am    Post subject: Reply with quote

Quote:
you've hit the nail right on the head. I've seldom seen the money-as-debt fraud put so succinctly.

Bravo

Ditto. You may also find this interesting...

http://web.archive.org/web/20040226162618/www.wealthstudy.com/studentsonly/Strategic_Wealth/toc.htm

if you have a spare couple of weeks, but I found it worth the effort.

As you can see it is in the archives, the author - whom I knew personally - seems to have disappeared from the internet, so all of it may not be available, or you might have to retry a few times.

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MichaelC



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PostPosted: Sun Jan 03, 2010 8:40 am    Post subject: Reply with quote

The biggest problem - indeed the source of ALL these bank problems - is taxslaver guranteed bailouts, whether they be named deposit insurance or TARP.[/b]
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Peter



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PostPosted: Sun Jan 03, 2010 11:13 am    Post subject: Bank shot into the center pocket. Reply with quote

Can't expect anything else when you know who is calling the shots.
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Rumpl4skn



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PostPosted: Sun Jan 03, 2010 1:21 pm    Post subject: Reply with quote

Ellen Brown appears a several times in the Secret of Oz video. Like-mindedness, I believe.

http://www.secretofoz.com/

I bought the DVD, and give it a rave. It's most of the monetary system history info from The Money Masters, without the 3 hour length (or the waving pencil). The references to the Oz movie are peripheral at best.
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puffdaddy



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PostPosted: Sun Jan 03, 2010 1:35 pm    Post subject: Reply with quote

Has anyone seen this?

Illuminati spelled backwards is: itanimulli Then add .com and see where that takes you! Very creepy!! Thoughts??

itanimulli.com
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puffdaddy



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PostPosted: Sun Jan 03, 2010 2:29 pm    Post subject: Reply with quote

I know...I know...I know it's the illuminati thing and it is topic non grata here. Nevertheless it is a strange thing anyway.
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Rumpl4skn



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PostPosted: Sun Jan 03, 2010 2:31 pm    Post subject: Reply with quote

It's very bizarre, PD. I already sent that to a few people I thought might like it. One of which is my govt-employed brother. Smile
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