asides from that being an unsubstantiated opinion, the next part might explain why the fed is reserved in its comments to the media.
so, they're being all "secretive", but when they do talk things go awry.
there are meetings held behind "closed doors" everyday in the government and private sector. trying to equate that with anything sinister is retarded.
as for release of minutes of meetings, that's far less time than the equivalent governmental procedures. and of all the released documents of the "secret" meetings thus far, what nefarious activities have been unearthed? surely THAT should be in your wiki article?
Yeah, I'm not sure where claims that the fed is secrative come from. They publish many papers, do a lot of speaking engagements, and are quite up front about what they beleive about macro economic policy.
The reason it might seem opaque is because to undertand what they do, how they do it, and why they do it requires reading about seven or eight text books before factoring in how the individuals in the organization interpret these texts.
Posted by toolman667 on Jan-23-2008 18:28:
These 2 movies sum up everything thats going on, in an artistic manner.
Easy for those of you with a short attention span.
Posted by Trancer-X on Jan-23-2008 21:25:
Ron Paul interviewed TODAY on MSNBC
Contessa Brewer mentions Aaron Russo's [[ LINK REMOVED ]]
documentary
Did Ron Paul really say in that video that he would withdraw all troops from South Korea?
Posted by pkcRAISTLIN on Jan-24-2008 03:32:
quote:
Originally posted by toolman667
Simply amazing.
This really is a revolution.
mwahaahahahaha. you sound like the socialists i used to hang out with. living in fantasy land.
Posted by pkcRAISTLIN on Jan-24-2008 04:42:
quote:
Debunking the Federal Reserve Conspiracy Theories
BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.
Facts: Yes, the Federal Reserve banks are privately owned, but they are controlled by the publically-appointed Board of Governors. The Federal Reserve banks merely execute the monetary policy choices made by the Board. In addition, nearly all the interest the Federal Reserve collects on government bonds is rebated to the Treasury each year, so the government does not pay any net interest to the Fed.
Facts: No foreigners own any part of the Fed. Each Federal Reserve bank is owned exclusively by the participating commercial banks and S&Ls operating within the Federal Reserve bank's district. Individuals and non-bank firms, be they foreign or domestic, are not permitted by law to own any shares of a Federal Reserve bank. Moreover, monetary policy is controlled by the publically-appointed Board of Governors, not by the Federal Reserve banks.
Facts: Independent accounting firms conduct full financial audits of the Federal Reserve banks and the Board of Governors every year. The Fed is also subject to certain types of audits from the Government Accounting Office.
Facts: The Federal Reserve rebates its net earnings to the Treasury every year. Consequently, the interest the Treasury pays to the Fed is returned, so the money borrowed from the Fed has no net interest obligation for the Treasury. The government could print its own currency independent of the Fed, but there would be no effective safeguards against abuse of this power for political gain.
Facts:The Federal Reserve banks have only a small share of the total national debt (about 7%). Therefore, only a small share of the interest on the debt goes to the Fed. Regardless, the Fed rebates that interest to the Treasury every year, so the debt held by the Fed carries no net interest obligation for the government. In addition, it is Congress, not the Federal Reserve, who is responsible for the federal budget and the national debt.
Facts: Kennedy wrote E.O. 11,110 to phase out silver certificate currency, not to issue more of it. Records show Kennedy and the Federal Reserve were almost always in agreement on policy matters. He even signed legislation to give the Fed more authority to issue currency.
Facts:McFadden was incorrect regarding the Fed costing the government money. However, later economic analysis agrees with him that Federal Reserve policy blunders had a substantial role in causing the Depression. However, his implication that this was done deliberately has no basis in fact. Moreover, for a dozen years prior to his rant, McFadden had been the chairman of the House subcommittee that oversaw the Federal Reserve. Why didn't he do anything to reform or abolish the Fed while he had the chance?
Facts: The banking system is indeed able to create money with a mere computer keystroke. However, a bank's ability to create money is tied directly to the amount of reserves customers have deposited there. A bank must pay a competitive interest rate on those deposits to keep them from leaving to other banks. This interest expense alone is a substantial portion of a bank's operating costs and is de facto proof a bank cannot costlessly create money.
Facts: The term 'lawful money' does not refer to gold or silver coin, but to types of money which the government would permit banks to use when tabulating their reserves. These types of money included, but were not limited to, gold and silver coin.
BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.
MEET EDWARD FLAHERTY, CONSPIRACY POO-POOIST
A response to a critic of The Creature from Jekyll Island
� 2004 by G. Edward Griffin
Edward Flaherty is a Ph.D. of Economics who has been critical of my book, The Creature from Jekyll Island: A Second look at the Federal Reserve. Periodically I receive inquiries from readers who have visited Flaherty's web site, and they want to know if I can rebut what he says. I put this off for a long time because, first, his critique is lengthy and loaded with minutia that requires considerable time to respond properly and, second, the number of inquiries has been so small as to place the importance of this task far down on my list of priorities. Nevertheless, whenever I get an inquiry, I dread that my reader may think that a lack of response is a sign of not being able to defend my work; so, at last, I decided to step up to the plate and swing at the ball that Flaherty has thrown in my direction.
The essence of Flaherty's critique is that anyone who opposes the Federal Reserve must be some kind of a kook, totally lacking in scholarship. He lumps all Fed critics together, those who bring scholarship to the topic as well as those who do not, and the mixture tends to discredit everyone. It is an old tactic of dumping garbage into the grocery bag so that it all smells like garbage and is rejected in total.
On September 5, 2004, I received an email from a reader who had compared comments made in my recorded lecture with what Flaherty's web site says and asked for clarification. What follows is his inquiry with my reply embedded at appropriate locations.
My reader begins by quoting from my recorded lecture, followed by a quote from Eustace Mullins:
My lecture: I came to the conclusion that the Federal Reserve needed to be abolished for seven reasons. I�d like to read them to you now just so that you get an idea of where I�m coming from, as they say. I put these into the most concise phrasing that I can to make them somewhat shocking so that, hopefully, you�ll remember them:
The Fed is incapable of accomplishing its stated objectives.
It is a cartel operating against the public interest.
It is the supreme instrument of usury.
It generates our most unfair tax through inflation and bailouts.
It encourages war.
It destabilizes the economy.
It discourages private capital formation.
Eustace Mullins, Secrets of the Federal Reserve: �...the increase in the assets of the Federal Reserve banks from 143 million dollars in 1913 to 45 BILLION dollars in 1949 went directly to the private stockholders of the [federal reserve] banks.�
My reply: I stand firmly behind my seven points but I do not agree with Mullins on this. Please do not lump my work with other writers. Flaherty does this a lot. Guilt by association is a ploy that must be challenged and rejected.
Flaherty: It would be a mistake to examine these conspiracy theories....
My reply: Stop right there. There is nothing about my work that merits being classified as a conspiracy theory. In modern context, it is customary to associate the phrase �conspiracy theory� with those who are intellectually handicapped or ill informed. Using emotionally loaded words and phrases to discredit the work of others is to be rejected. If I am to be called a conspiracy theorist, then Flaherty cannot object if I were to call him a conspiracy poo-pooist. The later group is a ridiculous bunch, indeed, in view of the fact that conspiracies are so common throughout history. Very few major events of the past have occurred in the absence of conspiracies. To think that our modern age must be an exception is not rational. Facts are either true or false. If we disagree with a fact, our job is to explain why, not to use emotionally-loaded labels to discredit those who disagree with us.
Flaherty continued: ... outside the context in which they were written.
My reply: I try hard not to present text outside its context. When searching through hundreds of documents and thousands of pages, it is inevitable that some subtleties of context may be missed, but so far I have not yet been advised of any instances of this. I welcome any corrections; but, until specifics are brought to my attention, I stand firm on everything I have written. Furthermore, I resent the implication that my work could not stand without taking text out of context.
Flaherty: All the conspiracy authors whose work I study here profess a belief in the alleged �New World Order� conspiracy, or some variant thereof.
My reply: An informed reader would not waste time beyond this point. It is absurd to claim that a blueprint for a New World Order based on the model of collectivism is merely �alleged.� The evidence that this is a demonstrable fact of modern history abounds. Some of that evidence is presented in my work, The Future Is Calling, found in the Issues section of this web site.
Flaherty: Hypothesis: Each of the 12 Federal Reserve banks is a privately owned corporation. Like any firm, their main objective is to maximize profits. They do so by lending the government money and charging interest. They manipulate monetary policy for their own gain, not for the public good. Facts: Yes, the Federal Reserve banks are privately owned, but they are controlled by the publicly-appointed Board of Governors. The Federal Reserve banks merely execute the monetary policy choices made by the Board.
My reply: Basically, Flaherty is correct as far as he goes. But, as we shall see in so many of his statements, he stops short of the entire truth. A half-truth is just as much of a deception as an outright lie. Flaherty says that the Board of Governors is politically appointed. This is true and it is supposed to make us feel safe in the thought that the President responds to the will of the people and that he selects only those who have the public interest at heart. The part of the story omitted by Flaherty is that the President does not select these people from his own personal address book, nor does he ask the public to submit nominations. With few exceptions, he makes appointments from lists given to him by the staffs of banking committees of Congress and from private sources that have been influential in his election campaign. The most powerful of all these groups are the financial institutions (including prominent members of the Fed itself) and the media corporations over which they have effective control. One does not have to be a so-called conspiracy theorist to recognize the tremendous influence that these institutions have over the outcome of presidential campaigns, and anyone with knowledge of how our current political system works will understand why the President makes exactly the appointments that the banks want him to make. All one has to do to see the accuracy of this appraisal is to examine the backgrounds and attitudes of the men who receive the appointments. While there is an occasional token individual who appears to come from the consumer sector of society, the majority are bankers deeply committed to the perpetuation of the system that sustains them. Anyone who would seriously challenge the power of the banking cartel would never be appointed. So, while Flaherty is correct in what he says, the implication of what he says (that the Fed is subject to control of the people through the political process) is entirely false.
Flaherty: Nearly all the interest the Federal Reserve collects on government bonds is rebated to the Treasury each year, so the government does not pay any net interest to the Fed.
My reply: Here is another half-truth that is a whopper deception. It is true that most of the money paid by the government for interest on the national debt is returned to the government. That is because the Fed�s charter requires any interest payments in excess of the Fed�s actual operating expenses to be refunded. However, before we jump to the conclusion that this is a wonderful benefit, we must remember that the banking cartel is able to use tax dollars to pay 100% of its operating expenses with few questions asked about the nature of those expenses. After all of those expenses are paid, what is left over is rebated to the Treasury, as Flaherty says. There is no secret about this, and you will find an explanation of it in my book. Technically, there is no �profit� on this money. However, remember that creating money for the government is only one of the functions of the Fed. The real bonanza comes, not from money created out of nothing for the government, but from money created out of nothing by the commercial banks for loans to the private sector. That�s where the real action is. This is the famous slight-of-hand trick. Distract attention with one hand while the coin is retrieved by the other. By focusing on the supposed generosity of the Fed by returning unused interest to the Treasury, we are supposed to overlook the much larger river of gold flowing into the member banks in the form of interest on nothing as a result of consumer and commercial loans.
Flaherty: Hypothesis: Bankers and senators met in secret on Jekyll Island, Georgia in 1910 to design a central bank that would give New York City banks control over the nation�s money supply. Facts: The meeting did take place, but plans for a return to central banking were already widely known. Regardless, the proposal that came out of the Jekyll Island meeting never passed Congress. The one that did, the Federal Reserve Act, placed control over monetary policy with a public body, the Federal Reserve Board, not with commercial banks.
My reply: Here again we have a half-truth that functions as a deception. Plans for a return to central banking, indeed, were already known, but they were unpopular with the voters and large blocks of Congress. That was the very problem that led to the great secrecy. Frank Vanderlip, one of the participants at the Jekyll Island meeting, later confirmed that, if the public had known that the bankers were the ones creating legislation to supposedly �break the grip of the money trust,� the bill would never have been passed into law. The facts presented in my book, and fully documented by references from original sources, show that my version is historical fact. Flaherty attempts to minimize these facts by implying that the original, secret meeting was not important because the first draft of the legislation was rejected. What he does not say is that the second draft that was passed into law was essentially the same as the first. The primary difference was that Senator Aldrich�s name was removed from the title of the bill and replaced by the names of Carter Glass and Robert Owen. This was to remove the stigma of Aldrich as an icon for �big-business Republicans� and replace it with the more popular image of Democrats, �defenders of the working man.� It was a strategy advocated by Paul Warburg, one of the participants at the Jekyll Island meeting. The fact that Flaherty makes no mention of this suggests that he has not made an objective analysis but, instead, has presented a biased critique in the guise of scholarship. His statement that �the Federal Reserve Act, placed control over monetary policy with a public body, the Federal Reserve Board, not with commercial banks� cannot be taken seriously. The Federal Reserve is not a public body in any meaningful sense of the phrase.
Flaherty: Hypothesis: Through fractional reserve banking and double-entry accounting, banks are able to create new money with the stroke of a pen (or a computer keystroke). The money they lend costs them nothing to produce, yet they charge interest on it. Facts: The banking system is indeed able to create money with a mere computer keystroke. However, a bank�s ability to create money is tied directly to the amount of reserves customers have deposited there. A bank must pay a competitive interest rate on those deposits to keep them from leaving to other banks. This interest expense alone is a substantial portion of a bank�s operating costs and is de facto proof a bank cannot costlessly create money.
My reply: Flaherty presents facts that in no way contradict what I said in my book. I speak of rotten apples, and he speaks of sweet oranges. My book makes it clear that the bank�s ability to create money is tied to its reserves. The current average ratio (it varies depending on the bank) is about ten-to-one. In other words, for every one dollar on deposit and held in reserve, the bank can create up to an additional nine dollars out of nothing for the purpose of lending. The statement that the banks must pay a competitive interest rate on those deposits is humorous when one considers the math. For example, let us assume for the sake of illustration that the bank pays 1.5% interest. Then it turns around and charges, let�s say 6.5% interest. That�s a spread of 5%. Although that�s a pretty good brokerage commission, it doesn�t sound exorbitant. But, here is another of those half-truths. Don�t forget that the bank uses each deposited dollar as a so-called reserve for creating up to an additional nine dollars in loans. It collects interest on these loans as well. Let us assume that the bank is not fully loaned up, as they call it, and has an average of only eight dollars in magic-money loans for every one dollar on deposit. In that case, it will collect 6.5% interest on all eight of those dollars. That means, based on each dollar placed on deposit, the bank will collect 52% in interest. After paying the original depositor the generous �competitive� amount of 1.5%, the bank actually receives a brokerage fee of approximately 50%. When Flaherty says that �This interest expense alone is a substantial portion of a bank�s operating costs and is de facto proof a bank cannot costlessly create money,� one can only wonder what banking system he is describing. It certainly is not the one in the United States.
Flaherty: Hypothesis: Supporters of the Federal Reserve Act knew they did not have the votes to win, so they waited to vote until its opponents left for Christmas vacation. Since a majority of senators were not present to vote on the bill, its passage is not constitutionally valid. Facts: The voting record clearly shows that a majority of the senate did vote on the bill. Although some senators had left Washington for the holiday, the Congressional Record shows their respective positions on the legislation. Even if all opponents had all been present to vote, the Federal Reserve Act still would have passed easily.
My reply: I agree with Flaherty on this issue and often have said so in the Q&A portions of my lectures. Please note that this is not contradictory to what I wrote in The Creature. What I said there is an accurate historical fact. There is little doubt in my mind that the vote would have passed eventually, but by slipping it through as they did, it circumvented the possibility of challenges and debate. I have never commented on the Constitutionality question, although I tend to think that a strict interpretation would have made this vote invalid. The problem here, however, has nothing to do with the Federal Reserve Act but with the rules of Congress.
Flaherty: Hypothesis: All money is created only when someone takes out a loan. Therefore, there can never be enough of this debt-money in circulation to repay all principal and interest. This imbalance causes inflation, financial crises, social maladies, and will eventually destroy the economy unless there is a massive injection of �debt-free� money. This idea is from Dr. Jacques Jaikaran�s book, The Debt Virus. Facts: The hypothesis shows an incomplete view of how the banking system interacts with the economy. The system necessarily creates an amount of �debt-free� money equal to the interest on its loans. It does this whenever it pays operating expenses, dividends, or purchases assets. As a result, there is more than enough money in circulation to retire all bank-related debt.
My reply: I object to being lumped together with other analysts on this issue. I did not write The Debt Virus, I wrote The Creature from Jekyll Island. On page 191, I explained why I consider the claim that there is not enough money to pay off interest to be a myth
Flaherty: Hypothesis: The Federal Reserve consistently resists attempts to audit its books. This is because any independent inspection would reveal the Fed�s treachery. Fact: Independent accounting firms conduct full financial audits of the Federal Reserve banks and the Board of Governors every year. The Fed is also subject to certain types of audits from the Government Accounting Office.
My reply: I never wrote or implied, as Flaherty says, that �any independent inspection would reveal the Fed�s treachery.� What I wrote is: (1) The Fed resists external audit; (2) If it were audited by an independent party, I suspect there would be nothing illegal found; (3) The problem is not that it steals from the American people illegally but that it does so legally; (4) Therefore, we do not need to audit the Fed, we need to abolish it.
Flaherty: Hypothesis: Major European banks and investment houses own the Federal Reserve. From across the Atlantic they dictate monetary policy for their own benefit. Facts: No foreigners own any part of the Fed. Each Federal Reserve bank is owned exclusively by the participating commercial banks and S&Ls operating within the Federal Reserve bank�s district. Individuals and non-bank firms, be they foreign or domestic, are not permitted by law to own any shares of a Federal Reserve bank. Moreover, monetary policy is controlled by the publicly-appointed Board of Governors, not by the Federal Reserve banks.
My reply: Flaherty is basically correct, and I have never claimed in my book or in my lectures that it was otherwise. I do not appreciate being lumped together with those who claim foreign control over the Fed. The real danger in this line of reasoning is that it is often coupled with the argument that, if we could only get control away from foreigners and put it into the hands of Congress or the Treasury, then everything would be all right. In truth, even if the Fed were in the hands of foreigners, placing it into the hands of American bankers and politician would make little difference. The Fed does not need to be converted into a government agency. It needs to be abolished.
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks...will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
- Thomas Jefferson
"The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the United States, if they remained in one block and as one nation, would attain economic and financial independence, which would upset their financial domination over the world. The voice of the Rothschilds prevailed� Therefore they sent their emissaries into the field to exploit the question of slavery and to open an abyss between the two sections of the Union."
- German Chancellor Otto von Bismarck
"This Federal Reserve Act establishes the most gigantic trust on earth. When the President (Wilson) signs this bill the invisible government of the Monetary Power will be legalized."
- Hon. Charles A. Lindbergh, Sr.
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs."
- Thomas Jefferson
Posted by pkcRAISTLIN on Jan-25-2008 00:23:
quote:
Originally posted by Trancer-X
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks...will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
- Thomas Jefferson
"The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the United States, if they remained in one block and as one nation, would attain economic and financial independence, which would upset their financial domination over the world. The voice of the Rothschilds prevailed� Therefore they sent their emissaries into the field to exploit the question of slavery and to open an abyss between the two sections of the Union."
- German Chancellor Otto von Bismarck
"This Federal Reserve Act establishes the most gigantic trust on earth. When the President (Wilson) signs this bill the invisible government of the Monetary Power will be legalized."
- Hon. Charles A. Lindbergh, Sr.
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs."
- Thomas Jefferson
about as compelling as quoting george bush in 2050 Posted by Trancer-X on Jan-25-2008 00:28:
FOR IMMEDIATE RELEASE
January 24, 2008
ARLINGTON, VIRGINIA �Republican presidential candidate Ron Paul has unveiled a comprehensive economic revitalization package. The four-pronged plan is designed to stem the current economic slide and address the unsound governmental policies that are harming Americans� pocketbooks.
�Real economic reform must address the underlying reasons for the current economic malaise,� said Ron Paul. �This plan is more than just a band-aid for our economy; it fundamentally reforms four areas where government policies are damaging our national economy. When enacted, my plan will provide both short-term stimulus, and lay the groundwork for long-term prosperity.�
1. Tax Reform: Reduce the tax burden and eliminate taxes that punish investment and savings, including job-killing corporate taxes.
2. Spending Reform: Eliminate wasteful spending. Reduce overseas commitments. Freeze all non-defense, non-entitlement spending at current levels.
3. Monetary Policy Reform: Expand openness with the Federal Reserve and require the Fed to televise its meetings. Return value to our money.
4. Regulatory Reform: Repeal Sarbanes/Oxley regulations that push companies to seek capital outside of US markets. Stop restricting community banks from fostering local economic growth.
Congressman Paul has written or co-sponsored numerous bills to enact the policies in his plan. In Congress, he has been a champion of lower taxes and limited government.
Congressman Paul is THE ranking member on the House Financial Services Committee's Subcommittee on Domestic and International Monetary Policy, Trade, and Technology. In Congress, Dr. Paul has never voted for a tax increase or for an unbalanced budget.
Posted by Trancer-X on Jan-25-2008 00:34:
Thank you for having taught some of us such a valuable history lesson, Pres. Jackson!
"If Congress has a right under the Constitution to issue paper money, it was given them to use by themselves, not to be delegated to individuals or corporations."
- Andrew Jackson
"Either the application for renewal of the charter is granted, or the United States will find itself involved in a most disastrous war."
- Nathan Mayer Rothschild (upon hearing about the States' refusal to renew the U.S. Central Bank's charter)
"You are a den of thieves vipers, and I intend to rout you out, and by the Eternal God, I will rout you out."
- Andrew Jackson (responding to N.M. Rothschild)
"Teach those impudent Americans a lesson. Bring them back to colonial status."
- Nathan Mayer Rothschild (replying to Andrew Jackson)
Posted by pkcRAISTLIN on Jan-25-2008 00:37:
he also advocates a return to the gold and silver standard, which i think is a terrible idea.
Posted by Trancer-X on Jan-25-2008 01:06:
Despite being the Senior Policy Advisor to Rudy Giuliani's campaign, Steve Forbes seems to agree with Ron Paul!
So do A LOT of other, well informed people who know about the dangers of dollar inflation
Posted by pkcRAISTLIN on Jan-25-2008 01:09:
quote:
Originally posted by Trancer-X
Despite being the Senior Policy Advisor to Rudy Giuliani's campaign, Steve Forbes seems to agree with Ron Paul!
So do A LOT of other, well informed people who know about the dangers of dollar inflation
and yet we have a multitude of experience of exactly how bad using a gold standard can be. how do you refute all that evidence?
Posted by toolman667 on Jan-25-2008 01:15:
quote:
Originally posted by pkcRAISTLIN
he also advocates a return to the gold and silver standard, which i think is a terrible idea.
Well thank god you don't live here. But I fear even your ignorant thoughts are still poisoning the "people" here.
Posted by pkcRAISTLIN on Jan-25-2008 01:17:
quote:
Originally posted by toolman667
Well thank god you don't live here. But I fear even your ignorant thoughts are still poisoning the "people" here.
yeah, because virtually every economist on the planet is also "ignorant" Posted by Trancer-X on Jan-25-2008 01:38:
but of course this is really not something that's new
Inflation in the USA has been completely out of control ever since the U.S. Treasury stopped paying D-2 dollars in exchange for dollar claims (1971), ushering in the spendthrift era of fiat money.
Inflation Is Theft
by Hans F. Sennholz
Many people know how to earn money, but few are aware of what the Federal Reserve System, acting on behalf of the U.S. Government, is doing to their money. It is inflating and depreciating the dollar at various rates � at double-digit rates during the 1970s and early 80s and at single-digit rates ever since. The present dollar is worth no more than 10 cents of the 1970 dollar and 50 cents of the 1980 dollar.
The reasons and explanations given for this loss may change over time, but the consequences are always the same. Inflation covertly transfers income and wealth from all creditors to all debtors. It dispossessed present creditors of nine-tenths of their 1980 savings and enriched debtors by the same amount. The dollar savings accumulated since then have shrunk at lesser rates but are fading away notwithstanding. No wonder, many victims readily conclude that thrift and self-reliance are useless and even injurious and that spending and debt are preferable by far. They may join the multitudes of spenders who prefer to consume today and pay tomorrow, and they may call on government demanding compensation, aid, and care in many forms. Surely, the hurt and harm inflicted by inflation are a mighty driving force for government programs and benefits.
In their discussions and analyses of various problems, economists usually avoid the use of moral terms dealing with ultimate principles that should govern human conduct. Ever fearful of being embroiled in ethical controversies they seek to remain neutral and �value-free.� They do counsel legislators and regulators on the cost-efficiency of a policy but not on its moral implications. They may offer professional advice on the efficiency of money management but not on the morality or immorality of inflationary policies. They dare not state that inflation is a pernicious form of taxation which most people do not recognize as such. Authorities of money and banking rather than taxing authorities redistribute income and wealth under cover of ignorance. Placed on every person in the form of higher goods prices, the application does not fall equally and simultaneously on every buyer. The people who receive the newly created money first may actually benefit, as goods prices readjust rather slowly. Others who receive it later or not at all will have to tighten their belts. Above all, inflation ravishes the savings of countless Americans and turns many into prodigal spenders and debtors.
The biggest debtor also is the biggest inflation profiteer. With some eight trillion dollars in debt, the Federal Government is by far the biggest winner. In fact, it gains not only from debt depreciation, which at just three percent amounts to some $240 billion every year, but also from Federal Reserve money and credit creation that enables the U.S. Treasury to suffer annual budget deficits of some $500 billion a year. Without the power to inflate and depreciate the dollar at will, the U.S. Government would be a different institution, like that which the Founding Fathers had envisioned. But endowed with the power of inflation it has become an almighty organization that redistributes income and wealth and refashions the social and economic order.
The primary beneficiaries of the new order are its own managers: legislators, regulators, and a huge army of civil servants. They are first in power, prestige, and benefits. Many U.S. Senators and Congressmen are the admired and esteemed benefactors of countless petitioners for handouts and favors. They are revered for every benefit they bestow. And there are the officials of the Department of Commerce with 7 benefit programs, the Department of Education with 34 programs, the Department of Energy with 6, the Department of Health and Human Services with 8, the Department of Housing and Urban Development with 14, the Department of the Interior with 3, the Department of Labor with 9, the Department of Transportation with 9, and various government commissions and authorities with another 10 programs. Federal politicians and agents are the wise and virtuous judges and juries of benefits amounting to more than $1 trillion every year. How �honorable� would they be, pray tell, without Federal Reserve assistance in financing the deficits and its power to print more money?
Evil acts tend to breed more evil acts. Inflationary policies conducted for long periods of time not only foster the growth of government but also depress economic activity. Standards of living may stagnate or even decline as growing budget deficits thwart capital accumulation and investment that are sustaining the standards. Inflation misleads businessmen in their investment decisions, which causes much waste and many bankruptcies. In fact, it is the root cause of the boom-and-bust cycle which wreaks havoc on economic activity. Indeed, inflation breeds many evils of which most Americans are unaware.
Since 1971 when President Nixon abolished the last vestiges of the gold standard and repudiated all obligations to meet international obligations with payments in gold, the U.S. dollar has been the dominant world currency. It enables Americans to buy massive quantities of foreign goods and services, suffering annual trade deficits of more than half a trillion dollars now, and making payment in ever-depreciating dollars. Foreign central and commercial banks as well as many foreign individuals are using their dollars with the hope that they will retain their purchasing power in the long run. Asian creditors are holding more than $2 trillion in claims, Japan and China alone an estimated $1.5 trillion between them. A dollar depreciation rate of just 3 percent strips Japan and China of some $45 billion in purchasing power every year. They undoubtedly are suffering such losses in silence because they are mindful of the many benefits they are receiving from amicable relations with the United States. American capital is rushing into China, building many plants and introducing modern technology while some 20,000 young Chinese are studying at American colleges and universities. At the same time Japanese and Chinese companies are investing surplus dollars in the United States, assuming control over American corporations. If the United States government should ever disrupt this peaceful relationship with discriminatory trade restrictions and painful barriers, the Asian creditors may dump some dollar holdings. The dollar crash would be heard around the globe.
There is no conscience in politics. Economic policies may be changed, reformed, and readjusted because they are ineffective, unproductive, and unpopular, but rarely ever because they are immoral. Debt may be a grievous bondage to an honorable man, but it may be a �national bond� which, in President Roosevelt�s words, �is owed not only by the nation but also to the nation.� Surely, politicians have a code of laws to observe and obey, but honesty in matters of debt and money is not one of them.
If it is true that we cannot do wrong without suffering wrong, we must brace for more grief to come.
June 24, 2005
Dr. Hans F. Sennholz was professor and chairman of the department of economics at Grove City College.
Inflation and the Federal Reserve:
The Consequences of Political Money Supply
by Lawrence H. White
Lawrence H. White is assistant professor of economics at New York University.
Executive Summary
Lately the supply of money has become, even more than usual, an object of considerable concern and indignation in Washington. The supplier of money, the Federal Reserve System, has come under heavy fire from all sides.
Treasury Secretary Donald T. Regan opened the barrage last summer by criticizing Fed money creation as too meager. In January he complained that money supply growth had been excessive in past weeks, and too volatile overall in past months. In December, Sen. Howard Baker expressed personally to Federal Reserve Board Chairman Paul Volcker the opinion of some congressional leaders that overly restrictive Fed policy was worsening the recession. At a January press conference President Reagan complained that excessive monetary growth, as experienced in the previous month, "sends, I think, the wrong signal to the money markets," undermining business confidence that inflation will slow down, though he has since spoken more positively of Volcker's policies. Rep. Jack Kemp, the leading congressional supply-sider, has gone so far as to demand that Volcker step down, on the grounds that the Fed has been overly devoted to slowing inflation through tight money.
There indeed has been much to criticize in Federal Reserve behavior. It is clear from the numbers that the Fed's policy has been both expansionary and erratic. The basic M-1 measure of the money stock (cash plus checking accounts) rose at an incredible 26% annual rate between December 1981 and January 1982, even when we average the M-1 figures for the four weeks preceding December 23 and January 20 to include the decline in M-1 in the week preceding January 20. This monetary explosion began back in late October 1981.
For last year as a whole, M-1 (then called M-1B) grew by the less extreme but still price-boosting rate of 4.6%. This included a burst of 23.8% annualized growth between early February and late April, in addition to the recent increase, with some weeks of actual shrinkage intervening. Going back a bit further, the Fed expanded M-1 interruptedly for seven months from late April to late November 1980 at an annual rate of 15%.[1]
Few of us need to be reminded what has happened to the value of our cash holdings in recent years. The numbers are dismaying. In the three months prior to September 1981, consumer prices for all items except food and energy rose at a 15.2% annual rate. During the 12-month period ending last October, the purchasing power of the dollar -- as measured by the 10.2% rise in general consumer prices -- shrank by a tenth. In the year prior to that period, consumer prices rose 12.2%. Since 1967 the dollar's value has shrunk to less than 36 cents.[2]
Why have overall prices behaved in this way? The basic immediate cause is evident: The value of the dollar has been diluted by progressive additions made to the number of dollars (the stock of money) in circulation. The M-1 money stock was expanded at an average annual rate of 6.1% between 1970 and 1975; prices rose at a 6.5% rate. Money averaged 7.1% annual growth between 1975 and 1980; prices grew at a 7.2% rate [3]
Blame for our nation's erratic inflation, then, belongs squarely on the shoulders of our nation's monetary authority. The Fed's actions are responsible for the rate of growth of the total stock of dollars, and hence are responsible for the rate of dilution of the purchasing power of each existing dollar -- the rate of price inflation. Changes in the willingness of the public to hold onto various forms of dollars, or changes in banking practices, may temporarily divert the rate of inflation from its appointed path, but over the longer haul (say, six months to a year) the predominance of the Fed is virtually complete. Other explanations of persistently rising prices simply do not wash.
Why has the Fed behaved in this way? There is not wide agreement among economists as to the best answer to this question. The answer differs depending on whether the analyst wants to explain the Fed's actions taken last week, or a pattern of actions taken week-to-week over the past few years, or, more fundamentally, the overall behavior of the institution in the decades since its inception. We address ourselves here to this last concern. If we wish to understand the root cause of our erratic inflation, we must ask why the Fed is fundamentally prone to pursue a policy of uneven monetary expansion. There is a serious danger in focusing myopically on the monetary growth rates of last week, last month, or even last year: We may lose sight of the more important and enduring trends in money and prices. Also, we may overemphasize such cosmetic changes as the October 1979 guidelines emphasizing monetary targets over interest rate targets.
It is the institution of the Federal Reserve System that is responsible for our monetary disorder. Monetary trends cannot be explained merely by the personalities of the Fed chairman, the Board of Governors, or the Open Market Investment Committee. Personnel changes in the last decade have had no perceptible impact on Fed policy, whatever the changes in rhetoric. Monetary trends cannot be corrected, despite Rep. Kemp's apparent wish to believe the contrary, merely by substituting new faces for old. Nor are we likely to accomplish much by bestowing yet more free advice on those now in charge. In order to understand what has happened to our money, and especially to find a remedy, we must look to the incentives and constraints effectively acting upon the suppliers of money.
Originally posted by pkcRAISTLIN
yeah, because virtually every economist on the planet is also "ignorant"
Most peole are pretty ignorant, regardless of status and degrees. Infact, the 'intellectual' elite are the most indoctrinated class in today's 'democratic' societies. Knowing a whole lot about nothing might impress your average wannabe 'intellectual,' but not everyone is obsessed with class, status, and superficial recognition. Since you seem to respect Chomsky so much, perhaps you should give more thought on this point where we are in agreement.
Posted by Trancer-X on Jan-25-2008 01:44:
economists? lol
May 1998
Volume 16, Number 5
Perils of the Dollar Standard
by Jeffrey M. Herbener
Winter's economic crisis in Asia was blamed on "go-go capitalism" and "crony capitalism," but those explanations don't get to the root cause. The Asian meltdown stems from structural defects deep within the world monetary system itself. These are defects that no amount of bailouts, exchange controls, IMF power, or even U.S. monetary discipline can repair.
Crushing price inflation in Indonesia most dramatically illustrates the monetary dimension. From the summer 1997 to early 1998, the rupiah lost 75 percent of its purchasing power against the dollar and domestic prices for basic necessities skyrocketed. Rice was up 36 percent, cooking oil 40 percent, milk 50 percent, and electricity 200 percent. This sparked runs on stores, a drought of investment, growing exodus of businesses, a collapse of the banking system, massive layoffs, violence and riots, soaring interest rates, and sinking stock and real estate markets.
The Suharto regime froze prices for basic foodstuffs, mandated wage increases, allowed a few bank mergers, sent troops into the streets to quell unrest, and suggested a debt moratorium. The IMF pressed Indonesia to raise taxes to balance its budget, adopt American-style bankruptcy laws, and bail out bad debt to the tune of $43 billion. But this Suharto-IMF onslaught only aggravated a desperate situation by short-circuiting market forces.
If it hasn't helped Indonesia, what is the point of the IMF plan? It is designed to enforce the international dollar-reserve system deemed essential to U.S. interests. U.S. banks and companies will be relieved of some of their losses by the massive bailout. But more importantly, the IMF is part of the attempt to maintain American monetary and economic hegemony by ensuring that the ravages of price inflation stay far from America's shores.
This is no mean feat considering the massive monetary and credit expansion engineered by the Federal Reserve in the 1990s "global" boom. From the end of 1990 to the end of 1996, the Fed used its open market operations to increase the monetary base (MB), which is currency plus bank reserves, by 55 percent. Currency itself increased 60 percent.
Only a corresponding increase in money demand can forestall price inflation once monetary inflation of this magnitude has been set in motion. But growth rates of the American economy--not high by historical standards--have been insufficient to absorb this monetary inflation and bring about the current low, and even falling, rates of price inflation. The greater money demand has come overseas as the U.S. has asserted the dollar's status as the world's reserve currency.
The dollar-reserve system of the "global economy" of the 1990s is the resurrection of the Bretton Woods system without gold. Under the "gold-reserve" system of Bretton Woods, each country's currency had a fixed exchange rate against the dollar and foreign governments could redeem the dollar at the U.S. Treasury for gold at the fixed rate of $35 an ounce.
The arrangement forced a coordinated monetary and credit inflation among the member countries at a rate determined by the Federal Reserve. Any rogue nation intent on excessive monetary inflation would be punished by devaluation and domestic price inflation, and the attendant problems now being suffered by the Indonesians. Just the threat of such a catastrophe was normally sufficient to induce the profligate nation to curtail its liberal monetary inflation.
The linchpin of the Bretton Woods agreement was the fixed rate of redemption between the dollar and gold. The Fed broke this link by accelerating monetary inflation in the 1960s to help finance expenditures for the Great Society and Vietnam war.
From the beginning of 1960 to the end of 1964, the Fed increased the money base 3 percent per year, but from the beginning of 1965 to the end of 1970, the Fed more than doubled the rate of increase to 6.3 percent. The average annual rate of price inflation went from 1.3 percent in the earlier period to 4.2 percent in the latter one.
Recognizing that the monetary inflation was reducing the purchasing power of the dollar sufficiently to make the fixed rate between the dollar and gold untenable, foreign governments began to cash in dollars at the U.S. Treasury for gold.
When Nixon reneged on the U.S. promise to exchange dollars for gold to foreign governments at $35 an ounce in 1971, foreigners dumped dollars in anticipation of an official devaluation to bring the dollar's official exchange rate in line with its, much lower, market-determined purchasing power.
The sudden reduction in money demand brought devaluation and, as the dollars were repatriated, domestic price inflation. By 1973, the dollar had devalued 18 percent and annual price inflation rates averaged 6.8 percent from 1971 to 1974. As the dollar lost its purchasing power, interest rates rose to compensate lenders for the reduced value of dollars they would receive in the future. The 3-month Treasury bill rate went from 4.1 percent in 1971 to 7.9 percent in 1974; the 10-year Treasury bond rate jumped from 6.1 percent in 1971 to 8 percent in 1975.
Higher interest rates caused capital values to collapse and the ensuing losses led to bankruptcies and rising unemployment. From late 1972 to late 1974, the Dow fell 45 percent; unemployment rose from 3.5 percent in 1970 to 8.5 percent by late 1975. The Nixon administration responded to the crisis with price controls, changes in bank regulations and bankruptcy laws, and more Fed inflation.
After increasing the monetary base 8.7 percent per year from 1971-1974, the Fed accelerated the rate to 10.4 percent from 1975 to 1981.But after the debacle of the first half of the 1970s, it was difficult to convince foreigners to hold more dollars as reserve. Accelerating monetary and credit inflation by the Fed led immediately to severe domestic price inflation (average annual rates of 11.2 percent), soaring interest rates (peaking in 1981 at a 14 percent 3-month), collapsing capital values (from 1976 to 1982, the Dow lost 22 percent and stood at 774 in 1982), and higher unemployment (peaking at 9.7 percent in 1982, a rate not seen since 1941).
This entire scenario is precisely the reverse of the American economy in the 1990s. From 1982 through 1990, the dollar began to regain its status as the world's reserve currency. The Fed expanded the monetary base 11 percent per year in the 1980s, but the demand to hold dollars overseas helped soak up the monetary inflation and the American economy experienced economic growth with low levels of price inflation. The annual rate of price inflation was only 5.9 percent. But the improved performance of the economy in the 1980s was only a foretaste of the renaissance of dollar dominance in the world.
American supremacy in the wake of the collapse of communism allowed the Fed to fully exploit the international dollar reserve system. The new system opened up a vast new vista for overseas dollar holdings. From Russia and Eastern Europe to China and East Asia, the governments of former communist countries began to soak up dollars to hold as official reserves as they became part of the American, "global" system. From the beginning of 1991 to the end of 1996, the Fed increased the MB 9.1 percent per year, while price inflation ran only 3.6 percent annually.
The new regime differs from Bretton Woods in the absence of a link between the dollar and gold. Without the fetter of gold reserves and redemption commitments of dollars for gold binding it, the Fed has no objective constraint in determining the rate of dollar inflation.
But like Bretton Woods, the new regime depends on foreigners' willingness to hold dollars and use them as the basis for their own domestic monetary inflation and credit expansion. Only with harmonized monetary policies can the system survive.
Any country trying to take advantage of the fixed exchange rate of its currency against the dollar by excessive domestic monetary inflation and credit expansion will be punished, as under Bretton Woods, with devaluation and domestic price inflation.
But therein lies the great danger of the system to the American economy. A rogue nation will be tempted to defend its currency, and stave off devaluation, by spending its dollar reserves. Any significant disgorging of dollars would threaten to ignite price inflation in America if the dollars were repatriated. Significant domestic price inflation would, at best, bring a repeat of the 1970s, and, at worst, a hyperinflation.
This danger explains the U.S. interest in promoting IMF austerity policies and bailouts. The bailouts are intended to soften the blow of devaluation and price inflation. In exchange for taxpayers subsidizing banks and large corporations, and other key beneficiaries of the system, the IMF can use the bailout money as leverage to impose conditions favorable for the future of the dollar-reserve system.
One condition the IMF has imposed across Asia is for the recipient country to establish an "independent" central bank, i.e., one independent of local political control, and therefore at liberty to harmonize monetary policy with the Federal Reserve. Other conditions concern fiscal policy consistent with much lower rates of domestic monetary inflation, ones that allow stable exchange rates between domestic currencies and the dollar: raising taxes, restricting spending, balancing budgets. The remaining conditions address the hemorrhaging bankruptcies and collapsing financial systems across Asia.
In the last three years, the system has faced a $50 billion bailout of Mexico, a $57 billion bailout of South Korea, $43 billion for Indonesia, $18 billion for Thailand, for a total of $118 billion in Asia (some estimate that it will eventually rise to $160 billion) to fend off its own destruction. But by delaying the day of reckoning with bailouts, the international mountain of dollars and debt grows, making the inevitable collapse all the more devastating.
Will the system be able to prevent disgorging of dollar reserves to fend off Asian-style financial debacles in China, South America, Russia, and a repeat performance in Mexico? If the euro becomes the common currency of the EU, what will happen if its members replace their dollar reserves with euros? And if Japan recovers, what will happen if the yen becomes the reserve currency across Asia?
The Fed has overseen the best of times for the American economy in the 1990s, a period of rapid monetary inflation and credit expansion with current benefits of low interest rates, high earnings, soaring capital values, low unemployment, and steady economic growth. It has come courtesy of foreigners who have absorbed enormous quantities of dollars and, in so doing, kept U.S. price inflation at bay.
If Fed and Treasury officials seem tired and hypersensitive about their every remark these days, maybe they realize the worst of times must be the future cost to be paid when U.S. dollar hegemony wanes.
-----------------
Jeffrey Herbener teaches economics at Grove City College.
good articles, but neither seem to advocate the return to a gold standard.
and neither address the problems a gold standard creates either.
quote:
Most peole are pretty ignorant, regardless of status and degrees. Infact, the 'intellectual' elite are the most indoctrinated class in today's 'democratic' societies. Knowing a whole lot about nothing might impress your average wannabe 'intellectual,' but not everyone is obsessed with class, status, and superficial recognition. Since you seem to respect Chomsky so much, perhaps you should give more thought on this point where we are in agreement.
well then, who DO you think should be commenting on economics matters if its not economists? if you went in for surgery would you want a doctor or cleaner doing the work?
asides from its anti-inflationary prospects, i see nothing that is good about a gold standard. there are many other things that can go wrong with an economy asides from inflation. and nobody has even attempted to address them here.
Posted by Lebezniatnikov on Jan-25-2008 01:51:
quote:
Originally posted by Trancer-X
3. and require the Fed to televise its meetings.
I'm looking in my Pocket Constitution for where this is mandated, and I can't seem to find it. Could a Ron Paul supporter help me out here?
Posted by shaolin_Z on Jan-25-2008 01:55:
quote:
Originally posted by pkcRAISTLIN
good articles, but neither seem to advocate the return to a gold standard.
and neither address the problems a gold standard creates either.
well then, who DO you think should be commenting on economics matters if its not economists? if you went in for surgery would you want a doctor or cleaner doing the work?
asides from its anti-inflationary prospects, i see nothing that is good about a gold standard. there are many other things that can go wrong with an economy asides from inflation. and nobody has even attempted to address them here.
I'm not proposing a gold standard since I haven't done much research about it's stability and feasability. In fact, I'm not proposing any alternative at the moment. What I am proposing is that fiat currency in combination with an intereset based banking system, particularly fractional reserve banking, will always perpetuate increasing debt and devalutation of currency. The costs are imposed socialy and gets worse generationaly.
Posted by pkcRAISTLIN on Jan-25-2008 01:57:
quote:
Originally posted by shaolin_Z
I'm not proposing a gold standard since I haven't done much research about it's stability and feasability. In fact, I'm not proposing any alternative at the moment. What I am proposing is that fiat currency in combination with an intereset based banking system, particularly fractional reserve banking, will always perpetuate increasing debt and devalutation of currency. The costs are imposed socialy and gets worse generationaly.
oh, i wasn't saying that you were. just that most of the talk in here does relate to returning to a gold standard and im still waiting for those to defend the problems inherent with it.
Posted by Krypton on Jan-25-2008 02:01:
Yea, I don't think I'm so gung ho about changing to a precious metal standard anymore...
What needs to be changed is government spending, which can cause inflation and economic calamities. I don't think the problem is so much the fiat currency itself. Fiat currency, when used responsibly, is better than a precious metal pegged currency.
