Topic: Monetary Policy
Federal Reserve "Stimulates" Economy Again, Market Continues To Fall Will the American people finally realize that only Ron Paul is accurately addressing our monetary crisis and its root causes in time for Super Duper Tuesday? It's unlikely, but we can still hope.by Walt Thiessen
(Libertarian)
Tuesday, January 22, 2008
For two days in a row now, I've written two articles here and here claiming that Ron Paul is correct in his evaluation of the Federal Reserve and the detrimental effect that it continues to have on the finances of the American people. Today this, my third article points out that the Fed reaffirmed the correctness of our analysis by initiating the largest single cut in the discount rate in nearly 15 years.
The news is out that the Fed has once again cut the discount rate, but this time by 3/4 of a point. There have been no cuts this big since 1994. Typical past Fed cuts have been in the 1/4 point area. For those who don't fully understand what this means, a Fed rate cut means that they are "stimulating" the economy once again, which is another way of saying that they are creating money out of thin air, which makes all the existing money worth less. This causes inflation. In fact, it is inflation, although we don't see the results of the inflation right away. Instead, it guarantees that we will continue to see prices rise in the months ahead, when some of us finally recognize it to be inflation. The fact that the Fed have tripled the amount of past cuts shows that such stimulation is no longer producing the short term benefits it has produced in the past. That's really bad, because it means that the Fed gravy train is likely coming to an end, and it's likely to be a very bad end indeed.
Further, speculation on Wall Street is that the Fed is going to initiate another (possibly bigger) rate cut a week from now. If this happens, it will prove what we've been claiming all along. The dollar is in full flight, the American people are in deep financial trouble, and the government is doing its best to bankrupt itself (while simultaneously proclaiming that "all is well"). We desparately need Ron Paul's hard money policies before America is plunged into a full, deep depression.
The Wall Street Journal, a long-time bastion of conservative economic head-burying, says "Treasury Secretary Henry Paulson said Tuesday he is optimistic that the Bush administration can work with congressional leaders to quickly enact a temporary fiscal stimulus package this winter." The article goes on to attribute to Paulson a comment that, "A package that falls short of approximating 1% of gross domestic product won't be effective, he said. 'I look forward to engaging intensely with the Congress to get money into our economy quickly,' he said.'"
This is what I (and others) have been talking about when we say that the Federal Reserve, in cooperation with the Federal Government, work together to increase the money supply as a means to stimulating the economy. What's new here is that there is now a level of panic in their deliberations and public statements. When such high amounts of economic interference are announced, and the result leads to a market decline rather than an increase, it means that the market itself believes that such efforts are already overextended and won't work. It means that disaster is around the corner.
The act of cutting the discount rate is the act of printing money out of thin air. In short, the Fed believes it can print its way out of this crisis, and it is rumored that it will continue to follow their bankrupcy-making policies again a week from now. Their panic is clearly evident.
The Statist, another columnist on this website, will undoubtedly post more comments claiming that I don't understand economics and that I'm crying that the sky is falling, or something to that effect. I say that it is he who doesn't understand economics, but even worse he does not understand the nature of prosperity. Ultimately, what he and others of his kind are arguing for is the idea that when the dollar declines, we are not injured. He claimed in comment of my last article that we are the richest country in the world and that we don't need to have a strong currency. In essence, he argues that less is more, and that therefore we are still prosperous when the dollar declines.
Ron Paul and I, on the other hand, argue that less is less and that more is more. The difference between The Statist's attitude and our attitude could not be starker. It is the choice between politics and economics as usual on the one hand, where the majority lose and a minority win, or a change in economics to a hard money policy where we all win. The Statist argues for settling for less and being happy about it. Ron Paul and I argue that abundance is our birthright as human beings (all human beings, not just Americans), and that abundance can and should be spread to all people in all nations via strong, reliable, and resilient common currencies. Gold currencies meet this test and indeed pass it with flying colors, so long as they are permitted to operate freely in the marketplace without arbitrary government regulations such as legally restricted gold prices and gold redemption prices to hinder them.
Opponents of hard money often point to the failure of the old gold standard as a reason for opposing its use, but it wasn't gold that was at fault. It wasn't gold that failed. It was the government fixing of gold's redemption price that caused all the problems while enabling the Fed and the government to inflate money to satisfy government's ongoing hunger to consume more and more resources in pursuit of ever-greater statism. Setting the price of gold at some arbitrary dollar figure undermines hard money and gives government the power to print money out of thin air. That's what destroyed gold as a currency, not gold itself.
That's why Dr. Paul has repeatedly called for competitive currencies based in gold and other commodities. That's why I called yesterday for the repeal of the U.S. Code that makes it illegal for competition to the dollar to arise in this country.
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2008 Walt Thiessen, all rights reserved.
Published: Tuesday, January 22, 2008
Last modified: Tuesday, January 22, 2008
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I believe the Statist just likes to be the devils advocate. He's a lot like my little brother. Really, really smart...but not a lick of common sense. He refuses to open his eyes and see the horrors laid out before him. Ignore him, he is lost and doesn't want to be saved. Either that, or he's so rich he doesn't care if the dollar gets devauled because he has so many. He embodies pure selfishness and presents an attitude of "whatever, as long as I don't have to change my life." Write him off, it's worthless to try and save him.
Insofar as the dollar goes and hard assets to back it: I'm all for it. It's time to start getting back to some fundamental basics that seems to have eluded the majority of politicians and the likes of the statist. If we don't, we will be forced back into using the barter system to procure goods and services because nobody will want the dollar..it'll be worthless. I, too, hope that the rest of America can wake up in time to salvage something of our former glory. But looking at the last several elections, I'm not holding my breath. Buy some canned goods, invest in assets that aren't backed by the dollar, and hold on for a rough year...this is going to get nasty.
"All the perplexities, confusion and distress in America arise, not from defects of the Constitution or Confederation; not from any want of honor or virtue, as much as downright ignorance of the nature of coin, credit and circulation." John Adams wrote to Thomas Jefferson in 1797.
Today, two hundred years later, his statement still holds true. And because of this the United Stats has allowed and continues to allow the Federal Reserve, a paper corporation, to control the flow of money; making it tight and creating unemployment or printing more and creates inflation.
Article I, Section 8, Clause 5 of the United States Constitution states that the Congress shall have the power to coin money and regulate the value thereof and of any foreign coins. As you may know, this is not the case anymore. The United States government has no power to issue money, control the flow of money, or to even distribute it; that belongs to a private corporation registered in the State of Delaware, the Federal Reserve Bank, created by Congress in 1913.
Former presidents Jefferson and Jackson believed a central bank is not only unconstitutional but also causes inflation by printing money with no backing causing US citizens to issue treasury bills to support the created money. Unfortunately it is our children that pay for the treasury bills we issue to prop up the markets. Any money the Fed releases to "curb market jitters over sub-prime woes" is a tax on unborn children who will be paying the interest on the debt we have accrued.
And every time the Fed injects more money into the system, then you have more money chasing the same number of goods which causes inflation, making the situation worse later on. Inflation comes from the uneven change in the volume of money, say, when it is printed and given to a defense contractor. For the moment the contractor's suppliers do not realize the money volume has changed, the recipient of the printed money experiences increased purchasing power. The workers end up receiving the wage in old money, but then are faced with prices in the new money after the vendors adjust to the new money supply. Inflation is the enemy of our prosperity as it causes the cost of living to go up faster than the pay increase for the large majority of people.
Generations ago it was free for citizens to turn their gold and silver into money; this increased the money supply as a wealth to the people. Now dollars are created out of thin air and loaned into circulation as debt against future production, not exchanged into circulation as production performed. Money has been switched from an evidence of wealth to an evidence of debt. The whole principle and function of money has been switched!
Thomas Jefferson was concise in his early warning to the American nation, "If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
Back in 1963, then president John Kennedy wanted an end to the Federal Reserve System and with a simple stroke of the pen he ordered the U.S. government to restore its Constitutional mandate of controlling the money. President Kennedy was dead three weeks later. When President Lyndon Johnson took office, he immediately rescinded Kennedy's order and the Federal Reserve won another round.
Your reasoned response to the self-promoting antagonistic condescention that vaguely resembles journalism will likely solicit more of the same. There are many examples of misguided and/or wasted intellect on the web, and this site is hosting a couple of prime examples.
I believe most of us read in order to be informed, educated, or entertained. When we recognize that some writers are simply attempting to solicit controversy in order to garner attention, perhaps to nurture some egotistical deficiency, we can move on to the more informative, constructive material.
I understand your concerns, I am just pointing out that the average voter sees this issue as boring and a little panicy. If Ron Paul wants to win he has to appear exciting to the average voter. This issue is a little silly in America's eyes. The point is our government is broke, but our private sector is thriving. The market will recover, you can still get rich, and the sky is not fallisng. What we need to consider is how much change would hapen if we did back our currency with anything. We have not seen Hyperinflation in this country, that doesn't mean we can't. But to act like this is an issue that you can see so much evidence is a little silly. If America was not a rich nation, then why do we lead the worldin almost every aspect. Our moovies are translated, Subtitled, and shown arround the world. Everyone loves something about America. Dubai and other wealthy Arab nations have built themselves up like America has. The problem is that there are not enough of us Libertarians in teaching positions. Most people think with emotion rather than reason. We are leading a losing effort. Socialism has been battled by the likes of Rush Limbaugh, Neal Boortz, and many other Conservative and Libertarian voices. This year the American people are more than likely going to vote in a socialist minded centrist form the democratic party. I hate this, but libertarianism is in the minority. The church is the biggest reason why.
The proof that you provide, Statist, is that people from other countries, copy our way of life (which is actually a fictional way of life created by a writer, and profited on by a producer, or CEO of some corporation to make people buy more shit that they don't need). Coca-cola, Levis jeans, leather jackets and cowboy boots. Those corporations sure are thriving. What about the 50,000 people (not an actual number, but probably not far off) who were laid off of their jobs at those companies? Sure the private sector (CEOs, Shareholders, etc.) is thriving. While the workers make less and pay more. The sky may not be falling but my savings, checking and retirement accounts sure as Hell are.
I'm not sure I'd go even close to saying private sector is thriving. Now if you'd want to say that a small section (mostly multi-national corporations) are thriving, I'd agree. The small section with enough money and lobbyists to tilt the market to their benefits.
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2008 Walt Thiessen, all rights reserved.