Bye Bye Barry by Joel S. Hirschhorn (Centrist Liberal Libertarian)
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Topic: Economics
Money Q&A For Dummies Some money fundamentals that will help in understanding how the Federal Reserve has taken us to the brink of disaster and being a third world country.by Ivan from Oregon
(Libertarian)
Tuesday, January 29, 2008
Q: What is money? A: Something generally accepted as a medium of exchange, a measure of value, or a means of payment. (Webster)
Q: Why was money invented? A: Money was invented to get around the inconvenience of barter. Example: I grow potatoes and you raise chickens. I want to trade you a bag of potatoes for a chicken. You have enough potatoes, but may want some more in the future, so you exchange the chicken for an "IOU" from me for one bag of potatoes. But now your boots need repair, so you go to the cobbler, who takes as payment my IOU for one bag of potatoes because he trusts me to deliver on my promise. We have now created paper money and satisfied the dictionary definition: we used the IOU as a medium of exchange, we established a value (one IvanIOU is redeemable for a bag of potatoes) and the money is used for payment. Notice that this money works only if all three of us have confidence in it. This kind of money is called currency.
Q: What makes good money? A: The money in our previous example has obvious flaws: it is not widely accepted and is not a good store of value (potatoes rot and not everyone eats potatoes). Over the millennia, precious metals have been accepted as money, but other systems have had brief success, such as the tally stick in England, decreed by the King to be the official money. The tally stick could not be forged, but the system fell apart when it was not accepted by any other nation. Ultimately money has to be some durable form of value, such as gold or silver coin, or paper "IOU's" (called a "note") redeemable for some value.
Q: Is all money currency? A: No, only a small portion is currency. Other forms of money are paper such as checks, or simply ledger entries.
Q: What is inflation and is it a new phenomenon? A: Inflation has been with us since the invention of money. In ancient times it was caused by "shaving" some of the precious metal from coins, or melting them down and creating coin with an alloy containing less of the precious metal. Inflation happens when the amount of money exceeds the value it's supposed to represent and therefore more units of the money are required to realize the value, i.e., prices go up.
Q: There's only so much gold and silver, what if there's not enough money? A: The exact opposite of inflation, called deflation. The value of the money goes up so that it buys more, i.e., prices go down. If this happens too fast, it can cause problems. The amount of money should be increased in correspondence with the increased value in the economy.
Q: How do we create money today? A: Contrary to the Constitution, the Congress has delegated the creation of money to a private corporation called the Federal Reserve, which is neither federal nor a reserve. It creates money at the push of a button by creating "credit" and charging interest on it. The banks use this "credit line" to lend money (at interest). Some of this credit money is used to buy government bonds, on which interest is paid also. Further money is created by the banks in "fractional reserve" banking and other shenanigans called "derivatives".
Q: Why is this a problem? A: The first problem is that money is "created" by borrowing it at interest. The Constitution empowers the Congress to create money. The Congress can do this without having to pay interest on the created money. The Constitution also mandates that our money be based on gold and silver to prevent the Congress from doing what the Fed has done to our dollar, which is now worth only 4 cents compared to its worth when the Fed was created in 1913. If money can only be created as a debt with interest, the debt can never be repaid, because the money to pay the interest has now to be borrowed at interest. All of our personal income tax that is collected goes to pay the interest on the debt. Secondly, if the debt were to be repaid, there would be no money and everything would come to a screeching halt. The second problem is that the dollar is now based on nothing but air. This started with Roosevelt when he stole everyone's gold and abrogated redemption of dollars for gold domestically. Nixon finished the dollar off by repudiating redemption in gold internationally. (In case you didn't know, a "dollar" is a measure of weight.) Our geniuses in the Fed have taken us to the brink of a dollar collapse and descent into third world status. Historically, attempts to salvage situations like this have always led to war. Empires collapse because of money.
Q: So what do we do now? A: I thought you'd never ask. The answer is obvious - elect Ron Paul who understands all this, unlike the other bozos vying for that office. That's the first big step. We also need to fill up the Congress and local governments with representatives who also genuinely want to take us back to liberty. There can be no liberty without honest money. Watch out for a $264,000 full page ad in the Wall Street Journal, Thursday, January 31, 2008, headlined "ANYBODY SEEN OUR GOLD?"
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2008 Ivan from Oregon, all rights reserved.
Published: Tuesday, January 29, 2008
Last modified: Sunday, February 24, 2008
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Might I point out two issues? First, section eight of article one does not state the Federal Government or Legislature may only mint gold or silver. The ONLY place you even find the word "gold" in the Constitution is Section 10 , Article 1:
"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."
This is just a list of things states cannot do that the government CAN do. The Consitution says nothing about what to base the money upon, period, ANYWHERE, in it's original form.
Secondly, the gold standard is not without problems of it's own. You should probably try reading defintitions of the Gold Standard on Wikipedia or Brittanica before throwing up the suggestion that paper currency is inheriently based on credit and is valueless. That's the Austrian School of Economics thought train, a pattern of economic thought that is prone to assumptions, fixating on "common sense" and ignoring both historical trends and changing realities in monetary theory and fiscal policy, and most of all more concerned with "how things are done" than their eventual effects.
I thumbed the articles, it's a good layman's tool, but you should expand it out further, I think, to make it balanced.
Posted By: Ivan from Oregon
Date: 2008-01-29 16:49:08
Dear Logical,
I never said that Article 1, section 8 says to coin gold or silver - it says "coin money". Where Section 10 prohibits the states anyting but gold or silver coin for payment of debt, tortuous logic would say that the feds can create money (based on nothing) that the states cannot use. Logic would then allow the states to create their own money. This was clearly not the intent.
To educate yourself further, read the memorandum of law by Constitutional attorney Larry Becraft at
http://home.hiwaay.net/~becraft/MONEYbrief.html
NO, I will read the CONSTITUTION, not some clown's personal website. Anyone can come up with a constitutional lawyer who will intepret things how they see fit. I can probably find one that says , well, if people aren't in a Militia, they can't have guns. It's "logical" in the same way your assertion is, sir.
See, this is the problem with Libertarians. You mention the Consitution and how it has to be upheld, strictly. Then when you get called on it, you say "well it MEANS this". You don't get called on it very often because Libs and Neocons are too busy raping the document to have any moral high ground, but still.
Logically, it says "states can't create any money, if they want to submit something else in place of money it must be silver or gold." If you seriously think that the founders would have left this nuanced when every OTHER idea in the Constitution was clearly spelled out, then you're not using logic. Section 10 was basically saying "You can't make up your own money". There is absolutely NOTHING in the Consitution that limits the Federal Government's power in this regard.
If you want to belive going back to the gold standard will solve our economic woes, good on you. I wish you the best of luck with it. As for me, I don't try to fix my own car when I'm not a mechanic based on advice from Uncle Ed. I don't try to do surgery on myself based on a butcher. I don't try to change up a monetary policy that's working based off a OB/GYN's advice, and a bunch of out-of-touch, Ayn Rand following economists who think this is the 1850's. Dr. Paul has some good points in areas, but this isn't one, and trying to claim that this is "what the founders intended" is as intellectually dishonest as you can get, sir.
Posted By: Ivan from Oregon
Date: 2008-01-29 17:20:09
Dear Logical, read section 10 again:
"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."
Note that the states may not "coin money" nor "make any Thing but gold and silver Coin a Tender in Payment of debts".
Just where are they to go for their money?
Posted By: patrick henry
Date: 2008-01-30 12:59:28
Logic,
your assertion in regards to the 2nd ammendmant makes what sense I do not know. It clearly states that "The right of the people to keep and bear arms shall not be infringed". Seems cut and dry to me, so the militia arguement flies like a lead balloon. As far as coining money goes, only Congress has the authority to do so (not the Fed, though Congress userped its duty to do so in the Federal Reserve Act of 1913). As far as the initial intent of the Founders, simple, try reading a book without pictures and polysyllabic words in it. Thousands of books have been written about them and even a few of them knew how to right and wrote AUTOBIOGRAPHY's (That's a book about yourself) So to think that we cannot know what the Founders intent is well pretty silly and ignorant.
As far as following Rand, Mises, Cato and Greenspan (just to name a few advocates of the Gold Standard) NOBELORIATE economist is not like consulting a butcher for surgery, it like consulting the best, most recognized surgeons in the industry. They do it for a living everyday, but hey they dont know sh-t on you.
Look at the value of gold vs oil in 2000 then look at the value of the dollar vs. oil. Hey I tell you what I will gladly exchange all my fiat dollars to you for market value in Gold or Silver. OBTW gold has gone up over $120 an oz in the last 5 weeks, your dollars have devalued themselves over 400% in the last 7 years. Yeah paper vs gold sounds smart, but not to those of us who can add
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2008 Ivan from Oregon, all rights reserved.