This article is in response to Chris Espinal's essay, Fed Reserve Fallacy. In it I show just how misleading monetary policy truly is for the average American. by Walt Thiessen
(libertarian)
Wednesday, February 13, 2008
Christopher Espinal's essay published earlier today, "Fed Reserve Fallacy" is irresponsible. In it, he deliberately avoided the real issues involved. Like the famed wizard operating his fire and noise machine, he would prefer that Dorothy, the scarecrow, the tin man, and the cowardly lion "pay no attention to that man behind the curtain."
Espinal claimed that, "Everyday people understand that economic injections are financed by debt and will be repaid in the future by taxation of some sort, thus stifling aggregate demand in that time of reference." To the contrary, most people haven't the faintest clue how economic injections are financed, except in a vague sort of way. Most believe that such injections are nothing more than bankers lending money to each other, and they do not fully realize in advance that they themselves will pay for those injections in the long run. Nor do they know in advance how much they will pay. Nor do they realize that such "injections" mean that their own money has just lost value. This is why it has been so important for Ron Paul to talk about the inflation tax. It helps create a concept that most people are unaware of....the idea that monetary inflation costs them personally and dramatically, especially in the long run by which time the source of the inflation has long since been forgotten.
Espinal's distinction between Keynesians and Monetarists regarding how consumers regard expenses vs. income is a red herring. It deliberately overlooks the fact that people do not expect the value of their money to decrease in value because of monetary inflation. Again, this is a concept most people don't really appreciate. Worse, there is very little they can do to prevent the erosion of their dollars. That's why they're always so mystified and feel so powerless whenever price inflation occurs and their cost of living continues to escalate beyond their means.
Espinal wrote: "A growth in the money supply only targets inflation at 2% annualy." Besides the fact that he misspelled the word annually, he also overlooked the fact that targets and what Fed planners actually hit are rarely in congruence with each other. Also, he deliberately ignored the fact that both the Fed and the Treasury department are masking the true inflation rate. Ever since they eliminated M3 from consideration (indeed, from being tracked at all), the policy of the Fed has been to deliberately avoid having to report on real inflation and pretend that inflation rates are a lot lower than they really are.
But most misleading of all is his claim that the Fed is not "a secret system aimed at implementing big government" The truth is that the Federal Reserve System was created by Republican Senate Majority Leader Nelson Aldrich in a series of secret meetings held with bankers JP Morgan, John D. Rockefeller Jr, and Kuhn, Loeb, & Co. and other bankers. Take a look at this Wikipedia article about the Fed.
In 1910, Aldrich and executives representing the banks of J.P. Morgan, Rockefeller, and Kuhn, Loeb, & Co., secluded themselves for 10 days at Jekyll Island, Georgia. The executives included Frank A. Vanderlip, president of the National City Bank of New York, associated with the Rockefellers; Henry Davison, senior partner of J.P. Morgan Company; Charles D. Norton, president of the First National Bank of New York; and Col. Edward House, who would later become President Woodrow Wilson's closest adviser and founder of the Council on Foreign Relations. There, Paul Warburg of Kuhn, Loeb, & Co. directed the proceedings and wrote the primary features of what would be called the Aldrich Plan. Warburg would later write that "The matter of a uniform discount rate (interest rate) was discussed and settled at Jekyll Island." Vanderlip wrote in his 1935 autobiography From Farmboy to Financier :
"I was as secretive, indeed I was as furtive as any conspirator. Discovery, we knew, simply must not happen, or else all our time and effort would have been wasted. If it were to be exposed that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress. I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System."
"Despite meeting in secret, from both the public and the government, the importance of the Jekyll Island meeting was revealed three years after the Federal Reserve Act was passed; when journalist Bertie Charles Forbes wrote an article about the 'hunting trip' in 1916."
How much more secretive can you get than that, Chris?
Espinal wants to know how the Fed serves to support big government. It's easy to understand if you're willing to open your eyes to the truth. The Fed and its monetary tools have enriched the central banking families beyond their wildest dreams, as it continues to do today. In the process, it has made it possible for them to use their tremendous financial clout, in combination with their political connections, to greatly influence our government behind the scenes. As the Wikipedia article says, "The term monetary policy' refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals." In other words, it provides a mechanism for the Federal Government to be able to go deep into debt in order to finance its massive spending programs, a mechanism which did not previously exist in this country. This creates a natural alliance between big government politicians and Federal Reserve Bankers, because the bankers make money every time the government goes into debt.
Espinal does represent his conservatism accurately in comparison to what conservative leaders usually advocate. I hope that the contrast between his article and mine shows readers that true conservatism is not in congruence with the best interests of the American people, particularly where their money is concerned. What we need is a libertarian approach to money, not a misleading, conservative, ivory tower approach which uses vague, high-fallutin' terminology designed to hoodwink and brain-freeze people into believing that "all is well."
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I came across a very educated married couple yesterday, and struck up a conversation with them. I didn't have a whole lot of time so i couldn't dig deep into my bag-o-facts, but, we did begin to discuss Ron Paul and their candidate. Ofcourse, this highly educated couple had not heard of Ron Paul, they even accused me of making his name up! I began to tell them a bit about him, as much as I could in the limited time, in hopes they would be compelled to google his name. I'm sure they did, they seemed fairly open to what i was saying.
I guess my point is this; If you Walt, had not posted this great article and that couple decided to google Ron Paul they might have come across Mr. Espinals article and written a big part of Ron Pauls campaign off. This couple had not even heard of him til I chose to strike up a conversation, if they had decided to look him up and found all the negative stuff only (which is mostly incorrect) without a great article to counter it, the negativity would continue.
So, thank you Walt. You have given my conversation with this couple some credibility. Now, should they decide to objectively view and consider Paul's policies, I do believe WE may have just earned two more votes for Paul here in Texas.
Most people think that because pieces of paper have pictures of old white guys, that it must be money. Most people are thankful that they have a job. This stuff isn't taught in schools. These Fed bozos aren't accountable to anyone when they screw up.
Let's not forget that this traitorous scheme would not have been possible without the 16th amendment. The income tax was needed to pay for the interest on the "loans" (to make the bankers exceedingly rich).
According to the Constitution we as a Nation do not have to "loan" money from a bank. The congress has the only power to coin legal American money. In other words... Federal Reserve notes are unconstitutional.
Posted By: Christopher Espinal
Date: 2008-02-13 16:05:22
No Walt, You are not right on the money.
You learned your non-economics of monetary policy from Conspiracy theorists like Edward Griffen.
Although I don't mind that you and the rest of the pro-gold crowd try to understand Monetary Policy, don't learn it from people like Griffen. This man completely overstates the process of initiation of the Fed Reserve. Was it secret because bankers wanted to take over the world? Or was it secret because it was unconstitutional but an excellent option because Keynes was really a revolutionary economist, who took an interesting approach to macroeconomics.
On the other hand, you completely miss the point of my article. I never said that I agree with monetarism and their view of the consumption function. I said that these guys aren't advocates of accomodating Federal policy. Understanding their form of the consumption function is fundamental to understanding the reason why the FED and its monetarist ideals work in its particular fashion.
Thus, this means that printing money doesn't occur to accomodate spending for the federal government. Monetarists oppose excessive printing. That is the reason why inflation rates were relatively low during the Greenspan era - a prime monetarist in action. It is also the reason why Bernanke wishes to target low inflation rates.
Walt, you are smart. But never learn economics from people who don't understand the overall picture and didn't spend their lives trying to grasp the overall concept behind monetary policy. Griffin is not a macro economist who understands the theories. If you are going to critique macroeconomic policy, critique it from the point of view of the Austrian school. Economists from this school of thought really understand what is going on and they don't have to take a conspiratorial point of view. Rather, they tinker with the complex fundamentals - the equations and derivations that lead monetarists and keynesians to advocate a central bank.
By the way: I spend a lot of time reading up on things and trying to learn about these issues from varying economic perspectives. I'm also working day and night on economic proofs and equations since this is my major at the U of C. For you to call me irresponsible is just rediculuous.
Besides, your sources show that you know nothing of what really goes on. I know that conspiracy theories are exciting to read but these are always compiled by people who don't understand the fundamentals of the philosophy they critique.
Interesting that you allude to the Wizard of Oz, which is an allegory for monetary policy. In the original L Frank Baum novel, dorothy's slippers were silver, not ruby and represented Bimetalism (fixing the price of silver relative to the price of gold).
The scarecrow represented agriculture, the Tin man represented the manufacturing industry, and the Cowardly Lion was William Howard Taft.
FWIW, bimetalism is price-fixing by another name and a bad idea IMHO.
Posted By: Christopher Espinal
Date: 2008-02-13 17:31:52
Wow....To be frank....some of you people are some of the most intellectually dishonest libertarians I have ever met. You learn about the FED without ever learning the economic reasoning behind it. How the hell do you ever expect to be taken seriously by academia when you get your information from people who don't understand issues of economics like Griffen. Seriously, I can see why people see you guys as nuts. Oh yeah....let's read a novel and the watch Wizard of Oz to discuss Monetary policy. Get a grip with reality!
Posted By: Christopher Espinal
Date: 2008-02-13 17:38:57
Another interesting point to make....people who don't know crap about what they are talking about always quote some author, even if the author has no real wisdom of how things work. For example, let's take the emotional agenda of the maker of the file Wizard of Oz to demonstrate a serious and important point on an issue like monetary policy.
It depresses me to see that people never look to the true experts but what half knowledged authoritative figures like Edward Griffin have to say.
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