Topic: Ron Paul
Ron Paul: A Man Among Boys at ABC Debate (Simple explanation of Ron Paul's stance on the Federal Reserve) Why the common person doesn't understand what is at stake.by John Armstrong
(libertarian)
Saturday, January 5, 2008
At the ABC Debate on Saturday night, the moderator asked the Republicans about how they would address an issue truly affecting nearly every American almost daily--rising gas prices.
The other candidates talked about things like alternative fuels, getting us off the dependence on foreign oil, and increasing investment in technology. They also "addressed" the issue of gas prices by talking about global warming and greenhouse gases, how the oil companies were paying more to protect themselves in lawsuits than on research, and how high gas prices helped fund terrorists. I'm sorry, but what in Obama does this have to do with actually fixing the problem of surging gas prices?
Ron Paul was a doctor for many years. In that career he could have lost his job or killed a patient if he failed to accurately diagnose and actually address the real problem. The devotion and dedication he demonstrated to each individual patient in the past is much the same as the commitment he shows to each individual American and their rights now. His previous job experience and this devotion has made it impossible for him to dodge diagnosing and addressing real issues even today.
Which is why when he was asked about the gas price problem, instead of engaging in ridiculous political speak, he quoted the Wall Street Journal. The Journal ran an article showing that gas prices weren't rising as rapidly anywhere else in the world. Only in America. Why? You see, the cost of gas isn't rising, the value of the dollar is decreasing. Like I explained to my dad, the value of oil hasn't increased, it just takes a lot more dollars to buy the same amount because the dollar is worth less.
This issue isn't discussed openly because it doesn't resonate with voters the way issues like "free health care" or "securing our borders" or "protecting us from terrorists" do. How many Americans even realize that the U.S. dollar is worth less than a Canadian Dollar? Using the Canadian Dollar as the benchmark, how many people know that after the terrorist attacks on 9/11 the dollar was stronger than it was in 2000? How many people realize that in 2002, when the war in Iraq began, the value of our dollar began to decrease? It hasn't stopped its decline since, and is now reaching historical lows. As the data in the chart below indicates, it wasn't the attacks of 9/11 that destroyed our dollar, it was our response to them.
How many Americans fail to see the connection? How many people in our country don't seem to understand why this matters? And most imporantly, how many presidential candidates are even discussing this issue?
Ron Paul's economic and monetary ideology are typically a punchline at best among political pundits with the level of sophistication along these lines:
"Ron Paul wants to go back to the gold standard. What's next? Reducing dependency on foreign oil by getting rid or our cars and riding horses?"
These pundits are also starting to claim that Ron Paul offers a lot of ideology, but no practical real world solutions to the problems facing America. These blanket statements influence common voters tremendously in a time when "practical real world solution" has become synonomous with "government entitlement program."
These very real solutions Ron Paul supports are hard to grasp for the typical American who has little understanding of economic theory, monetary policy, or interest of anything foreign outside of why Europeans insist on calling soccer "football." They were probably watching football when this debate was on. These same people are depending on Social Security for retirement and are scared to death when they hear these political experts tell them that "Ron Paul wants to end Social Security."
Below is my humble attempt at explaining this complicated issue in a way the person I just described can easily understand. Once understood, this person will also be able to see that the sky may indeed be falling, and that contrary to public opinion Ron Paul is the only candidate running on a platform that would SAVE Social Security until our country was healthy and prosperous enough that it was no longer needed (which very likely would not be during Paul's administration even if he were to become a two term president).
Monetary Policy and Consequences For Dummies (like me)
Let's assume that everyone in America could print their own money. Or to make it easier, they could just go online to their personal checking account, type in whatever dollar amount they wanted, and that would be how much money had in the bank. How much would a dollar then be worth? This is easy. It would be worth next to nothing because what $1 once bought, it would now take millions to purchase the same good or service because there would be so many dollars.
But let's change the scenario a little. Let's say that this creating of money out of thin air was introduced state by state in alphabetical order. In other words, only residents of Alabama could print money for the first month, then Alaskans could join in a month later, then Arizona residents and so forth. Who would benefit the most? The Alabamans would. By the time Wyoming got into the mix, it probably wouldn't even be worth the bother. In other words, the people who benefit under a system like this are the people who get to use the newly created money first.
Individuals in our country can't print their own money, but there is a private bank that can. It's called the Federal Reserve. And they do. And then they lend it to our government with interest. There are nearly 26 dollars in circulation now for every 1 dollar in circulation in 1959. And the rate of printing this money is increasing. In 2007 alone we printed more dollars than the total amount that existed in 1963. While the number of dollars has increased 26 fold, the population hasn't even doubled over that same period.
Of course this works out fine for the government. They get to spend the money first. And it works out well for the special interest contractors who receive the money. They are like Alaskans in our example. The people are Wyoming.
To bring this down to simpler terms which also illustrates the long term consequences of this issue, when many families receive a new credit card in the mail, they feel as if they have "free money." So they spend it. And then get another credit card. Then they max out that card too. And so it goes until they can no longer meet the minimum payments or get a new card. When the creditors come calling, there are three ways they can pay off the debt.
One is to raise income. But that is very difficult for an individual to do.
Another is to borrow money from grandma.
The third is to cut spending on things that the kids really loved and that may have seemed "necessary" when the "free money" was rolling in, but suddenly doesn't seem as much so when the family is facing losing its car or home.
If they can't get more money, get it from grandma, or cut enough spending to pay the debt, they are forced to go bankrupt and then lose everything that really was important to them.
What is the connection here?
The government has a never ending stream of "free money" printed by the Federal Reserve. As you hopefully now understand, this "free money" hurts the individual citizen by devaluing his dollar.
Eventually this debt has to be repaid. How can this happen?
Unlike the individual citizen, the government can raise its income rather easily. This is accomplished by raising taxes.
The second is to borrow from Granny. The name of the Federal Government's most benevolent Grandmother is China. Although Granny may claim she expects the money back, China actually does--with interest. What happens when Granny cuts us off and wants her money back? Well, the individual's granny doesn't have nukes to help her collect like our Government's Granny does.
The third is to cut spending on things we just can't afford. No matter how much the "kids" may like things like supporting foreign countries, propping up dictators to make us "safe from terrorists", testing children annually to make sure they aren't left behind, providing Federal grants to send people to college, or the idea of free health care; if we don't give those things up we won't even be able to afford the things we really need--like a way to defend ourselves should Granny China decide to use non economic means to collect what she's owed.
Ron Paul is the only candidate to offer a solution to this problem.
The first step is to stop activating all of those new credit cards. This is why he would end the Federal Reserve and offers radical ideas like making sure our dollar is actually worth something.
The second is to cut out spending no matter how unpopular it is or how much the kids may cry about it.
None of this may seem like a major issue right now. In fact, it doesn't seem bad at all. We are living the high life. The "leading" GOP candidates are like the dads who earn 60,000 (fiat pre-tax) dollars who live in the suburbs, live in a house with an interest only adjustable rate mortgage, and "own" two import SUV's while mom stays at home because it's "best for the kids." There is nothing that they can't afford for their family as long as the credit cards keep rolling in. They just smile and nod and keep promising more. This doesn't seem like a big deal either. They are living the high life. At least until the cards are all maxed; the collection agencies start calling; their credit score goes down; the interest rate gets adjusted upward; they can't afford the mortgage; the bank forecloses; and mom leaves with the kids to go live with grandma and grandpa in the house they paid off in 7 years because they didn't believe in being a mooch and borrowing money. Can you say "mortgage crisis"?
Ron Paul is that wise old grandpappy who kept getting laughed at and called an old-timer who didn't understand how the modern world worked when he repeatedly told his daughter her family needed to learn to live below its means. The best way to prevent foreclosure is foresight.
Ron Paul's foresight would not only help us get lower gas prices by restoring the dollar's value, it would help us stave off bankruptcy or a nuclear attack by China. When you grow up and understand this issue, it kinda makes the "major issues" like national healthcare and terrorism seem about as significant as that pimple you had on prom night doesn't it?
Your fellow American,
John Armstrong
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I'm so proud of Ron Paul. This man is a HERO. I mean that in all seriousness, Ron Paul is sticking his neck out on the line for us. I am very greatful that he cares about freedom that much. We need to quadruple our efforts people! We're making history here.
I posted your article on my blog. I so want to get the word out.
I so enjoy your your insight.
Ron Paul is my Hero too. I am so proud of him.
Thank you for explaining things.
Mr. Armstrong, I'm just blown away by your tremendous ability to communicate this otherwise complex situation.
Ron Paul supporters: This article MUST be splattered all over the country, the web, promo pieces etc. I'll do my part but lets all do our part. This issue in particular, if understood and Mr Armstrong pointed out, would practically secure nomination for Dr Paul.
This is a superb article with great insight. If more people realize the major concepts that Ron Paul is trying to communicate and realize the path of "getting away from big givernment" that he is trying to lie down , then we would all (not just us Americans, but all inhabitants of this world) be in a better place with a more secure future.
As always an enjoyable and informative read. I have been reading Dr. Paul's newsletter for several years on 321gold.com and none of the other candidates in either party are addressing the elephant in the living room, the rapidly declining dollar and the coming recession (or worse). I did want to point out a typo in your article that interferes a bit with readability. You said:
"Using the Canadian Dollar as the benchmark, how many people know that on this date in 2001, which was after 9/11 attacks but before the war in Iraq the dollar was stronger than was in 2000?"
I think you meant to say "on this date in 2002". Of course, it is always easier to edit than compose :>)
Posted By: John Armstrong
Date: 2008-01-06 02:33:34
Richard,
Thanks for your kind words. I appreciate your thorough reading of this article.
You are right. I will correct the article. I began writing this article back in December but knew I should hold off for the perfect moment to connect the dots. When I heard Dr. Paul talking about Gas Prices tonight, I knew this was it.
This is what the sentence meant (just so you know before I correct the original): AFTER the terrorist attacks which supposedly did so much harm to our economy, our dollar was stronger than it was the year before. However, once we invaded Iraq and started spending an imcomprehensible amount of dollars that we don't have; the dollar began its slide. In other words, it wasn't the 9/11 attacks that destroyed the dollar, it was the combination or our foreign and monetary policy. In a humorous if it didn't affect real people twist, the weakening of our dollar could be argued as a contributing factor to the mortgage collapse. When Americans lose their homes bc of a decision to spread democracy in a country that may have disliked their leader, but not enough to do anything about it, there is something very wrong with that.
I just finished watching the debate on the DVR (had to work tonight) and I am once again totally appalled at the absurdity of the arguments made by the other candidates, and the way they ridicule Dr. Paul. Their excuse for everything is the phony "War On Terror". My first question is, if terrorism is really such a threat, why have our borders not already been closed? Why was Bush allowed to just sit in that classroom in Florida for a half an hour after the second tower was hit if we were being subjected to a surprise attack? How did the Secret Service know the school was not one of the targets? Where was NORAD? Why was Cheney/Darth Vader running war game exercises that very same day and time involving hijacked aircraft being flown into buildings? Why was the evidence, under the direction of Rude E, disposed of as quickly as possible without any investigation? Why did WTC building 7 collapse in a controlled demolition at 5:20 PM on 9/11? Why did the 9/11 commission not even mention it in their report? How were they (government-controlled media) able to tell us almost immediately that it was bin Laden and his 19 boys with box cutters who did it? Why is bin Laden not wanted for 9/11 according to his FBI wanted poster? An FBI spokesperson, when asked this question, said it is because they have no “hard evidence” that he was involved. They have no evidence that the supposed hijackers were connected to bin Laden. They never presented any evidence that the planes that crashed were the ones they claim them to be. Several of the alleged “hijackers” are alive and well, yet the FBI has never changed their list. None of them are named on the passenger lists for the supposed flights. Hello! Why does anyone believe any of this crap??? Check out www.patriotsquestion911.com if you don‘t already know all this. I feel like I’m living in the twilight zone! Why did Benazir Bhutto say, in an interview with David Frost, on Nov 2, 2007, that Osama bin Laden had been murdered by Omar Sheikh? Was that why she was killed, so she wouldn’t say it again and ruin their #1 Emmanuel Goldstein bogey man? What the hell is going on in this world? Why have the Bushes and bin Ladens been in business together for several decades? Why are they putting out phony bin Laden videos with a monkey dressed up in a bin Laden costume who looks nothing like the real bin Laden? Is anyone putting the pieces of this puzzle together yet???
It is 6+ years since 9/11, which I (obviously) personally believe was something very different from what we were told, but if foreign terrorism is really such a threat, why are all of our troops in Iraq, which, even according to the official fairy tale of 9/11, had nothing to do with that event, instead of here at home guarding our borders and providing defense? What sense does it make to go on the offense and kill over a million innocents, including women and children, who obviously had nothing to do with 9/11???
I just can't figure out why average Americans are so brainwashed and ignorant that they can't figure out the official story of 9/11 is the greatest lie ever sold, and that even if it were true, it could not possibly justify bombing the crap out of an entire country. If it was actually a crime committed by terrorist "jihad" groups, why not send a team of special forces or CIA hit men over to find them and eliminate them? How can killing a million people and destroying an entire country and culture possibly be justified? If the neo-con warmongers have their way, there are many more countries still to go. It is an ENDLESS WAR FOR PROFIT, period. Eventually, someone will take revenge against us, in a huge way.
I am literally sickened by what I saw tonight. No matter what Dr. Paul says, or how much sense it makes, they all gang up on him and try to silence or discredit his message. There is NO excuse for preemptive war, and I believe there is a mountain of evidence that 9/11 was a false flag operation, contrived to justify this endless war for profit. The PNAC group even wished for (called for) a "New Pearl Harbor" to justify their agenda of endless war less than a year before 9/11. Coincidence? I think not!
I think it is time for Dr. Paul to lay it on the line and say that the purpose of these wars is to generate enormous profit for the defense/security/surveillance/etc. industries, while bankrupting our country, and taking away our constitutionally guaranteed rights, in the name of fighting an imaginary enemy - FOREVER! I kept hoping he would say it tonight while that bunch of warmongering jack asses was ridiculing him. The [anti] Patriot Act, which was obviously written long before 9/11, and which the members of Congress did not even have the opportunity to read before they were forced to vote on it, is the antithesis of everything this country stands for. Rude E obviously thinks it is a fabulous piece of legislation, and if he or any of these other warmongers is elected, I may have to move out of this country. They all just lie constantly, and not one of them has the guts to stand up and say that Bush is an idiot puppet of the NWO globalist cabal and a total disgrace to our country who has made us hated around the world, and thus much less secure than ever before. Even Dr. Paul will not openly criticize the pResident, since he probably fears it will have unintended consequences. Blowback, if you will.
I am sorry for ranting, but I am just so angry that these evil SOB's get away with all this crap, and that the media is complicit in it all, that I can't stand it anymore. Did you see the people with signs outside the debate saying "9/11 Truth Now"? I really believe that is the only way we can change the course of our country, since the vast majority are so brainwashed and frightened by the terrorism myth they will accept tyranny just to feel secure. I have tried not to bring up this issue in relation to Dr. Paul, but I first learned about him from his appearances on the Alex Jones show, and although I'm not completely convinced Alex is telling us the truth, the whole truth, and nothing but the truth about everything, I believe there is a whole lot of truth in what he says. I am so much more afraid of our own government than I could ever imagine being of "Islamic terrorists" that it sickens me to see how many people buy this myth and are allowing our government to become a fascist dictatorship just so they can feel safe. My last thought is to remind everyone of what Benjamin Franklin said: "Those Who Would Sacrifice Liberty For Security Deserve Neither."
Posted By: Walt Thiessen
Date: 2008-01-06 03:07:40
Outstanding article, John. This is a concept that Paulites should explain to every voter they meet.
Start with the fact that gas prices are only going up in America, not everywhere else.
Then ask the person you're talking to why that's happening. When they say they don't know (as 99% of them will say), explain that it's because of the declining dollar....not greenhouse gases....not a failure to have energy savings....but because the dollar is declining.
And why is the dollar declining? Because the Federal Reserve has been slowly and systematically destroying it for many years.
And why has the Federal Reserve been doing that for many years? They have done it to stimulate the economy. That's what the Fed does.
In other words, the price of stimulating the economy is increased poverty for all people except the wealthiest of people, who don't notice the increased cost when they're trying to pay for the essentials of living such as rent, food, clothing, etc., unlike the rest of us who do notice the increased cost.
That's why there's an increasing divide between the haves and the have nots.
Death by distraction. That is what we have coming to us. We're distracted by terms and ideas that we've been made familiar to by these 'other' candidates.' We've been programmed to respond to words like, "illegal immigrants", and "islamic fascists" by the likes of Glenn Beck, Rush Limbaugh, Hannity, Levine, etc. These 'other' candidates are simple regurgitating the phrases and concepts we are familiar with. Our brains will put two and two together, and then register the winner as whomever says the most phrases.
Most of these concepts are based on what's already happened. Border crossings, terrorist bombings (noun, verb, 911). Ron Paul seems to be the only candidate willing to talk about what's going on NOW, and what will be happening in the FUTURE.
Ron Paul really is the most honest candidate out there, because he's actuall willing to address impossibly difficult subjects.
We've Been Conditioned: We have been programmed to recognize and react to a finite amount of concepts and phrases. The likes of Glenn Beck, Limbaugh, Hannity, Levine, and others, have programmed their audiences minds to keywords like "Terrorist", "Islamic fascists", "Illegal Immigration", amonst others.
When listening to any of the Mainstream Candidates, it is educational and informative to simply count the phrases used by each. It's almost as if the Candidate who says the most buzz-phrases is the one who gets the most attention. The press covers them, they get more airtime, then the others start sligning mud. Wash, rinse, repeat as necessary.
Ron Paul, as this article's headline reads, is a Real Man, because Real Men talk about difficult subjects. Real Men tell the truth. Real Men don't hide behind propagandized phrases and buzz words.
Boys and Men:
Ron Paul is so damned refreshing. It didn't take long for me to realize that Ron Paul, in the debates, never goes on the attack against other candidates. If someone assails him with accusations and insults, Ron doesn't respond like a child, he responds, as this article's headline reads, As A Man. He uses the facts, the cold hard facts as his defense.
If a layman such as myself can pick up on this, I can only imagine others do too, and not just the ardent Ron Paulites among us. Oh, God, how I hope Americans can see and appreciate this trait Ron exhibits. It goes back to the basics we all learned as children. If you do not have something nice to say...
I wish I was that mature. I still refer to the other candidates with pet names, insulting names, because it's my childish way of feeling better. Huckabee, the huckster. Romney, The Zombie. Giuliani, the Cock-a-roach. A real man wouldn't need to do this, I suppose. Ron Paul is teaching me, though, how to be a real man.
One think became glaringly obvious watching the debate. The GOP is doomed without Ron Paul. Any of the top 3 Democratic candidates will wipe the floor with a Rudy McRomson candidate. I suspect this was plan with the 2 parties so closely aligned behind closed doors. Prepared for another President Clinton in November? If so, the American people got what they deserved.
They have been trying to smooth over, or cover up, what would otherwise have been a tremendously destructive decline in jobs and living standards due to cost cutting, automation and union-busting.
Greenspan was a Libertarian btw. So I take the Libertarian economic statements to be a kind of apology.
A very perceptive article. I'd like to point out, also, that not only are you borrowing from china you are spending your dollars with them too. They can lend them back with interest but they can also buy your tangible assetts including food production if neccesary especially if there is a future shortage? You can't eat a 42" plasma tv.
I believe that this is by far the best article that I have seen written about Dr. Paul! I better understand what is going on and I am going to pass this on to everyone that I can. Thank you for writing this. The people of America need to know.
nicely written and informative, but please REFRAIN from using scare tactics like China using Nukes, thats not the brightest of idea's...keep it in scope, not outside(makes you look like someone who doesn't understand Military Tactics, keep it MONETARY, not MILITARY)
Excellent post warispeace. I have to agree with you -- Thanks for this article John, I have 300 people in my email box. I will copy this and email it to all of them.
Everyone should email this post to all they know. We must get the truth out. I do agree -- if Ron Paul is not our next president we are headed for bankruptcy and I will be headed for Panama.
John,
I am a Ron Paul supporter. I don't necessarily agree with all of his statements and views, but I do agree with more of what he has to say than any of the other candidates - Republican or Democrat (which I still claim to be).
I also agree with a majority of your economic analogies and I think you do a fine job of explaining the reasons for our current and future demise.
However, in the interest of getting all the facts correct, both you and Ron Paul are wrong on one thing:
On 10/10/2000, crude price per barrel was at US$33.29 and the Canadian dollar was at C$1.50 per US$1.00. On 1/2/2008, crude price per barrel was at US$99.64 and the Canadian dollar was at C$0.99 per US$1.00. No matter how you slice it and no matter what currency you use as a base (I used the Canadian $ because you did), the devaluation of the US dollar is - at a stretch - only half the apprececiation of crude. The rest of it is Economics 101 supply (stagnant), demand (China), with a dose of speculation thrown in for good measure.
Otherwise, as I said above, your article is very enlightening and would be a good tool in educating others. I just wish we could get it all summed up in a 10 word or less sound bite. That seems to be all that most Americans can process.
From a NY Times letter to the editor which stated things well:
“In “Nightmare Before Christmas” (column, Dec. 22), Bob Herbert writes that “according to the Congressional Budget Office, the after-tax income of the top 1 percent rose 228 percent from 1979 through 2005,” while middle-class earnings remained flat.
These statistics reflect that American society is based upon one principle: free contract. In such a society, bargaining power is everything.
Corporations are ownership collectives. Such collectivism gives corporations enormous bargaining power. That increase for the top 1 percent mirrors the decline of collective bargaining.
Ever since the creation of the limited liability corporation during the time of the Civil War, our society has struggled with this issue. We have to find a way to level the playing field in bargaining arrangements or this country’s experiment with democracy will fail.
It’s no coincidence that the Roman Empire had low taxes, small government, enormous concentrations of wealth and an overextended military at the time of its collapse. Most of history’s epic changes were stewed from such recipes.”
Limited liability is at the heart of the corporation. It involves government support, especially Federal government support, at the "first instance". Presumably Libertarians are in favor of ending the limited liability corporation.
Posted By: John Armstrong
Date: 2008-01-06 12:02:23
William. Thanks for your correction.
I decided to use Canadian Dollars as the benchmark because Canada is about the most "foreign" country to which Americans can relate. I knew it wasn't a perfect analogy, but it was close enough for government work ;). Another thing worth considering is the impact the U.S. economy has on the Canadian economy since we are neighbors. If you use the euro or pound as the standard, the prices are much flatter and other economic forces seem to account for less of the rise.
Posted By: John Armstrong
Date: 2008-01-06 12:07:29
Jean,
Thank you for your comment. I tend to agree with you.
The reason I decided to use the whole Nuke thing was:
1. To continue the metaphor of "grandma."
2. Americans seem to respond more to war than monetary policy.
3. If other candidates can use terms like islamic jihadist radical terrorists to spread there message, I felt like I should be able to use Chinese nukes to help spread this one.
4. Bankruptcy isn't as scary as getting nuked by China.
5. It is slightly sensationalistic which is more fun and fits my writing style.
Excellent explanation of inflation, but I don't think you should have mentioned nukes. You already effectively made the point that the fed is devaluing our money. By mentioning the possibility of a Chinese nuclear attack, you add little valuable information to your article, while making yourself look like a kook. You have great writing talent; the analogies you made were great; just don't carry it too far. Otherwise, thanks for the article.
John ! what a great summary. I've only thought of saying that it's like we're on the Titanic, and the guy handing you a lifejacket is first queried as to his stance on universal health care. Of course, as a Canadian I love the universality of equal health care for all..... but if you're on the Titanic, it don't matter, eh ?
Posted By: Wally Anthony
Date: 2008-01-06 18:55:45
Thank you very much for this article and thanks in advance for all the other articles I am now going to seek out! I already posted this on my blog and bulletin for many to see.
I have just forwarded this story to everyone I know. This is an excellent job of "dumbing it down" for the masses. Now all they need to do is turn off their financed plasmas and read it........which, sadly, is the problem.
I agree that Ron Paul is the only candidate with any principles, and I am inclined to vote for him on that basis alone. However, your economics (and his?) are based on at least one false assumption and so much over-simplification that it is just flat wrong. An analogy between a national economy and a family's budget is more misleading than useful. How many economics classes have you taken and passed?
The amount of money in circulation has little to do with population, and you can't blame it on the Fed. The Fed distributes cash in response to demand. Eliminating the Fed would just require that some other entity take over that job -- unless you are advocating a return to a barter economy?
At the risk of similarly over-simplifying, the amount of money in circulation is actually based on the following.
(1) Improvements in record-keeping and communications technology, so that formerly complex transactions that were once available only in very large amounts (and thus only to the wealthy) can now be made available to the masses. Indded, most of the "money" in circulation is actually composed of digital records, and is not represented by currency at all.
(2) But the biggest reason there is more money in circulation? Productivity has increased enormously due to advances in science (particularly computers and automation) and hyper-specialization. To a large extent, the amount of money in circulation simply reflects that our economy produces far more than it did 40 years ago.
I agree that Bush's economic policies (or the lack thereof) have been disastrous, and have devalued the dollar. But the Fed is an imaginary villain here; blaming the Fed for monetary woes is like attacking Iraq for WMDs or supporting terrorists. If you and Dr. Paul can't see this, then you are truly not equipped to decide our country's economic policies.
Posted By: John Armstrong
Date: 2008-01-07 13:52:40
Stomper,
Thank you for your response. I was wondering how long it would take to get one like that.
This post is not intended to be a PhD level economics and monetary policy discussion. I just think it's fun to have a candidate who is actually willing to discuss things like monetary policy as opposed to reciting soundbites.
Let me oversimplify again and make sure I am reading this correctly. You are stating that there seems to be more money in circulation because we can 1. Count it better and 2. Productivity has increased.
If this were true, you would expect to see dips in the money supply more regularly when productivity is down. I went back and looked at the chart. This happened less than 10 times and never twice in a row. So you really believe that productivity has decreased for that few individual months over the last 50 years? Interesting.
And the Fed doesn't issue money based on demand to anything other than the "demand" of the Federal Government. You can try writing them and asking them to issue some money for you if you'd like, but I doubt you'd have much luck.
And how does this not apply to population? If the money growth is 13x more than population growth why has this increase in wealth not been evenly reflected across the population? If there are 13x more dollars than people then everyone's dollar is worth less. This isn't as complicated as people would have you believe. It isn't a matter of "counting" or "productivity" although both of those do play a role. It is a matter of monetary policy that Americans are basically completely unaware of or how it impacts them.
If the analogy is slightly flawed, so be it. This is just a "gateway" article to encourage more research and discussion on the subject and to highlight the fact that there is one candidate who is at least willing to bring it up.
Points like yours are needed to further the discussion, and I appreciate you for sharing them. It would be nice if the GOP "leading" candidates could have made counterpoints themselves. Instead, they just chuckled.
Posted By: John Armstrong
Date: 2008-01-07 14:00:33
Nitsud,
I have no idea how to use youtube other than to watch videos. If you or anyone else cares to make one and use these points, you are more than welcome to do so. I don't write to make money (believe it or not I have a real job and would be affected by the Democrats "rollback" of Bush's tax cuts). I write to spread the message of Liberty, Freedom, and the Restoration of our Republic. Because of that I absolutely encourage anyone to take the things I write and spread them as far and wide as possible.
Thanks to you and all of the other readers for your kind words.
I wish my paragraph breaks appeared in my post. They would have made it more readable.
I agree that it is unique and laudable to have a candidate who will discuss policy rather than simply recite sound-bites designed to avoid alienating people by actually taking a POSITION. I admire and respect Dr. Paul for that, more than anything else.
Actually, the Fed prints money in response to the demand from banks. Banks always have substantially more money in recorded deposits than they actually have cash on hand. To greatly oversimplify, when the banks need more cash to service their depositors (or simply to meet regulatory reserve requirements), they get it from the Fed. The Fed doesn't give away as much as a penny -- the banks "buy" that cash with their own electronic funds transfers to the Fed. For this reason, circulating more currency does not by itself contribute to the devaluation of the dollar. Most deposits, after all, are made with checks and electronic funds transfers. In our modern economy, a great deal of those deposits represent payment for services. When people get paid for goods or services, they are creating wealth. When people get paid directly for services (whether a retail clerk, a religious leader, a college professor or an investment banker), they are getting paid at the end of the day for something of value which did not exist at the beginning of that day. The net profit from sale of goods represents a value increase resulting from capital outlay and services (wholesale services, transportation services, distribution services, retail services, etc.), so that we are again looking at value which did not exist before.
Inflation is a very real phenomenon. A substantial component of the increase in circulating US Dollars over the last 40 years can be attributed to inflation rather than increases in production. However, the Fed is not the culprit. The Fed promotes stability. When did you last see a "run" on a US bank? The big inflationary spiral of the 70's and early 80's can readily be attributed to US dependence on foreign oil. That inflationary spiral matches the interval during which OPEC succeeded in controlling and inflating world oil prices. As a result of OPEC price controls, we were sending dollars overseas faster than we were generating new value here in the US. THAT'S where the US economy was spending money it didn't really have. In addition, the increased cost of fuel had a ripple effect, increasing the cost of electricity, transportation, and other components of the US economy, so that the price of goods had to increase to cover these costs, and then wages had to increase so that workers could continue to buy the goods being produced. That spiral did not collapse until after OPEC fell apart through internal squabbling in the early 80's.
Huge federal budget deficits likewise have the effect of spending money we don't really have, and thus devaluing the dollar. The Fed, however, has nothing to do with those budgets. Blame Congress and the President for that, but blaming the Fed is a mistake.
Posted By: Eric Williams
Date: 2008-01-07 19:47:18
The most common objection to Dr. Paul's economic ideals I hear involves the gold standard causing deflation. Could someone explain this objection in simple terms and then debunk it? Thanks in advance. :)
Not sure what is meant by "gold standard" in this context, so this may inadvertently be a "straw man" argument, but it sounds like we are talking about a government policy requiring that a dollar be redeemable for a specified amount of gold. At today's market price, a dollar would be worth approximately 1/875 of an ounce of gold, but the precise value is irrelevant.
As I greatly over-simplified in my posts above, new labor (from fruit pickers to insurance executives) adds new value to the economy every day -- far faster than we can add new gold to government coffers. So our gold standard means we can't circulate enough money to keep up with the growth in the economy, and each day there is less money available to pay for the work being done.
The result is deflation. Money becomes more scarce, and the law of supply and demand tells us the price of money (interest rates) will go up. Buying a home or simply buying inventory for your business becomes impossible for most people. Financial service companies and many other companies that depend on credit begin going out of business from a shortage of customers and a greatly decreased volume of loans. With few or no lines of credit, and far less cash, employers must reduce wages or fire employees. The result is at least a recession, but more likely another Great depression -- if not outright economic collapse.
Are there ANY reputable economists (i.e., someone with a PhD in economics who teaches at an accredited university) advocating a gold standard? The gold standard offers comforting simplicity to people who find economics too difficult to grasp. Unfortunately, that simplicity is simply incapable of serving the complexities of a modern economy.
Stomper - Thanks for the analysis. Ive always been freaked out by The Fed after viewing the doco 'Zeitgeist'. Ive always wondered why more people arent calling for the Fed to be shut down. But your post provided food for thought.
I enjoyed the original article but it kinda lost me with one disapointing line in it 'if we don't give those things up we won't even be able to afford the things we really need--like Nukes to shoot when Grandma comes calling' - that sounds like it could have been written right out a NeoCon fear based politics playbook.
Does the author think America needs to spend more billions of dollars on more Nukes? Come on...
I almost have to think I would rather be ignorant. This is just so criminal I don't know whether to be angry or cry. Your analogy of the states getting to print money in order from Alabama to Wyoming started me getting angry and by the time you get to the Federal Reserve loaning dollars at interest to the government I just can't keep reading. It is even more frustrating when you watch the broker analysts on cable saying bernanke is doing a little too much of this or not enough of that and ignoring the whole system is an abomination.
Posted By: John Armstrong
Date: 2008-01-10 14:52:19
Stomper,
I have the flu. Have been in bed for a few days. I'll write back this weekend when I am well. I was just waiting on others to say something before I keep rambling.
I should have been more clear. I mentioned it a couple of times. Once it meant exactly what it appeared at the surface, the other two I was referring to this. Sorry for not being more clear.
It is clear that RP supporters are strong on the internet, but how are we going to reach the baby boomers and old folks who just don’t spend time on the internet? (I, at almost 62, think I am certainly in a minority of computer literate boomers.) RP gets so little media coverage that I would imagine a lot of them write him off as a kook for the brief sound bites they get of his statements about getting rid of the Federal Reserve and the IRS. It seems to me there needs to be a campaign of mass snail mailings and a directing of them towards Aaron Russo’s documentary, “America, From Freedom To Fascism”, available at freedomtofascism.com, so their eyes can be opened. Just a note regarding Independents. I am frustrated when I see Lou Dobbs, someone who I believe is fighting the good fight, convincing people to switch their party affiliation to Independent. This is not going to help RP in the Republican primaries. I only hope that if he fails to get the nomination, he will run as an Independent. Wake up America! WE THE PEOPLE need to take back our Republic! (BTW, I’m 62 years old)
Posted By: John Armstrong
Date: 2008-01-13 13:54:11
Stomper,
Seems like this thread is nearly dead. I'll still give you a couple of quick responses if you are reading.
First, Ron Paul has never said we should go back to the gold standard, but rather introduce competing legalcurrencies backed by gold and silver. You are obviously an intelligent person, so I don't need to explain the effect competition would have on a currency's value.
As for your point #3: Banks receiving cash needed shouldn't increase the amount of available money if what you said in an earlier post about the small electronic transactions that were not counted previously but now are is true. Secondly, when one is paid for a good or service or receiving increasing value for something which didn't exist before this shouldn't matter because the money the are receiving comes from someone else. If I pay you $200 for your comments here, that is $200 less that I have which would produce a net increase of $0. Unless I could pay you magically and cause the money to materialize from the ether, which would then represent a $200 increase in money. The exceptions to this rule are imports and exports involving non-US based companies and individuals.
Point #4---The increased circulation is the Cause of the inflation, not vice versa. The oil crisis in the 70's caused very high interest rates as well. Why? As you stated, there were fewer dollars available at home, so it was harder to borrow them. The solution? "Create" more money; which then causes inflation.
Point #5--I agree with you the Congress and President should be blamed for those horrible budgets. But this really just makes the point the entire article I wrote makes. When is the last time you went to a store without a credit card, check, line of credit, or cash and were able to spend money "you really didn't have"? You can't. But the government can. They get it from the Fed. While this isn't the "fault" of the Fed any more than it is the "fault" of a credit card company when someone runs up massive credit card debt; the running up of said debt would have been impossible without their complicity or existence. And both the Fed and Credit Card companies have the same motive to make that money available--profit earned from interest. If you can't teach your daughter responsible spending habits, the next best thing to do is to just cut up her credit card. If the money isn't there to spend, the government would then have to actually THINK about what it was spending money on before issuing that spending.
1. I'll take your word re: Ron Paul's position on the gold standard. I'm not actually sure how that would be different from the current commodities market in gold. Of course, nobody can be sure how something that new and different would impact. If you are so confident you understand the result of "competing currencies," then it shows you do not know enough. It has never been done before, and we can only guess at the ramifications.
2. Almost every modern transaction involves someone incurring a cost or a benefit from the "time value" of money. Whether it is the 3-day "float" from a check that has not yet hit the bank, to the 45-day interval between the time of a credit-card purchase and the deadline for paying the next credit card statement, most consumers have daily opportunities to spend money thet do not yet have. Most businesses also work on credit and have similar "floats." $1,000 today is worth more than $1,000 ten years from now, and $40 today is worth (some miniscule amount) more than $40 three days from now. These "floats" have economic value which is CREATED by the delay in these transactions, and if you multiply that value times hundreds of transactions for each consumer every year, times even just one hundred million consumers, this is an economically significant amount. Factor in the much larger amounts "floated" by millions of businesses, and that amount becomes even more significant. These amounts are essentially "distilled" in the financial service industry. I don't know of any economist who would dispute this.
4. We're going to have to agree to disagree about which was the cause and which was the effect. I don't have enough expertise to address your point authoritatively, but I can say that I have never heard of any mechanism by which new currency can just be printed up and injected into the economy. I just don't see how that would happen. Deficit spending by the government will have an inflationary effect that could eventually result in the banks having more digital funds to exchange for currency, but (again) that is caused by the congressional budget rather than the Fed.
5. How does the government "get it from the Fed"? That doesnt even make sense to me. The Fed doesn't print the money (the Treasury Dept. runs the Mints, last time I checked). When the government borrows money, it does so by issuing bonds, which are traded on public markets.
I still don't see any reason to demonize the Fed. It serves a valuable function in regulating monetary policy, and is the most powerful tool we have for adjusting the economy.
Posted By: John Armstrong
Date: 2008-01-15 15:33:41
Stomper,
You should really join as a columnist and post these points, because they are good.
Just so you know, my business degree was with concentrations in finance and marketing. I was glad to see you mention the time value of money in your response. I may be too dim to understand what this has to do with point 3. Maybe you could help me understand.
The treasury department does "print" the money, but they do so when instructed to do so by the federal reserve. The Conngress constitutionally has this responsibility, but they gave it up to the Fed in 1913.
And then we circle back to my original point, that the Fed only distributes currency into the economy, but does not add a single dime which is not paid for. Doesn't matter how much is printed, if it actually represents real wealth.
Sorry I couldn't explain better the role of money's time value. Probably reflects my limited understanding and fuzzy recollection of my college econ classes. I did find this useful excerpt in the wikipedia article about wealth:
"Regardless of whether one defines wealth as the sum total of all currency, the M1 money supply, or a broader measure which includes money, securities, and property, the supply of wealth, while limited, is not fixed. Thus, there is room for people to gain wealth without taking from others, and wealth is not necessarily a zero-sum game, though short-term effects and some economic situations may make it appear to be so. Many things can affect the creation and destruction of wealth including size of the work force, production efficiency, available resource endowments, inventions, innovations, and availability of capital. However, at any given point in time, there is a limited amount of wealth which exists. That is to say, it is fixed in the short term. People who study short term issues see wealth as a zero-sum game and concentrate on the distribution of wealth, whereas people who study long-term issues see wealth as a non-zero sum game and concentrate on wealth creation. Other people put equal emphasis on both the creation and the distribution of wealth. It has been theorized, for example, by Robert Wright, among others, that society becomes increasingly non-zero-sum as it becomes more complex, specialized, and interdependent. One's attitude towards this issue affects the design of the social or economic system that one prefers." http://en.wikipedia.org/wiki/Wealth
Thanks for the compliment. I enjoy a lively debate, but I prefer to react rather than instigate. Like Ron Paul, I admire your willingness to stick your neck out and stand up for your position, even when I disagree.
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