Although I greatly admire Ron Paul’s ideas, as I watched the latest RP vs. the FED battle, I was quite disappointed. The FED is gasping for air. They caused the mother of all bubbles, and it’ll finally pop next year. Dr. Paul took over 4 minutes of his precious 5 minutes pontificating about the glory of Austrian economics and the horror of the FED instead of pressing home an attack. Art of War 101: “Cut off his head before waxing eloquent.”
In Ron Paul’s latest video released on his Congressional site he talks about his questioning of Bernanke yesterday. The video is a bit of a scholastic lecture on our fiat money system. During it, he claims, more than once, that our financial system has collapsed.
Yesterday, Secretary of the Treasury Henry Paulson published an Op-Ed piece in the New York Times. It was filled with doublespeak, platitudes, lies, and incredible ignorance. Chris Martenson parsed Paulson’s words, paragraph by paragraph, to shed some truth of the situation. Here’s a snippet:
[Paulson writes:]
I have always said that the decline in the housing market is at the root of the economic downturn and our financial market stress. And the economy, as it slows further, threatens to prolong this decline, as well as the stress on our financial institutions and financial markets.
My Comment: Um, no, Hank, sorry, this is not true. Here are some recent quotes from you:
April 20, 2007 — “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.”
July 26, 2007 — “I don’t think it [the subprime mess] poses any threat to the overall economy.”
This article by Chris Martenson is quite revealing, even entertaining (if you’re into black comedy). Read the whole thing here.
Ron Paul appeared today on CNN in the time slot usually reserved for Glenn Beck, but Beck is off to FOX News now. His replacement Jane Velez-Mitchell is mostly right with her views, but after listening to her you may need a few ibuprofen.
They discuss the auto bailout and bailouts in general. Neither Velez-Mitchell nor Paul think this auto bailout is necessary, of course. Paul seems to hint around that he doesn’t necessarily believe the auto bailout bill is as “dead” as many are making it out to be.
Ron Paul appeared on FOX Business News today following his grilling of Ben Bernanke on Capitol Hill. He accuses Bernanke and Paulson of price fixing among some other choice words. Paul’s contention is that they are fighting against what the market wants and their efforts to subvert the market will fail because the “market is more powerful than the central bankers”.
A favorite Paul comment:
“No I didn’t get answers, and I didn’t expect any.”
Ron Paul questioned Ben Bernanke this morning regarding the entire financial system as it relates to the bailouts. Again, Paul says the words that no one wants to hear, but truly needs to hear. A few choice quotes from Paul:
“Something has to give, or we are going to waste more time trying to patch this system together.”
“Does this thought come up… about a new world reserve currency?”
“The dollar system has essentially been declared dead.”
A step-by-step explanation of how the Federal Reserve, America’s Central Bank, can manipulate monetary policy.
by Jake, the Champion of the Constitution Originally published November 17, 2008 at http://www.nolanchart.com/article5489.html
Part 5 covered the origins of fractional reserve banking. In this article I will formally define fractional reserve banking and describe how it works. Next I will share how the Federal Reserve controls monetary policy and supply with its three major tools – “printing” or “de-printing” money (technically referred to as “open market operations” by the FED), bank reserve requirement ratios, and the infamous “Fed-rate.”
Fractional Reserve Banking - a banking system in which banks are supposed to maintain a quantity of reserves from its depositors that is a fixed fraction of the amount of new money the bank is then allowed to create. This newly created money, or credit, is then loaned to the bank’s borrowers.
Fractional reserve banking has two major flaws in practice. The first is that it is an arguably criminal act, which is a topic more suited for Part 7. (See Rothbard’s “The Case Against the Fed” below, pages 40-45.)
The second flaw is insolvency. This is generally known as a “bank run” and is easy enough to understand. If the system’s depositors demand in excess of the reserve amount within a short enough time span, the entire system theoretically just runs out of printed cash and goes broke. Realistically in today’s world this would cause the government to begina a massive physical printing of dollars, resulting in massive currency devaluation and eventual worthlessless and death of the currency via hyperinflation.
For example, let’s suppose the entire banking system consisted of $100 at a 10% reserve ratio. This means the banks would loan out $90 and keep $10 as its reserves to satisfy depositors. However, if the depositors of $10.01 ask for their money back, the bank will NOT be able to satisfy the request and will need to close down all redemptions of deposits until it receives cash flow from its loan investments. This is similar to the dilemna faced by those devious medieval goldsmiths from Part 5, except we are dealing with paper money instead of commodity money.
Given the direction the political winds are blowing, with world leaders meeting to determine how best to further intervene into the world’s monetary and economic system, the odds of returning to the stable days of the Gold Standard seems infinitesimal at best. At the Christian Science Monitor, an op-ed titled Forget Bretton Woods II – we need a gold standard, editorialist Walker Todd says that absent the “integrity and restraint a gold standard provides” our country may be headed straight for hyperinflation. Using Weimar, Germany as an extreme example, he illustrated how desperate conditions could get:
Weimar Germany experienced one of the greatest inflations in modern history in 1922 and 1923. Eventually, the official exchange rate reached 4.2 trillion marks per dollar. Some Germans heated their homes by burning cash, since it was cheaper than buying wood. The inflation finally was tamed by government bonds promising repayment in gold, backed by land taxes also payable in gold.
And photographs from the situation in Zimbabwe illustrate clearly what could happen. Here’s a man going out to lunch: Read More »
Yesterday’s commentary by Peter Schiff is a must read. In “The Humpty Dumpty Economy“, Schiff suggests that Treasury Secretary Henry Paulsen is both a liar and incompetent. He explains the moral hazard, or unintended consequences of all this new regulation.
Before the current economic crisis became apparent to all, the most popular fable used to describe America’s uncanny economic resiliency was the story of Goldilocks. It was argued that our economy was skipping down a sunny path of moderate growth, low inflation and rising asset prices. However, a much better parable for our economy over the last decade would have been the story of Humpty Dumpty: a bloated, fragile shell perched on the top of a dangerously high stone wall. This week, all the government’s horses and all of its men scrambled to put Humpty Dumpty back together again. Here is a look at some of this week’s highlights:
The Mother of all Moral Hazards
No doubt prodded by the administration, Fannie Mae and Freddie Mac announced a new attempt to stop the fall in home prices and foreclosures through a loan modification program that would cap mortgage payments so that a homeowner’s total housing expenses would not exceed 38% of household income for home owners who are 90 days delinquent.
In a classic case of unintended consequences, the plan will encourage a massive new round of delinquencies and household income reduction as homeowners will jump through hoops to qualify for the program and maximize their benefit. Those who could conceivably economize to meet their existing obligations will now have a strong reason to forego such sacrifices. Those who are not 90 days past due will intentionally become so. In many cases, dual income families may decide to eliminate one job altogether as reduced mortgage payments combined with lower child care and other work related expenses will likely exceed the after-tax value of the lost paycheck.
Unfortunately, the last thing our economy needs is falling household incomes and even more bad debt. But that is precisely what this plan will give us.
The title of this post was lifted directly from James W. Harris’ article at the The Advocates for Self-Government. I liked it so much, I had to use it, but with a reverent bow in Mr. Harris’ direction.
With Obama promising more bailout and stimulus packages, it’s pretty scary to take a look at how much money has been “doled out” recently:
Lets recap the amount of money spent thus far this year. A word to the wise, get some duck tape to wrap around your head, cause these numbers all together is gonna make it explode… if it hasn’t already:
$700 billion for Wall Street, including Bank of America (Merrill Lynch), Citigroup, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and a lot more
Yes, over $2 trillion dollars. That $8 billion for IndyMac doesn’t even seem big anymore. Oh, and keep in mind that this doesn’t include the hundreds of billions the fed has and will buy up in commercial paper and lend out to other financial firms. The deficit is nearly $440 billion this year, and the national debt is $10.5 trillion. If these numbers don’t shake the next Congress into becoming more fiscally responsible, nothing probably will.
Liberty Maven
Fractional Reserve Banking - a banking system in which banks are supposed to maintain a quantity of reserves from its depositors that is a fixed fraction of the amount of new money the bank is then allowed to create. This newly created money, or credit, is then loaned to the bank’s borrowers.
