Why Does Ron Paul Want to Shut Down the Federal Reserve?
All by his lonesome, GOP presidential candidate Congressman Ron Paul is the sole sponsor of Bill H.R.2755 calling for the abolishment of the U.S. Board of Governers of the Federal Reserve, the Federal Reserve banks, and a repeal of the Federal Reserve Act.
Why would a presidential hopeful even bother with such an obscure, and almost impossible, endeavor? If Americans only knew what Ron Paul knew, they would leave debates over the ACLU, the Christian Right, gun control, and prayer in school in order to join him in overturning the FED.
Gary North's latest issue of Reality Check provides a helpful discussion on the basics of the Federal Reserve. Please pass it along.
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"Buy now, pay later." There are few slogans that better summarize the dominant philosophy of the modern consumer-driven economy.
The popularity of this appeal is inherent in man. He discounts the future. He values whatever he owns now more than the same item owned in the future but postponed for now. What he wants is a way to buy now and pay later . . . or not pay at all.
Before the money economy, a man might take possession of a sheep today in exchange for his promise of delivering a sheep to the lender next year, and a second sheep the year after. What he hopes for is the birth of two black sheep, which don't have a good resale market because of what later became known as the Henry Ford promise: "You can get it in any color you want, so long as it's black." White wool can be dyed a different color. Black wool can't. Its market is smaller. Fewer people bid for black sheep. He will repay his debt with black sheep.
Smart lenders of course wrote into their contracts that the sheep to be delivered had to be the same type as the sheep originally loaned. This made it tough on borrowers.
The modern fractional reserve banking system lets borrowers get back into the black sheep scam. Anyway, they think they can. They think they can get something for nothing.
So, they take loans at 5% per annum so they can buy whatever they want at today's low prices. They are not concerned about a 4% depreciation of the dollar over the following year. They can use depreciated dollars to pay off lenders.
So, when the men with the buckets come around, they find takers. People sign the contracts.
Why would anyone lend money at 5% when the money returned will be worth 4% less? Answer: Because they have a government license to print the money they loan. Paper and ink are cheap. Better a 5% return with 4% inflation than having your license revoked.
Digits are cheaper than paper and ink.
Economists are mostly Keynesians, monetarists, or supply-siders. All three positions assert that a nation needs a central bank to increase the money supply. All three deny that a gold-coin standard without fractional reserve banking is a legitimate ideal. They assure us that the economy needs fiat money to sustain economic growth. Of course, it does not need too much money. Too much money is bad for the economy. It needs a just-right quantity of fiat money.
These people are promoters of gray sheep economics.
Borrowers get to dream of paying off loans with depreciating money. Lenders (bankers) get to lend more money than they otherwise would have: more fiat money to lend. Private creditors get to believe that the central bank will get inflation under control. Economists get jobs promoting the system.
Who are the big winners? Auctioneers. Sotheby's began in 1804. Christie's was founded in 1744.
There is one other big winner in the United States: Crane & Company. Privately held, it reports to no one outside its offices. It alone provides the paper for the U.S. currency. It has ever since 1879. Arizona's Congressman Jim Kolbe has introduced legislation every year for a decade to open up this market to competing bids. So far, no law. The Treasury has refused to tell Congress if any other companies have been allowed to bid. After all, what does Congress think it is? The voice of the People? Well then, who do the People think they are?
What Motivates the FED?
The fellows with the buckets full of money have a sweet deal. But there is a risk: they may not get repaid in an economic downturn. Also, there is the problem of competition: new counterfeiters. So, bankers need just enough money to hand out, but no more. But some bankers cheat. They print too much money. This can lead to too much inflation. Congress might get involved. That would be very bad. Congress might revoke some banks' license to print money. This is terrifying to bankers.
Bankers therefore need a cartel to keep the members in line.
This is the primary function of every central bank: the cartelization of fractional reserve banking. Everything else is subordinate.
There is a continuing complaint among the FED's critics that the FED gets rich by creating the money it lends to the government. It then gets paid interest by the government.
This is true. It does get paid. What the critics apparently do not know is that the FED returns two-thirds of this money to the Treasury every year. In 2005, it took in a little over $30 billion and returned $21.5 billion.
The FED is the lender of first choice for the government. The FED alone returns two-thirds of the interest paid. Basically, the FED pays Congress $20 billion a year to sit there and be quiet, rather like schoolchildren in a tax-funded school. When a Congressman cross-examines a FED chairman, he does so with the same authority that a fourth grader raises his hand and asks Miss Snook a question about long division, and with about the same knowledge of the subject. The only time a FED chairman gets asked serious questions is during a recession, and the questions are some variation of the schoolchild's "Can I go to the bathroom?" The FED Chairman answers: "Yes, you MAY go to the bathroom." The Congressman looks relieved.
There is a lot of fuss about who owns the FED. This implies that the key to understanding the FED is to follow the money. It does, indeed, but the critics do not understand that the flow of funds begins with the FED. It does not end with the FED.
Member banks own the FED's shares. Yes, Congress should be told which banks own the shares of the FED and in what percentage. But that would not prove anything except this: the owners are private banks.
The key to understanding the FED is understanding that its goal is not merely to expand the money supply. It is to control the rate of expansion by controlling the banking system as a whole -- not too fast, not too slow, but just right.
The FED is owned by private banks to provide a service to the owners of private banks: cartelization. This keeps bankers from "cheating" other bankers by producing too much money, thereby endangering the entire fractional reserve banking system by exposing it to bankrupting bank runs by depositors.
Think of the FED as OPEC. OPEC wants people to buy and use oil. The FED wants people to borrow and spend money. OPEC wants to control the rate of production of oil by legally independent producers. The FED wants to control the rate of production of fiat money by legally independent producers. OPEC protects the market for its product from secret discounts by its members. So does the FED.
Conclusion
Price inflation persists because (1) the FED creates money to buy assets, spending it into circulation; (2) the public wants a little inflation. There is no politically organized constituency for stable money.
The public gets what it wants: depreciating money for repaying debts. The bankers get what they want: constant income from ever-expanding debt. The Congress gets what it wants: placated voters. The FED gets what it wants: a cartel.
There is a price for all this: the absence of 100% market-created, market-allocated money. Instead, the world gets a money system based on the decisions of competing bureaucrats, who do not own the money their central banks create. Power without ownership; authority without full responsibility: here is a formula for disaster.
Why would a presidential hopeful even bother with such an obscure, and almost impossible, endeavor? If Americans only knew what Ron Paul knew, they would leave debates over the ACLU, the Christian Right, gun control, and prayer in school in order to join him in overturning the FED.
Gary North's latest issue of Reality Check provides a helpful discussion on the basics of the Federal Reserve. Please pass it along.
*******************
"Buy now, pay later." There are few slogans that better summarize the dominant philosophy of the modern consumer-driven economy.
The popularity of this appeal is inherent in man. He discounts the future. He values whatever he owns now more than the same item owned in the future but postponed for now. What he wants is a way to buy now and pay later . . . or not pay at all.
The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth (Psalm 37:21).The more present-oriented he is, the more ready he is to buy now and pay later. He starts looking for a way to buy now without having to forfeit ownership of something worth as much or more as the item offered for sale.
Before the money economy, a man might take possession of a sheep today in exchange for his promise of delivering a sheep to the lender next year, and a second sheep the year after. What he hopes for is the birth of two black sheep, which don't have a good resale market because of what later became known as the Henry Ford promise: "You can get it in any color you want, so long as it's black." White wool can be dyed a different color. Black wool can't. Its market is smaller. Fewer people bid for black sheep. He will repay his debt with black sheep.
Smart lenders of course wrote into their contracts that the sheep to be delivered had to be the same type as the sheep originally loaned. This made it tough on borrowers.
The modern fractional reserve banking system lets borrowers get back into the black sheep scam. Anyway, they think they can. They think they can get something for nothing.
So, they take loans at 5% per annum so they can buy whatever they want at today's low prices. They are not concerned about a 4% depreciation of the dollar over the following year. They can use depreciated dollars to pay off lenders.
So, when the men with the buckets come around, they find takers. People sign the contracts.
Why would anyone lend money at 5% when the money returned will be worth 4% less? Answer: Because they have a government license to print the money they loan. Paper and ink are cheap. Better a 5% return with 4% inflation than having your license revoked.
Digits are cheaper than paper and ink.
Economists are mostly Keynesians, monetarists, or supply-siders. All three positions assert that a nation needs a central bank to increase the money supply. All three deny that a gold-coin standard without fractional reserve banking is a legitimate ideal. They assure us that the economy needs fiat money to sustain economic growth. Of course, it does not need too much money. Too much money is bad for the economy. It needs a just-right quantity of fiat money.
These people are promoters of gray sheep economics.
Borrowers get to dream of paying off loans with depreciating money. Lenders (bankers) get to lend more money than they otherwise would have: more fiat money to lend. Private creditors get to believe that the central bank will get inflation under control. Economists get jobs promoting the system.
Who are the big winners? Auctioneers. Sotheby's began in 1804. Christie's was founded in 1744.
There is one other big winner in the United States: Crane & Company. Privately held, it reports to no one outside its offices. It alone provides the paper for the U.S. currency. It has ever since 1879. Arizona's Congressman Jim Kolbe has introduced legislation every year for a decade to open up this market to competing bids. So far, no law. The Treasury has refused to tell Congress if any other companies have been allowed to bid. After all, what does Congress think it is? The voice of the People? Well then, who do the People think they are?
What Motivates the FED?
The fellows with the buckets full of money have a sweet deal. But there is a risk: they may not get repaid in an economic downturn. Also, there is the problem of competition: new counterfeiters. So, bankers need just enough money to hand out, but no more. But some bankers cheat. They print too much money. This can lead to too much inflation. Congress might get involved. That would be very bad. Congress might revoke some banks' license to print money. This is terrifying to bankers.
Bankers therefore need a cartel to keep the members in line.
This is the primary function of every central bank: the cartelization of fractional reserve banking. Everything else is subordinate.
There is a continuing complaint among the FED's critics that the FED gets rich by creating the money it lends to the government. It then gets paid interest by the government.
This is true. It does get paid. What the critics apparently do not know is that the FED returns two-thirds of this money to the Treasury every year. In 2005, it took in a little over $30 billion and returned $21.5 billion.
The FED is the lender of first choice for the government. The FED alone returns two-thirds of the interest paid. Basically, the FED pays Congress $20 billion a year to sit there and be quiet, rather like schoolchildren in a tax-funded school. When a Congressman cross-examines a FED chairman, he does so with the same authority that a fourth grader raises his hand and asks Miss Snook a question about long division, and with about the same knowledge of the subject. The only time a FED chairman gets asked serious questions is during a recession, and the questions are some variation of the schoolchild's "Can I go to the bathroom?" The FED Chairman answers: "Yes, you MAY go to the bathroom." The Congressman looks relieved.
There is a lot of fuss about who owns the FED. This implies that the key to understanding the FED is to follow the money. It does, indeed, but the critics do not understand that the flow of funds begins with the FED. It does not end with the FED.
Member banks own the FED's shares. Yes, Congress should be told which banks own the shares of the FED and in what percentage. But that would not prove anything except this: the owners are private banks.
The key to understanding the FED is understanding that its goal is not merely to expand the money supply. It is to control the rate of expansion by controlling the banking system as a whole -- not too fast, not too slow, but just right.
The FED is owned by private banks to provide a service to the owners of private banks: cartelization. This keeps bankers from "cheating" other bankers by producing too much money, thereby endangering the entire fractional reserve banking system by exposing it to bankrupting bank runs by depositors.
Think of the FED as OPEC. OPEC wants people to buy and use oil. The FED wants people to borrow and spend money. OPEC wants to control the rate of production of oil by legally independent producers. The FED wants to control the rate of production of fiat money by legally independent producers. OPEC protects the market for its product from secret discounts by its members. So does the FED.
Conclusion
Price inflation persists because (1) the FED creates money to buy assets, spending it into circulation; (2) the public wants a little inflation. There is no politically organized constituency for stable money.
The public gets what it wants: depreciating money for repaying debts. The bankers get what they want: constant income from ever-expanding debt. The Congress gets what it wants: placated voters. The FED gets what it wants: a cartel.
There is a price for all this: the absence of 100% market-created, market-allocated money. Instead, the world gets a money system based on the decisions of competing bureaucrats, who do not own the money their central banks create. Power without ownership; authority without full responsibility: here is a formula for disaster.
