End the Fed Answer Critique requestedSubmitted by rick4367 on Fri, 10/21/2011 - 23:07
So I have been posting a lot of videos and links about Ron Paul and End the Fed on facebook. I must say I haven't gotten a lot of feedback from my friends but I did get one question. I answered it as clearly as I could but would like to get some feedback on my answer in hopes to get a clearer view on the proper answer for my friend and myself.
Here is the Question:
HEY DUDE, i kno i'm probably asking alot, but can u dumb down End the Fed for me. I looked it up and i dont know what the crap a central bank is,,here's a paragraph that gave me a brain cramp!
Without the Fed, he says, we would enjoy “all the privileges of modern economic life without the downside of business cycles, bubbles, inflation, unsustainable trade imbalances and the explosive growth of the government that the Fed has fostered.”
Here is how I answered it:
First off, watch the video American Dream. It does a good job dumming down what the Federal Reserve is.
After you watch read on...
There are so many things wrong with the Fed its hard to write about one thing. But since you asked specifically on what a central bank is and the quote from the book I'll start there. I hope the video made sense.
In a true free market the market dictates what the people use as currency. I can create ricky dollars and distribute them around to everyone in south jersey and people could buy and sell them as
much as they want unless they see that you made Dana dollars and for whatever reason have deemed that they are more valuable. Also, bartering is acceptable. I can go to a store with a goat and get a bushel of apples, a gallon of milk and some shaving cream if the store owner accepts the trade. As long as both parties are happy with the transaction everything works.
This is how things were done for a long time. Eventually gold and silver became the popular exchange medium because everyone
agrees that it has inherent value and are willing to trade freely with that. Eventually bankers were able to convince the people and government that they could store and protect your gold and will give out a piece of paper that says it is worth 'x' amount of gold but will charge the depositor of the gold interest for its storage. This goes on until what happened in the video where they hung the guy because they found out he stole their money. This is exactly what Fractional Reserve Banking is, it can only be sustained until everyone withdraws their funds, then the banks go out of business because there is no physical money to pay everyone what they promised. (look up Bank of America having their customers arrested for trying to withdrawl funds).
This is where the Central Bank comes in. Instead of letting the free market decide what currency is used the Central Bank prints money to be distributed then the government FORCES its use.
Initially all the money the Fed printed was backed by a certain amount of gold or silver so it had some value. In 1971 President Nixon announced that we were off the gold standard. So now, what we use only has value because the government SAYS it has value. And because there is no gold basis, the government
can print as much money as it wants. This is called FIAT money, fiat means "let it be" in latin. There are bible verses which curses fiat money. Just google 'fiat money bible'.
Problems with printing excess money:
1) If I had a Mickey Mantle rookie card, and I am the only person who has it. I could probably get $1Million for it. If there were a million Mickey Mantle Rookie cards out there, I could probably get
a dollar for it. The more of something there is the less it is worth, same goes with money.
2) Excess printing in Germany led to a worthless dollar and a horrible depression. Also in Venezuela recently.
3) There are more but I'll move on.
BUSINESS CYCLE, BUBBLES, and INFLATION:
The Fed has an ability to manipulate the market and lower interest rates. This causes investors to buy up things they otherwise would not believing that the demand is higher. This causes stocks to blow up in value and people to invest more readily in problem areas. People get paid big money and believe that they are financially sound. This is what economists call a bubble. A bubble cannot be sustained and eventually bursts, causing recession and depression. This is the business cycle, stocks go up and they go down. All due to the Central Bank interfering with the free market in an attempt to control the economy. The Central Bankers think they are doing a GREAT job, just look up Ben Bernanke.
The most recent bubble to burst is the housing bubble, globally. The US Central bank and the European Central Bank both held interest rates so low for so long that people started buying up real estate. Banks gave out loans to people that they never would before because the government made them. The loans were transferred to stocks and bought and sold all over. The more real estate development the more money everyone made. This pumped up the bubble higher and higher. As it kept growing Austrian Economists, including Ron Paul, warned that it was not sustainable and would burst and tried to eliminate the government overreach that was causing it. No one listened. Eventually the truth came out, there were buildings being built that people would NEVER LIVE IN. Loans were defaulted because people couldn't pay the mortgage. Everything came crashing down. Unemployment rose and led to more and more defaults. Big investment companies that caused the mess were on the verge of bankruptcy. It is well known that the investment techniques these investment banks used were criminal, yet no arrests were made. In a free society these banks should go bankrupt and cease to exist. Instead, the government, through the Federal Reserve, bailed out the bad banks.
This is where inflation comes in. The only way the government can give out money is to borrow it, or tax it. All the governments funding comes from you and me from our taxes. The government guaranteed all the loans the bad investment banks made. These loans were paid for by the Federal Reserve PRINTING OUT OF THIN AIR BILLIONS of more dollars. Printing money creates inflation. Inflation is what makes milk go from $1.29 a gallon to $5 a gallon. When there is more money in the system it is worth less. Prices must go up due to more money being circulated. Inflation is a tax on the middle class because the upper class gets the free money from the government, and the middle class produces
and works and therefore pays taxes. Then the government increases taxes that only the middle class pays and gives it to the bankers and the poor through the welfare system. The more the government spends the more they borrow, the more they tax, the more they regulate, the more money that is printed and the worse off our lives get. It is a vicious cycle that has to end.
If there was no central bank and there were no fiat money system, the government couldn't borrow and would have to live within it's means. The business cycle would disappear and there could be almost no inflation because it FORCES government to limit themselves.
This is why the corporate controlled media try to pretend Ron Paul doesn't exist and/or says he doesn't have a chance to win President. He understands all of this perfectly and has a concrete plan how to end it. He has proven through 30 years in Congress that he will not budge from his values and will not stray from what the constitution allows. If he wins their gig is up and they know it.
Hope this helps, let me know if you have other questions!