Ron Paul on the End of the (Current) Fiat System
Posted November 20th, 2008 by Republicae
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Great direct speech by Dr. Paul:
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ONE REQUEST TO DR. PAUL: Please, do not say "Print Money" to
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
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mean credit creation. It is WRONG and EXTREMELY MISLEADING. I believe that this is one of the important reasons why so many people are confused to believe that we will have hyper-inflation. No, not much money was actually printed. The money that people thought was printed was nothing but credit, and it is now dissapearing FAST.
You should never say "Print Money" to mean credit creation. This has been extremely harmful to so many people, as far as I can see.
Just my opinions.
You still don’t get it
You still don’t get it GREED, there is a difference between fiat credit expansion and fiat money expansion. While it is true that the usual manner in which the FED injects money into circulation is through the Fractional Reserve System as the extension of credit, but it does not, nor has it precluded the FED from direct infusion. Direct infusion, as I have tried to tell you, is not only as dangerous as the over extension of easy credit, but it is perhaps much more dangerous in terms of inflation and hyperinflation. Since you don’t, obviously, understand the mechanisms behind either means used by the FED, perhaps you should avoid making statements that simply show your lack of understanding on the subject.
I am quite sure that Dr. Paul knows exactly what he means when he says something, the question is whether you understand or not, obviously you don’t, evidenced by this and other comments you insistently make as, what else, but opinions.
When all else fails, Dr. Paul, unlike you, understands that the FED will resort to devaluing the dollar. Recently, the balance in the TSFA, or so you will understand, the Treasury’s Supplementary Financing Account has been massively expanded in terms of liquidity. There is now almost what could be considered a glut of liquidity available to the Treasury.
Now normally banks are required to post reserves with the Federal Reserve and under usually circumstances those reserves would not amount to very much when we really consider the amount of money the banks circulate, perhaps as little as $10 Billion, but something strange has happened recently. The FED has basically increased the rate it pays banks on reserves and thereby a great deal of reserve liquidity has entered the FED, in fact, around $1 Trillion Dollars are now deposited by banks at the FED. Again, this is a rather strange development and while there appears to be a lack of liquidity in the system it is very deceiving, the fact is that there is now more liquidity within the system than there has ever been. Partially this is due to the actions taken by the FED to inject that liquidity and draw banks into providing the necessary reserves to eventually extend that massive amount of liquidity into the credit system.
Now, this has some strange effects because as bank reserves reach historic heights there is a distortion in the FED Funds Rate. But it is very clear by these actions that member banks never want to be put into a position of a lack of credit liquidity in the future.
Now, something else you don’t seem to understand is that when interest rates move closer and closer to zero, or hit the Zero Bound, then Treasuries will barely be distinguishable from cash itself. So, the FED has expanded its balance sheet…basically “printing money” as an incredible rate, actually a historical rate, but it must expand it in order to actually affect rates. Now there is not much movement available, even as the FED continues to manipulate rates closer to the Zero Bound. The FED will begin to twist its magic on longer-term Treasuries, which will provide even greater leverage for the Federal Reserve to achieve its goals; there is a lot of wiggle room in those longer-term instruments.
Now, remember, there are historic levels of liquidity parked in the system, as I stated before there is a logjam that has a massive flood of fiat liquidity behind it. If therefore, the lower-yields on the long-term Treasuries are not doing the trick of loosening up the logjam, then it will directly influence the yields on even private issue securities. Remember, the FED can lend directly to banking institutions and indirectly to non-banking institutions through its member banks via the discount window. It has been doing a lot of that recently.
Now, Bernanke, being the student of the Great Depression he is, will remember the actions of FDR in 1934 when he ended the rampant deflation of the early 30s in a very short time by increasing the money supply through all available avenues. I realize that you think the FED only has one avenue, but you don’t understand that it actually has a freeway of options to create liquidity and cash injections.
There also seems to be a misconception that the economy must enter a recovery stage to stimulate the speed at which money circulates through the economy, which would, in turn, convert into an expansion of the money supply causing inflation. That is not true, as we will see. Nor does your old foe: HYPERINFLATION primarily depends on a massive monetary expansion, it hits when there is a large increase in the supply of money, but it is combined with a loss of confidence in that money. There has never been a case when hyperinflation occurred during an upswing or booming economy, it is always preceded by a downward trough or a deflationary slump. Likewise, just because we are apparently experiencing a downturn in economic indicators that also does not preclude a monetary expansion, actually it facilitates such an inflationary expansion.
Once again, hyperinflation, in every known case, has always been produced within a downward easing of the economy and we are entering that period. The reason for this is because the FED abandons its normal method of liquidity injections for direct injections. It is also very interesting to note that every example of hyperinflation have always, without exception, occurred by attempts of governments and central banks attempting to loosen up the very type of liquidity log jam we are now seeing. Without exception that has been the case. Take a look at monetary history, all the way back to 20 B. C. and the Romans bout with fiat hyperinflation…it happens the same way with the same results. 95% of all hyper-inflationary events have occurred in a business recession or depression, not in the stage of recovery. The other 5% of hyper-inflationary events were politically induced in nature.
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I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
If you had any credibility
Then maybe someone might take heed to you words. To bad. You just a hollow opinion with nothing to back yourself. You=No credibility.
He really doesn't and the
He really doesn't and the bad thing about it is he doesn't realize it either.
http://www.1776solution.b...
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
I wonder if the emerging
I wonder if the emerging economies out there, who now also happen to be the big creditor nations, are planning, or at least positioning themselves, to be able to write more business in a currency not controlled by the increasingly debt dependent west.
It would make a lot of sense, since none of the economies are individually large enough to replace the US and it's Dollar, Europe and it's Euro, or some cooperative scheme between the two; but if each tied their national currency directly to an internationally recognized commodity like gold, they would function as a much larger monetary bloc. A movement such at this also allows any country, no matter how destitute and insignificant, to access debt markets on an equal footing as the Western powers. That ought to hold some allure for many of them.
In order for people to fully trust the governments of countries like Russia, Iran, China and third world countries, it would probably require full convertibility, though. If there is any room for monkeying around, these guys have infinitely less credibility than the Fed, ECB and BoE. If anything good comes of the current mess, maybe it will be that enough 'second rate' economic powers join forces around gold, to gather the critical mass it needs to offset the fiat currencies so popular in the West. One can always hope...
Moral hazard
I remember the good Dr. saying something like " If you subsidize something, you get more of it"
Now every industry will take out their violin and play in front of Uncle Sam.
"What country can preserve
"What country can preserve its liberties if its rulers are not
warned from time to time that their people preserve the spirit
of resistance?" --Thomas Jefferson
Distilled to its essence, Dr. Paul's conclusion is as he has
continued to repeat: Obey the Constitution. Stray from it and eventually there will be a price to pay.
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"An economy built on fiat money is a society on its way to ashes."
Everything beyond...
...the "prooooduction" of WATER, FOOD and SHELTER is completely EXTRANEOUS! The belief in "money" beyond that is everything PT Barnum.
This is why money systems fail. Money is not important, "only life is important." We, the human race, have the means and technology through both mechanical and biomechanical means to water feed and shelter everyone on Earth without having to keep folks choked down to nothing.
The dam is cracked and leaking, soon it will rupture.
Human intolerance too, will end.
Would a "gold" standard really work?
While I sure agree with Ron Paul through most of this interview...I continue to wonder if his plan to return to a commodity back currency (precious metals) is even remotely possible yet alone beneficial.
First, it has been fairly well established that there is in fact very little gold remaining at Fort Knox - which has become a well protected cavern for spiders to web. We have very little gold. Where would we get the gold and silver required to back up our currency?
Annually, there is around 2,500 tonnes of gold mined each year. Scrap gold and central bank sales contribute to an average annual gold sales of around 4,000 tonnes. A tonne of gold is 32,151 ounces so at today's price of around $740/troy ounce, an entire years worth of gold (4,000 tonnes) is approximately $95,166,960,000 or simply $95.1 billion dollars worth of gold.
While this may be a big number to you and me, it would only allow for a very small amount of our currency to actually be backed by gold. If the same 4,0000 of gold went up to $5,000/troy ounce, the value would be $640 billion which is still woefully inadequate to back our currency.
Let's not forget that until 1971 our currency was backed by gold. The reason why Nixon unilaterally decided to end the backing was that our international trade partners - mostly France - were beginning to raid our gold reserves by simply cashing in their dollars. This event depleted much of our nations gold and I think it is safe to assume it would happen again. Would we be willing to trade with our international partners with a gold backed currency against their fiat currencies?
No doubt gold and silver can be excellent assets in which to store wealth and to hedge against inflation and currency devaluations (two sides of the same coin). I personally own allocated gold and silver and would suggest to others who see the strategic value of precious metals to do the same. We don't have to wait for the government to protect our accumulated wealth with gold and silver.
Now on to the bigger problem that Ron Paul neglects to mention in the interview. The real problem with our economy is that every dollar must be "borrowed" into the system - with compounded interest added. The fact that the interest is applied and compounded means that eventually it will grow exponentially, thus the system is unsustainable. We have hit this point where servicing our interest and debt are simply consuming the real economy. The sad thing is that this dilemma was both predictable and avoidable. We are like a dog chasing it's tail - we either stop or we expire in the process.
There is no tenable solution that allows for the collection of interest to continue. The math will stop this like a brick wall as we are now painfully discovering. It doesn't matter how or if we back up our currency with commodities the outcome will be the same.
Why hasn't anyone else thought about this? They have - check Chris Martenson's "Crash Course - Chapter 8 or view the Money as Debt video, or the Money Masters video. There are many other sources, just google it.
My suggestion? End the Fed and stop all parasitic and usury interest. In my research there is only one lone voice discussing the problem while offering a comprehensive solution - Mike Montagne offers a mathematically perfected economy™ - it is worth your while to review his plan with an open mind. Be forewarned that while Mike is a big Ron Paul supporter on most issues, he pokes Paul and Austrian economics in the eye for their refusal to acknowledge and address the interest bugaboo.
Just to be clear,
Just to be clear, technically an economy could be run by horse shit. It's all perception. The mechanical type reasoning behind the movement to a fiat currency is understandable. It wasn't just corruption and collusion. This type of system creates a much more efficient process. The dependency of something else wasn't ideal either. In fact, a gold standard is really just another type of credit system. Gold itself has no value either. It is just presumed to have value. But I don't NEED gold, even if it's a precious rare metal. That's irrelevant. The only true sound money system is going back to the stone age and dealing with trade...i went this land...okay, provide me with equal compensation...no that's not equal...no it is...etc. It's quite crude. The only real benefit of having a system like a gold standard is the inability to create the product of credit.
Either way, regardless of the reasoning behind the progression to a fiat system, it's simply disagreeable for the simple reason of power and control. That's the problem with it. As Paul said back in 71, when the gold standard was removed, at that point all money then became political money. Whatever else is irrelevant. So whether it's a gold standard or something equal in structure, that is better than the current structure that allows centralized power.
Also, I don't know all the details about the amount of gold, but here's a really cool fact about the Federal Reserve (maybe the only one). The Federal Reserve Bank of New York holds more gold than fort knox by a good margin and is considered the largest depository of gold bullion in the world. The gold is from all different countries all over the world. The cool part: they hold it there free of charge out of goodwill.
Absolutely, not only would
Absolutely, not only would it work, but it would provide a type of prosperity that this country hasn’t seen in a long, long time. If, as many do, ignore monetary mechanics, especially those of a sound monetary system then you would naturally fall into the group that transpose fiat monetary mechanics onto sound money…they are two completely different models of money and economics.
There hasn’t been gold in Fort Knox for decades, it is spread around this country in various vaults, but the largest holder of gold in this country is the people themselves. They own more gold than the Federal Reserve holds. You are, as most people do, making the mistake of supposing that the supply of gold and silver, in terms of quantity, is simply not enough to “back” the currency. First, you must look at the fiat currency, what is it and what is its actual value? Face value is extremely different than actual purchase value. Since 1913, our dollar has effectively been depreciated to over 97%. Today, we might look upon $1,000,000.00 and suppose, based on face value that is a lot of money, but in terms of actual purchase value compared to a 1913 REAL 100 Cent Dollar, that $1,000,000.00 in face value only has an effective purchase value of only $45,007.00…and that is based on biased government CPI calculations.
Now, that being said, we must also understand that gold and silver, but gold in particular, serves a very specific function of exchange in an economy. Unlike a fiat monetary system, whether interest is attached or not, economic growth depends on the expansion of the monetary supply. The reason for that is because fiat money is a double liability, it is not, nor can it ever be an asset. Gold, on the other hand is asset money, meaning that the mere fact that it is money means that it holds the value of monetary exchange and is a double asset in book-keeping terms.
Likewise, it is important to understand that under a gold monetary standard, particularly when the free-market is allowed to perform its proper role, there is a very symbiotic relationship between the functionality of exchange and the money itself. That is not quite true with a fiat monetary system which must rely upon various manipulations for the entire system to work.
Once again, don’t get caught up in overlaying the face value of fiat currency on the gold supply and then think that there is a huge discrepancy. There is much more involved with a gold monetary system then can be made in such comparisons.
Gold money differs greatly from any other type of monetary substitutes, such as fiat money. We have grown accustom to a mentality based upon our understanding of fiat money and the continual need to increase the supply of both fiat money and credit to stimulate economic growth, that is not the case with gold money and very few people understand that fact. There is one very essential difference between gold money and all other commodities, as well as other types of money substitutes. While we tend to think of money as an end to itself, it actually only serves a social good by providing a means of exchange throughout the general economy and is very rarely stagnates within a given economy. I don’t want to get too deep into the movements of money through an economy and how a gold monetary system operates on a very different level than fiat money, but needless to say, there are substantial differences between the economic mechanics of gold money and fiat.
David Hume, perhaps one of the first economists in the world, studied the mechanisms of gold money through an economy and wrote extensively on his findings. There are, as he found, economic mechanisms to bring about equilibrium when the supply of money increases or decreases. Without the intervention of government or a central bank, the economy, under a gold monetary system, will automatically adjust itself to either the rise or fall in the money supply. The reason for that is that gold money performs a very definite utility within and through the economy, something that is impossible under any type of fiat monetary system.
If the supply of gold increases, then the natural result will be a fall in the price of money, in other words, both inflation and deflation are natural occurrences within a sound monetary system and each performs very vital functions within an economy. When the supply drops, there will be a rise in the price of money, or the purchase value of the money will increase.
David Hume stated, in so many words, that if, by some miracle, that every person’s bank account was doubled overnight with double the amount of gold in circulation then everyone would naturally think themselves twice as rich as they were the day before. Now, while it is true that everyone would have double the amount of money then they had before, they really would not be twice as rich and there is a good reason behind that fact. What actually took place is that the money supply was instantly diluted overnight. So, these people, who think they are now twice as rich, will run out and start shopping all this new money. While it is true that in the very beginning they would be able to buy more product that would only last a short while until the demand of the new money no longer bids against each other for goods and services. Additionally, with all the new-found wealth, productivity would increase and supply would equalize demand. So, the process is reversed when the supply of gold money is diminished.
Now concerning interest, interest not associated with the prima-materia creation of fiat money is vital to a free-market. Mike Montagne is a software engineer, not an economist, not an expert on money. I have read his writings for two years and while he does offer some interest facts, he is not, so it seems, aware of monetary economics, especially when it comes to those involved with the use of gold as money. He sees a mathematical formula only. Dr. Paul and Austrian Economics do not avoid the issues of prima-materia interest on the creation of fiat money, but they understand a much broader picture than just the interest that is charged on the creation of fiat money. As I said, concerning actual interest within the free-market, there is no way to have a free-market without the freedom to charge interest, no more than there would be a free-market without the ability of a landlord to change rents.
http://www.1776solution.b...
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
While I mostly agree...
Thanks for the insightful response - I really appreciate the opportunity to discuss what I think is central and paramount to establishing an alternative monetary system. As an owner of allocated gold and silver, I certainly agree on the intrinsic value of owning precious metals as a private asset.
Republicae said: "There hasn’t been gold in Fort Knox for decades, it is spread around this country in various vaults, but the largest holder of gold in this country is the people themselves."
Response:
President Ronald Reagan considered re-introducing the Gold Standard, he appointed a group called "The Gold Commission" to explore the issue. They found that the US Treasury owned no gold at all and that the small remaining amount at Fort Knox gold was being held as collateral by the Federal Reserve against the national debt. GATA claims that there are over 15,000 tonnes of US gold missing but that's another story.
Even if you accept the official Department of the Treasury
Financial Management Service status report without questioning who actually owns the gold; they claim we and the Federal Reserve banks hold a combined total of just over 8,100 tonnes of gold and they value it at around $11 billion dollars. This is not enough to even begin discussions on moving towards backing our national currency with gold.
Would you suggest that we "borrow" the money needed to buy vast tonnes of gold - with interest compounding? If we bought the gold as debt, our currency would simply continue to be a fiat currency with added interest and increased inflation.
Foreign governments hold over 2 trillion US dollars in their reserves - backing these dollars alone would require over 62,000 tonnes of gold at $1,000/troy ounce.
And yes, private citizens likely hold more gold than the government - but surely you are not recommending this gold be confiscated? I would strongly object; preferring to keep my gold as a personal asset.
Ron Paul Clarification -
While advocating sound money, I don't think Ron Paul has expressly suggested that we move to a commodity (gold/silver) backed national currency. He and others, have stated that there would be a re-entry problem for some of the reasons I stated above. They advocate a "replacement" currency, separate and competitive, private or public, to our national fiat currency. The idea being that people will move over to the new currency, at their expense, if it is more attractive than our national fiat currency.
We already have private models that move towards an alternative commodity currency. GoldMoney and e-Gold for example will facilitate buyer/seller transactions through their private allocated gold account holders and some, in conjunction with PayPal as a distribution provider.
Summary:
A national gold/silver backed currency is impossible when applied to our circumstances. And worse, these discussions do nothing to address the bigger problem - that is that any currency, fiat or commodity, is hopelessly doomed if interest is charged on it's creation.
The exponential growth of compounding interest will devour any currency, it's just a matter of time. That's why Mike Montagne's mathematically perfected economy™ is such an important idea. He claims he can tame the beast - control inflation and eliminate the exponential growth of interest.
Interesting discussion
I don't pretend to have all of the answers for how to convert back to a commodity based monetary system, and I agree that it's a tricky problem, but I think a few clarifications are in order. Congress passed the Coinage Act of 1792, defining one dollar as so many grains (forgot the actual number) of silver and so many grains of gold. So for what it's worth, the monetary system could be bimetallic as originally envisioned and therefore both the supply of gold and silver could be used to back it up. I suspect that the numbers still would not work out and that a significant adjustment would have to be made to transition from fiat FRNs to gold/silver currency.
The loss of gold that you referred to was under the Bretton Woods monetary agreement in which the dollar was set at a fixed value (something like $30 an ounce if I remember correctly). Of course this applied only to governments and central banks. Ever since the '30s, citizens like you and me were not able to redeem our FRNs in gold. There was kind of a gentleman's agreement that the FRNs would not be redeemed for gold to hold the monetary system together in which the American dollar was the reserve currency for the world. But the Fed did what it always likes to do - inflate the currency. After a while, the value of the gold was so disproportionate to the value of the dollars that foreign holders of US currency could hardly contain themselves and started cashing in. Nixon had to close the gold window in 1971 to prevent the further flow of gold out of the US. In effect, he declared bankruptcy of the country and the dollars have been backed by petroleum ever since (which is another story). Repeated attempts to audit the gold in Fort Knox have been forbidden so we don't know how much, if any, gold is left there. Under a true gold standard, we wouldn't have to worry about these things because the currency could not be artificially mis-valued in relation to gold when it is backed by the commodity itself. Cashing in would only convert you paper certificate to metal.
Finally, I agree with your comments that any currency is ultimately doomed to failure when interest is charged on its creation. But this cannot occur with a pure commodity currency because it cannot be created at will. Currency backed by something of real value is in a lot of ways the opposite of debt-backed fiat currency.
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Alcohol, Tobacco, and Firearms - should be a convenience store, not a government agency!
Gold seems to have a way of "disappearing"
Its very interesting that you mention that the US essentially went bankrupt at least once before. The hidden history of our monetary system alone points to a conspiracy. This compounds any satisfactory solution in that it must be practical, tenable and out of the reach of corrupt politicians, bureaucrats and those who hold influential power.
Continuous inflation demands that individuals and companies be at least partially absorbed in counter acting the steady erosion of any wealth earned or accumulated. For example, corporations have been under intense pressure to have their stock grow at every quarter just to remain level. This invites companies to gamble in financial markets rather than to simply grow and develop their core product/service offerings.
Is it realistic to expect many in the huge investment and finance industries; those dependent on interest, to simply leave their posts without a fight? Hopefully we are boiling things down to expose the real problems and possible, if not attainable solutions.
Concerning the debt that has
Concerning the debt that has been created, people don’t understand that there is no way to pay down or pay the debt under a fiat monetary system, all that the government does is debt swaps, swapping new debt for old. Under a fiat monetary system if the debt, particularly the prima-materia debt, is paid down or off you will instantly have a contraction in the economy in proportions to the amount of debt retired. They will never do that; that is why they will continue to keep the printing presses rolling. The debt created by the fiat monetary system was never intended to be paid down or off; it is simply part and parcel of the fiat system.
Likewise, the partnership that has been formed between the Federal Reserve and the Federal Government is a symbiotic one; each thrives as long as the other does. The massive debt under the fiat monetary system is much more of a public relations problem than it is an actual accounting problem for the Federal Reserve or the Federal Government.
In other words, the debt is as fiat as the money is…if you can wrap your head around that? Since each fiat dollar is a legal notification of a debt obligation the debt obligation can never be paid with fiat dollars, at least not in terms that we would normally understand. Since the debt can never be paid off or down, since it was never intended to be paid off or down, what questions should that raise?
So, what could be behind a debt that cannot be paid down and was never intended to be paid down? What alternatives would be left to a government that puts itself in such a precarious position? Use more fiat to inflate away the debt? Remember, even if foreign governments hold $2 Trillion in reserves, there is no way for this government to pay that debt along with its other obligations. What’s it to do….no, it will not use gold to pay the debt, that window was closed in 1971 when the U.S. effectively reneged on its debt obligations and refused payment in gold.
So, what about this grand fiat money game that the entire world has been playing among them? Since 1971, every country has switched to basically the same system and it is almost certain that they also know that there is no way for the massive global debt accumulated, particularly by the U.S. and other developed countries, can ever be paid down or off because of the effects such a pay off would have on the global economy. In essence, these governments have been trading off fiat debt burdens between themselves, year after year, decade after decade without ever really paying anything off…once again, there is nothing occurring but debt swaps, shifting debt burdens because that is the only thing that is possible under a fiat monetary system. They have used this system to stimulate a certain degree of economic growth while created a massive amount of political power.
Once more you appear to have your head wrapped in a fiat understanding of both gold and the means of escaping the situation. The entire system is based solely and completely on a Ponzi Scheme that relies upon the confidence and enforcement of the fiat monetary system for its continuation. Even if interest was not attached, the problem would be the same because there is simply no way under any type of fiat monetary system to actually restrain the budgets of governments unrestrained by a commodity monetary system.
Governments will not adequately regulate themselves or discipline themselves as long as any type of fiat monetary system is available to them, whether that system is interest bearing or not. In other words, there is simply no way out, even with Mike Montagne’s PMPE because the debt would remain under such a system and there is simply no way to pay it off or down without extreme consequences, the problem is that all fiat systems end in disaster, normally through a hyperinflationary event where the abuses of the Central Bank become rapidly evident within the corresponding economy.
Now, where does that leave us? In a pickle to say the least. The fact is that this country will soon have very few options left to it, it will either collapse under a fiat hyper-inflationary event caused by a government and its central bank in attempts to inflate the debt away or it will be tossed into open rebellion as the People finally begin to awaken to just what has taken place in Washington and New York.
Now, if you recall, back when Dr. Paul was running for President, there was a lot of talk about a gold monetary system, particularly in Canada. I read an article in a Canadian Financial paper when stated that if the U.S. returned to a gold system that Canada would have no choice but to do the same because a gold system would make the U.S. so competitive and so prosperous on the world market that no one would be able to compete unless they also followed suit. I
f we simply hinted that we were returning to a gold system the rest of the world would take instant note of that fact. Economics, particularly sound free-market economics would instantly kick into gear…the flow of gold into the country, particularly by other countries seeking to invest would be almost overnight, in fact we would see a massive push toward buying U.S., whether is be through the issuance of sound gold-backed Treasuries, general investments, etc.
The balance of trade would rapidly become equalized and we would have governments, private corporations and investors knocking down our doors. If you remember the trading pits on the FOREX markets back during the campaign when Dr. Paul talked about returning to sound money and economics, there were cheers on the trading floors, the reason for that is that money people know what would happen.
Now, of course, if you have read any of my postings here or on Nolan Chart, you would know that I would never dream nor would I imply that private gold ever be confiscated by the government or anyone else. The point I was making is that when gold is money, then gold is money no matter what form it is in. Private gold would serve just as well as money as coined gold would…remember under a gold monetary system it is the gold that is legal tender, not the actual coinage of the gold that is just a convenience.
Dr. Paul has put a very old idea back into play when suggesting competing currencies. From the time this country was founded until 1958 any gold and silver coin, from any country was accepted as payment for all debts, contracts and purchases. Such a system would definitely be advantageous in terms of transition. Naturally, people would gravitate toward money that actually has value and retains value instead of a fiat monetary substitute. Indeed, digital gold is already in place and could easily form the backbone for such a transition.
The impossible fact is that our current circumstances preclude a great deal, including a fiat monetary system that eliminates compounding interest as a prima-materia debt. There is simply no way around the destruction of this current system because of the mindset in Washington. Until and only until, the People lose confidence, which is happening, in both Washington and the fiat monetary system it will continue unabated until it is consumed by the hyperinflationary abuses of the FED and Treasury.
http://www.1776solution.b...
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
There have been some
There have been some interesting questions raised about interest or usury; some have mistakenly taken the position that it should be completely banned because, for various reasons, they associate what would normally be considered a healthy part of the free market with the same type of prima-materia interest charged on the creation of our fiat currency, which is definitely detrimental not only to the health of the economy, but to the security of society as a whole.
Now, to start isolating the issue of interest and its vital role in a free-market, we must understand what happens when interest rates are artificially manipulated, usually lowered, to accommodate certain socio-political agendas. When rates are forced, by manipulation, to lower levels then several very complicated factors come into play within the market and the interrelationship it has with the resulting commerce, not to mention wage and pricing.
There are numerous after-effects that are usually unseen for months or even years because the economic system will always seek to bring about equilibrium against distortions cause by such manipulations. That being said, let’s now consider what would happen if, by government mandate, as some have suggested, there was a complete abolition of all interest attached to all credit transactions.
First, without doubt, there would naturally form a black-market for interest-bearing credit to circumvent the unnatural controls set by the STATE. In such cases, you can be sure that such black-market rates would not conform to or correspond with capital market forces for the simple reason that it would be forced to adjust risks to the various complex transactions which would seek to subvert government decree. Likewise, eventually there would be no difference in a black-market interest rate system than that of a government decreed manipulated system; the distortions would eventually show in the broader economy.
As we have recently seen, and seen many times before, when such rate manipulation is decreed by pseudo-government agencies, like the Federal Reserve, distortions can develop to the point that there must then be more government intervention to solve the problems intervention stated in the first place. In effect, the government must take over what would normally be market forces and attempt to stabilize the economic distortions it created; it can however, never be an adequate substitute for real market-forces.
To have a proper understanding and therefore, a proper perspective we need to really get an understanding of the functions, the vital functions that interest performs in a free-market. In a free-market, there is nothing haphazard about it, it is vital and without it the system does not function nor will it regulate itself. Simply put, you cannot have a free-market without functioning interest.
In free-market capital, there must be a factor that allows all those seeking credit to be able to judge the risks associated with that credit; this also allows them to weigh their actual needs based upon the costs associated with the credit they seek. This is vital, especially when it comes to enterprise or any commercial venture, even down to the individual when it comes to the various types of personal loans. Interest, especially when governed by the market, is not only a great indicator of economic health, but it is also potentially a great inhibitor to malinvestment and a guide to profits under a time-preference framework.
Perhaps, equally as important, interest is a mechanism that provides almost a rationing effect on limited capital reserves, equalizing the allocations of capital to the widest, most productive sectors of economic growth or potential growth.
Likewise, the quality of borrower is filtered through risks levels to prevent, under normal circumstances, the misappropriation of funding, potential malinvestment and reckless decisions.
So, why did interest develop as an essential part of free-market economics? There has to be a reason why it formed besides the so-called presumed greed of the lender. Interest is not a meaningless source of enrichment for some people in society; it does have a very particular function as I said above. Perhaps one of the foremost functions is that it distinguishes capitalism from socialism and provides very primary functions to economic mechanisms, without which we would, not only have a very strange economy, but a very strange social structure to our government and society.
Without doubt there would be a misallocation of capital within society and it would effectively create a stratum of economic classes so marked by separation because there would be no reason to lend to those who may not qualify for what is essentially free credit. The natural qualifications for such credit would be stringent since there was no reciprocal reward of risks associated with the extension of credit. Therefore an actual rational allocation of capital in such an interest free society would not be possible.
Montagne is a software "engineer", not an economist, definitely not an Austrian Economist and if you read his site you will see that he is not any type of economist...there are no economics in his site...only mathematical formulations.
In regards to his "solution", he would require a monetary dictatorship far worse than anything we currently have with the Federal Reserve. That is apparent in his following quote:
"Speaking in regard to the design of a monetary system and to perfecting a monetary system, the issue is not what humans do within them, but what limitations and obstructions they may or may not impose upon what humans *can* do, subject to the extrinsic system."
Get this, in this quote he gives another rather odd view of inflation and deflation with a remedy that purports to solve it by maintaining a circulation equal to the value of wealth, how is that possible? That is not the mechanism that money plays within a free market exchange society, not would you or could you expect the free flow of economic growth if that were the case. Wealth is not money; wealth is what money can bring to a society via individuals operating within the free market.
He goes on to say: "The only way to do that is to introduce only just so much circulation as will sustain or is equivalent to the wealth; and to pay the resultant obligation at the rate of consumption or depreciation (which are to be understood to be equal)."
So, instead of having a free-market of money and therefore a free-market, it would, once again be a managed economy. As far as his proposal for, what would amount to little more than another Lincoln Greenback fiat system that would still not precludes the government from issuing as much money as they felt they needed to achieve their goals. While he supposes that his proposals would be a mathematically perfect economy, the truth is that it would be nothing more than a strictly managed economy fraught with all the political manipulations that the current one is plagued with.
For another interesting tid-bit of his wisdom, get a load of this:
"So likewise we can readily solve inflation and deflation, irrespective of any possible influence of human decision, because the matter is resolved by mathematic solution of the definitions."
He plans to solve the problems of inflation and deflation by a mathematical solution of the definitions of inflation and deflation!
As you can see....there are no solutions within A Mathematically Perfected Economy!
http://www.1776solution.b...
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
Like you, I recoil when I
Like you, I recoil when I hear of attempts to centralize the control of a monetary system. Surely this speaks against the very fidelity of a free market capitalistic system. Such controls are the sinews of communism, socialism and corporate fascism where the hands of the few in power control the distribution of wealth for the many.
Maybe this is too subtle an exception, but, my take is that Mike's system relinquishes this power to the predictable (balancing formulas) and transparent execution of a computer program. The goal is to match the total debt with the available currency - thus checking inflation and/or deflation. A key to this system would be the elimination of interest.
I agree that there is a correlation between the risk and reward of providing capital as debt and that this may be recognized in the form of interest payments. Just as easily, the risk may be insured while the provider of liquidity may be compensated in the collection of fees, rent, or leasing arrangements.
The mathematical reality is that we are now prescribing to a system that is inherently flawed by the perpetual need to inject a growing amount of inflationary money into the system simply to satisfy debts/interest incurred in the past.
If is absolutely stealth
It is absolutely stealth Socialism, exactly as planned by the Fabian Socialist. Until complete and absolute confidence is lost in that system or until collapse occurs, the People will continue to be herded like cattle and remain in the state of peonage that has been created specifically for the purpose of having a productive modern feudal serfdom.
Now, concerning Mike’s proposals, while I enjoy a great deal of the information he provides, as I said, he takes a particular view that apparently ignores a great deal about economic and even monetary mechanics, much less human action which is perhaps the most influential force in both the economic and monetary spheres. The problem is that, as I said, the debt along with the interest that is charged on the creation of our fiat monetary system was never intended to be paid down, only shifted from old to new debt. Even the periodic interest payments are never really paid because they can’t be. You cannot pay a debt with another debt obligation. So, all the debt and interest that is accumulating is, when you boil it down, nothing more than a complete fiat fabrication. The debt is no different, in essence, to the manner in which it is created in the first place. The FED basically “writes” a fiat check to purchase fiat Treasuries to create fiat money. The whole exercise is smoke and mirrors, so to is the debt when you get down to the bare bones of the system.
Now, when the government pays the periodic principle and the periodic interest payment are they really making any payments? No, they are simply expanding the debt without taking actually making any payments. As I stated, there is simply no way to pay such a prima-materia debt with the same debt obligation that was created by the system in the first place. Even if we did away with the Federal Reserve System and the interest obligations associated with the creation of Federal Reserve Notes, basically turning them into Fiat Greenback Notes, they would still be nothing more than debt obligations, IOUs which can never realistically be used to pay off such a debt.
If I owe you a debt, but I pay you with another IOU, I am simply shifting the old debt obligation to a new debt obligation, even if interest obligations are not attached, the original debt can not be paid with such instruments. Debts can only be paid with asset money and currently this country doesn’t have any and if Mike’s proposal was adopted it would still not have any asset money, it would only have fiat money without an interest obligation attached to it.
If, as you point out, that the total debt match the available currency in circulation then even that would pose another set of problems, first all fiat monetary systems must rely upon an expansion of fiat money and credit to achieve actual economic growth. That is and always has been, the nature of fiat money, even when interest obligations are not attached. If you view the history of fiat money in this country, not only under the Federal Reserve, but even when the government controlled the printing presses it becomes obvious that government cannot be trusted to restrain its creation of fiat money any more than the FED can.
Not to mention the fact that without such controls, such as the FED maintains, it is almost impossible to maintain a stable economic system. The only way the FED has been able to accomplish what is has it the intricate degree of manipulation that has allowed the economy ride on the precarious edge of a razor. Interest attachments on fiat money has little to do with inflation or deflation within the economy, the problem is stems from the creation or contraction of the money supply by the FED. As I said, the elimination of prima-materia interest attachments would not solve the major issues of fiat currency, it would only assist in solving the exponential multiplication of debt by that interest obligation.
Also, it would not preclude or exclude the continual need to expand the fiat monetary supply to maintain economic growth, the interest obligation has little to do with that mechanism, that is the nature of fiat money whether interest is attached or not. Nor has the expansion been due to the need to satisfy the prima-materia debt/interest obligations.
http://www.1776solution.b...
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
Thanks for the correction
Republicae said: "If, as you point out, that the total debt match the available currency in circulation then even that would pose another set of problems, first all fiat monetary systems must rely upon an expansion of fiat money and credit to achieve actual economic growth."
Thanks for the correction, my wording was poor and inaccurate.
Let me rephrase the "balancing":
A schedule of payments should equal to the depreciation/consumption of the related asset - thus remaining in balance. This would arrest inflation and deflation which is really what I think we all want to do.
In addition, the interest must be eliminated as it creates irreversible, terminal multiplication of debt that eventually cannot be sustained.
You may not agree with this, but at least it's more accurate to my case. Thanks Republicae - great discussion!
The absolute best way to
The absolute best way to actually arrest inflation is by returning to a sound monetary system that places defined budgets on the government and returns the economy to a system that is self-regulated and self-equalizing. No fiat system is capable of doing that, even one that bears not interest upon the creation of the money. Fiat money is particularly pernicious, because there are really no valid restrains on the government to contain its spending habits under such a system, history bears that fact out. I mean there have been numerous fiat systems without interest burdens attached, all ultimately fail because government cannot be trusted with the books.
The only restraint that keeps government in check is a defined monetary system that requires a budget and one that resist deficit spending. No fiat system in history has ever been able to contain governments because it is, by nature, the inclination of men in power to abuse that power unless they are completely bound by so many chains that they simply have no room to move beyond the law and the restraints of sound money.
In other words, there are no solutions in fiat money, none!
http://www.1776solution.b...
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
Bravo! The Congressional backdrop should be used more often.
Including in news interviews if possible.
Ron Paul's Convention Speech
Thank you
Dr. Paul-!
If Bernanke isn't required to answer, ask Paulson
Now that the secretary of treasure Paulson is openly working with the Federal Reserve chairman Bernanke, ask Paulson the questions regarding any knowledge of the Federal Reserve.
Realizing he will stutter like any other time he is asked challenging questions, we will at least have it recorded for the people to see more and more of the corruption from our government.
Again, another video of Congressman Paul explaining in laymans terms so all may understand exactly what is happening in this country. GREAT JOB Dr. Paul .
Bush and / or Obama do not address these issues in the best interest of the people of America.
Let us continue to battle and remove corruption from our system.
LOVE HIM! I don't think I heard the word 'inflation' even
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
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once in the 8 min. I think he is learning. Yes, inflation has been the problem in the past and the problem has been made far worse than it should be by inflation, but the problem going forward is deflation, in my opinion. I think Ron Paul started to see this. He is a smart man, so he should be able to understand this. First by inflation then by deflation...I hope Ron Paul will start to talk about deflationary consequences of the past inflation since there are so many people who have no clue.
Right, that's why the day
Right, that's why the day before yesterday he was warning of the dangers we will soon face from inflation. You are right, Ron Paul is a very smart man, perhaps you should actually listen to him more. Dr. Paul sees the whole picture...not just a portion and he understands monetary mechanics.
You are so very selective in your hearing and your understanding.
http://www.1776solution.b...
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
I think Ron Paul will start to talk about deflationary
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
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consequences of inflation pretty soon and I think he should.
He has been talking about
He has been talking about it. If you knew anything at all about Austrian Economics you would know that this is part of a business cycle..boom and BUST.
When you finance anything by debt you will always see a price plunge under a centrally planned economic system such as ours. There is an exhaustion factor that is automatically built into such a system. Dramatic declines in things like houses, cars, certain commodities and other assets is typical of this stage. When such bust occur, it will destory gross excesses in the market that were created by debt however, conversely anything that is not typically paid for by debt, such a food, general living expenses will tend to maintain a level pricing structure until they gradually increase.
All that is happening now is that we are witnessing part and parcel the business cycle, but this will lead to, as we have seen and as Dr. Paul has discussed, the FED taking extraordinary actions to directly infuse the markets with new fiat cash and credit. This of course will bring about the newest and higher level of inflation, which as Dr. Paul has said, could easily turn into a hyperinflationary event which would completely destroy the Dollar.
http://www.1776solution.b...
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
Money bomb for 30 minutes on Prime Time!
Someone brought this up on the YouTube comments section. How about a 30 minute show on Fox with Ron Paul discussing all this stuff? He could have a panel asking him questions kind of like Bill Maher. Perhaps Ben Stein, Cameron Diaz and Ben Affleck or one of those really hot Fox babes who wear the short skirts--folks with high appeal and relatively good brain power. (Simply talking to the camera would be about as boring as Ross Perot showing charts.)
I would have no idea how to pull this off, but I think it's something that could be done in such a way that it wouldn't be beneath Ron Paul or be a sabotage (like the appearance on The View.)
Honestly, a network like Fox or CNN really needs to get him on a regular weekly show! John Roberts, Lou Dobbs, Neil Cavuto and a number of others have been pretty kind to Dr. Paul and would surely advocate him becoming a regular. Wouldn't you rather watch Ron Paul than Nancy (Dis)Grace?
Just my 2% of a fiat dollar.
Super Ron to the Rescue?
Seriously, I like this idea. I just wonder how much more can be expected from this dear man. There are only so many hours in the day. Ginny in PA