The FED

[freddyv]

The FED is really screwing us by continually slashing interest rates as it's been doing lately. I found an article on the FED that might be worth reading if you're interested. It's pretty dry and a long read, but what I've read so far makes me feel like we should just let the market decide all of these things instead of trying to micro-manage them. A gold standard would help to stabilize currency and thus decrease the need for the FED's constant tinkering.

An excerpt that shows how the FED is screwing us right now by continually slashing the interest rates:


If the Fed can stimulate the economy out of a recession, why doesn't it stimulate the economy all the time?

Persistent attempts to expand the economy beyond its long-run growth path will press capacity constraints and lead to higher and higher inflation, without producing lower unemployment or higher output in the long run. In other words, not only are there no long-term gains from persistently pursuing expansionary policies, but there's also a price—higher inflation.

To fill in the blanks, lowering interest rates = stimulating the economy.

The article:

www.frbsf.org/publications/federalreserve/monetary/index.html

[Mickulz]

Before we even start, I want to point out that I am NOT opposed to a gold system, and I am NOT pro-fiat. But there are a LOT of things that people are not taking in to consideration when they jump on the quick "Gold" bandwagon. This is part of the issue I have with Dr. Paul and his push for a "gold standard". There are just as many pitfalls in Gold as there is in fiat based systems. Switching to gold will not solve the problems or "fix" the economy. Have a FISCALLY RESPONSIBLE plan around gold will. Much like have w FISCALLY RESPONSIBLE plan around the fiat system would would also.

The key things in gold, that many do not think about are what type of gold system to use:
1. Market created gold standard (my personal choice).
2. State created (not the best, but not the worse).
3. Bank appropriated (the worse choice).

Until you know the difference and the pitfalls of each, it is impossible to say that switching to gold would be better. The fact is, if we (the USA) were to switch to gold it would have to be the State creates option. Looking at that system, there are some major drawback.

For example:
If the public is allowed to demand payment in gold from the government, at a fixed exchange rate between the currency unit and one ounce of gold, then the government cannot print up too many currency units. If it does, people will trade in their fiat money for gold. To keep from losing its gold reserves, the monetary authorities will have to stop creating new money.

That may seem like a wonderful thing, but look at it in a smaller sense. If you worked hard and earned $10,000 for a job, and you went to the bank and they say "Sorry. We only have $5,000 to give you because our money reserve is going to run low" you would be upset correct?

The other issue is who actually owns the gold? Let's say for some reason you find 10 pounds of gold. You can not go to the store, buy what you want and chip off a chunk to pay for it. You would have to go and exchange your gold for paper money (which makes this part Fiat). You no longer own that gold. So the government again can control what goes out and what comes in.

Freddy, I actually agree with you on one part of your statement (and actually more, but I am pointing this out): "but what I've read so far makes me feel like we should just let the market decide all of these things instead of trying to micro-manage them."

If you go back and look at history, most all financial advisor's told Hoover to let it be, but he insisted on getting involved and have rates adjusted. Now, I am not saying Hoover alone created the great depression, but it did not help.

The last two points I will bring up is that in January 1934, Roosevelt raised the official price of gold to $35 per ounce, thereby devaluing the U.S. dollar by 41%. So the US dollar can still be greatly effected, even with gold as a standard. Remember that gold is valued at what others will pay. If we try to sell gold to China, we will get less money, because they have a larger stockpile than say Austria.

The other point is the fact that these things (recession and depression) are usually globally happening. In as early as 1928, other countries were hit with the depression before we were. This is also (what some, myself included) what helped people like Hitler and Mussolini get put in power, because the people got desperate.

To help pull out of the depression (and WW2 helped a lot) the government had to spend (The New Deal). For example: In 1929, federal expenditures accounted for only 3% of GNP. Between 1933 and 1939, federal expenditure was about 10%.

So to sum this all up, I have no problem with people saying Gold is the way to go, but I need to see the plan, because things could get actually worse if gold was used. Things can also get worse with the Fiat system. The facts prove that when we switch from gold to more of a fiat, the economy was not effected much. From the period of 1950 - 1980 the % of the US debt as GDP dropped.

The other thing people do not realize is that only 15% of our national debt is owed to foreign entities. The other 85% is debt to private US citizens and US Agencies. So even if every outside force declared us to pay back the debt (which would not happen, because we hold notes on them), we would still be fine, because it would only require 15% of the total.

Bacisally it all boils down to the world playing catch up. The Euro wants more value, so they take actions. The value of the dollar then goes down, so we take action. That makes the yen go down, so they take action, and that makes the euro go down. It is a constant ripple effect.

To be honest (and this is off the top of my head), I do not think there is a single country on the gold standard right now, because the economic and social (both local and globally) climate has changed.

This is just my two cents (in silver, not gold or fiat). Most everything here is from multiple sources I have read or studied over the past 4 years, so if you need a direct link, let me know and I can try to remember or find it for you.

[freddyv]

Ron Paul's plan is to provide sound currency, lower taxes, and less spending. I agree with you that all are interconnected, and all three in unison provide the soundness that you are seeking.

There are many problems that can arise from having a gold standard, but in a sense it keeps our government honest (i.e. not printing more money, as you stated). Keeping the currency sound, lowering taxes so people enjoy the fruits of their labor, and decreasing the size of government/reducing taxes provides a good foundation for a strong economy.

I tried to read up a bit on the great depression and I've noticed that the climate that precipitated it is eerily similar to that of today. All we need is for Hillary to get into office to tie things up with a nice little ribbon.

Some argue that FDR's policies and the creation of the welfare state along with our countries monetary policy caused the depression in the US to continue for another 10 years while the rest of the world had rebounded. Roosevelt blamed the depression on the wealthy and sought to have the state involved in the distribution of wealth (any of this sounding familiar? Hillary et al).

Hoover definitely didn't help things. It's important to "stay out of the way" as the economy ebbs and flows. It wasn't a good idea to stand by and allow the banking system to collapse.

As far as going to the bank for $10k and them only having $5k on hand, we still have FDIC, no? This was a problem back then. Also, the government can mandate that banks keep a certain amount of cash on hand in their reserves for these purposes. This is part of the responsibility of the FED, but it could probably be handled in other ways.

If we allow free markets (i.e. FDR not stepping in and setting the price of gold), things generally work themselves out. Supply and demand, etc.

[Mickulz]

"As far as going to the bank for $10k and them only having $5k on hand, we still have FDIC, no? This was a problem back then. Also, the government can mandate that banks keep a certain amount of cash on hand in their reserves for these purposes. This is part of the responsibility of the FED, but it could probably be handled in other ways."

I was making a point that the government in times of war could run in to this, not the banks. On the gold standard they could simply state that you can not have the money, even if it is physically there. Not a matter of keeping funds available.

[freddyv]

I'm trying to wrap my mind around what you are contending. Could you explain further?

I'm reading that the bank physically has the cash on hand, but does not want to give you the money because their reserves are reaching a low level. The purpose of banks being FDIC insured is that if there is a sudden run of people trying to withdraw their money, the Federal government insures that the bank will physically have the money to give people.

When banks shut down great depression era, a lot of people were making investments on credit. So I'm not entirely sure how this scenario is possible. I understand that banks generally don't have 100% of the funds on hand at any given time because they invest their patrons' money. In a closed system, the money has to be somewhere...and the government is insuring that the money will be available...so what am I missing?

Also, is this scenario likely given the current global economy?

[freddyv]

Big Jim, you should like this one. Even the former chairman of the FED and generally held economic genius Alan Greenspan knows that a gold standard is sound.

Gold and
Economic
Freedom
By ALAN GREENSPAN

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire-that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible.

More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, sea shells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has always been considered a luxury good. It is durable, portable, homogeneous, divisible, and, therefore, has significant advantages over all other media of exchange. Since the beginning of Would War I, it has been virtually the sole international standard of exchange.

If all goods and services were to be paid for in gold, large payments would be difficult to execute, and this would tend to limit the extent of a society's division of labor and specialization. Thus a logical extension of the creation of a medium of exchange, is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security for his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.

When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one--so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold, and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post- World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline- argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely--it was claimed--there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (paper reserves) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates.

The "Fed" succeeded: it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.)

But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited.

The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets.

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

* * * * * * *

As reprinted from the book "Capitalism, the Unknown Ideal"
by Ayn Rand with additional articles by Alan Greenspan - 1967.

[freddyv]

mickulz said:

The other thing people do not realize is that only 15% of our national debt is owed to foreign entities. The other 85% is debt to private US citizens and US Agencies. So even if every outside force declared us to pay back the debt (which would not happen, because we hold notes on them), we would still be fine, because it would only require 15% of the total.

We owe $2.7 trillion to foreigners. The national debt is $9 trillion.

[Mickulz]

freddyv said:

mickulz said:

The other thing people do not realize is that only 15% of our national debt is owed to foreign entities. The other 85% is debt to private US citizens and US Agencies. So even if every outside force declared us to pay back the debt (which would not happen, because we hold notes on them), we would still be fine, because it would only require 15% of the total.

We owe $2.7 trillion to foreigners. The national debt is $9 trillion.

Yes, that is my mistake, the data I remember was from about5 years ago apparently. I know it has gone to about 30-35%.

That being said, it is bad, but not sky is falling bad.

In fact since 2006, foreign debt as a whole has gone down (while domestic debt has gone up).

If all the foreign investors called in all the debt, and we called in all our debt, we would be in the hole 20%. Now, being in the whole is never good, but when you look at the aide, grants, and a lot of the things the US does that others do not, it is not as horrible.

But the whole argument goes back to the gold issue. If you have to take anything from my ramblings, my biggest point would be:

In my opinion, the best way we can turn things around are to make it cheaper and easier to produce products here, than elsewhere. I am not just talking oil either. Steel is a great example. If you could make steel cheaper in the US than Japan, the were be lest importing, which would lead to more investments here, and less foreign owner ship (and less foreign debt).

It is almost like the little world we live in here in Pa. Central Pa is paying taxes on things like gas and cigs, to help bail out mass transit in Pittsburgh and Philadelphia.

When you get a speeding ticket, the biggest junk of your ticket goes to repay a CAT fun that went wrong, but has been repaid 10x over. Yet we still pay it.

That is why Social Security is a hard issue too. Social Security goes directly to national debt. The more we help that, the more the debt rises.

I just think a lot of things need changed to make it work, but just saying gold is not the answer. Even Greenspan notes that the system has to be handled no matter what it is.

[freddyv]

this video is amazing. at the end of clip, bernanke is speechless.

Ron Paul vs Ben Bernanke - Monetary Inflation - 11.08.07

www.youtube.com/watch?v=nj9KHJRRUbQ&feature=related

there are quite a few clips like this on youtube from the past year.

[Mickulz]

Come on now Freddy, while Paul makes good points, to say Bernanke is speechless is a stretch, since it was the end of the question period for Paul. He was waiting for the next segment. Again, it is another video chop that does not give the full scene.

But I will again say Paul makes some good points, but the best line to me was when Bernanke states "we are following the mandate that Congress has given us".

[freddyv]

you have to admit, the look on his face was priceless.

[Mickulz]

I could not tell if it was fear or boredom, but it was pretty funny.

[freddyv]

In the article below, the author mentions the price of gold at $326/oz in 2002. As of February 2008, the price of gold is reportedly upwards of $1000/oz. Inflation anyone? Thanks, Fed!

p.s. - that tripling sounds familiar...price of gas, anyone? coincidence? of course not!

Abolish the Fed
by Rep. Ron Paul, MD
In the House of Representatives, September 10, 2002

Mr. Speaker, I rise to introduce legislation to restore financial stability to America's economy by abolishing the Federal Reserve. I also ask unanimous consent to insert the attached article by Lew Rockwell, president of the Ludwig Von Mises Institute, which explains the benefits of abolishing the Fed and restoring the gold standard, into the record.

Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts.

With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings should be enthusiastic supporters of this legislation.

Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government.

Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy.

In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.



WHY GOLD?
By Llewellyn H. Rockwell, Jr.

As with all matters of investment, everything is clear in hindsight. Had you bought gold mutual funds earlier this year, they might have appreciated more than 100 percent. Gold has risen $60 since March 2001 to the latest spot price of $326.

Why wasn't it obvious? The Fed has been inflating the dollar as never before, driving interest rates down to absurdly low levels, even as the federal government has been pushing a mercantile trade policy, and New York City, the hub of the world economy, continues to be threatened by terrorism. The government is failing to prevent more successful attacks by not backing down from foreign policy disasters and by not allowing planes to arm themselves. These are all conditions that make gold particularly attractive.

Or perhaps it is not so obvious why this is true. It's been three decades since the dollar's tie to gold was completely severed, to the hosannas of mainstream economists. There is no stash of gold held by the Fed or the Treasury that backs our currency system. The government owns gold but not as a monetary asset. It owns it the same way it owns national parks and fighter planes. It's just another asset the government keeps to itself.

The dollar, and all our money, is nothing more and nothing less than what it looks like: a cut piece of linen paper with fancy printing on it. You can exchange it for other currency at a fixed rate and for any good or service at a flexible rate. But there is no established exchange rate between the dollar and gold, either at home or internationally.

The supply of money is not limited by the amount of gold. Gold is just another good for which the dollar can be exchanged, and in that sense is legally no different from a gallon of milk, a tank of gas, or an hour of babysitting services.

Why, then, do people turn to gold in times like these? What is gold used for? Yes, there are industrial uses and there are consumer uses in jewelry and the like. But recessions and inflations don't cause people to want to wear more jewelry or stock up on industrial metal. The investor demand ultimately reflects consumer demand for gold. But that still leaves us with the question of why the consumer demand exists in the first place. Why gold and not sugar or wheat or something else?

There is no getting away from it: investor markets have memories of the days when gold was money. In fact, in the whole history of civilization, gold has served as the basic money of all people wherever it's been available. Other precious metals have been valued and coined, but gold always emerged on top in the great competition for what constitutes the most valuable commodity of all.

There is nothing intrinsic about gold that makes it money. It has certain properties that lend itself to monetary use, like portability, divisibility, scarcity, durability, and uniformity. But these are just descriptors of certain qualities of the metal, not explanations as to why it became money. Gold became money for only one reason: because that's what the markets chose.

Why isn't gold money now? Because governments destroyed the gold standard. Why? Because they regarded it as too inflexible. To be sure, monetary inflexibility is the friend of free markets. Without the ability to create money out of nothing, governments tend to run tight financial ships. Banks are more careful about the lending when they can't rely on a lender of last resort with access to a money-creation machine like the Fed.

A fixed money stock means that overall prices are generally more stable. The problems of inflation and business cycles disappear entirely. Under the gold standard, in fact, increased market productivity causes prices to generally decline over time as the purchasing power of money increases.

In 1967, Alan Greenspan once wrote an article called Gold and Economic Freedom. He wrote that:
"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. . . . This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

He was right. Gold and freedom go together. Gold money is both the result of freedom and its leading protector. When money is as good as gold, the government cannot manipulate the supply for its own purposes. Just as the rule of law puts limits on the despotic use of police power, a gold standard puts extreme limits on the government's ability to spend, borrow, and otherwise create crazy unworkable programs. It is forced to raise its revenue through taxation, not inflation, and generally keep its house in order.

Without the gold standard, government is free to work with the Fed to inflate the currency without limit. Even in our own times, we've seen governments do that and thereby spread mass misery.

Now, all governments are stupid but not all are so stupid as to pull stunts like this. Most of the time, governments are pleased to inflate their currencies so long as they don't have to pay the price in the form of mass bankruptcies, falling exchange rates, and inflation.

In the real world, of course, there is a lag time between cause and effect. The Fed has been inflating the currency at very high levels for longer than a year. The consequences of this disastrous policy are showing up only recently in the form of a falling dollar and higher gold prices. And so what does the Fed do? It is pulling back now. For the first time in nearly ten years, some measures of money (M2 and MZM) are showing a falling money stock, which is likely to prompt a second dip in the continuing recession.

Greenspan now finds himself on the horns of a very serious dilemma. If he continues to pull back on money, the economy could tip into a serious recession. This is especially a danger given rising protectionism, which mirrors the events of the early 1930s. On the other hand, a continuation of the loose policy he has pursued for a year endangers the value of the dollar overseas.

How much easier matters were when we didn't have to rely on the wisdom of exalted monetary central planners like Greenspan. Under the gold standard, the supply of money regulated itself. The government kept within limits. Banks were more cautious. Savings were high because credit was tight and saving was rewarded. This approach to economics is the foundation of a sustainable prosperity.

We don't have that system now for the country or the world, but individuals are showing their preferences once again. By driving up the price of gold, prompting gold producers to become profitable again, the people are expressing their lack of confidence in their leaders. They have decided to protect themselves and not trust the state. That is the hidden message behind the new luster of gold.

Is a gold standard feasible again? Of course. The dollar could be redefined in terms of gold. Interest rates would reflect the real supply and demand for credit. We could shut down the Fed and we would never need to worry again what the chairman of the Fed wanted. There was a time when Greenspan was nostalgic for such a system. Investors of the world have come to embrace this view even as Greenspan has completely abandoned it.

What keeps the gold standard from becoming a reality again is the love of big government and war. If we ever fall in love with freedom again, the gold standard will once more become a hot issue in public debate.

[BT]

The banking families that own the Fed are the descendants of the Robber Barons. They are blood-sucking vampires. Andrew Jackson booted them out in the 1830's. It's time to remove their "privledge" of printing our currency. Inflation is nothing but a transfer of wealth from the poor and middle class to the elite.

Ron Paul for president.

Abolish the Fed !

[freddyv]

things aren't looking so good. maybe not as bad as this gentleman would have you believe, but certainly not good.

"The Federal Reserve's rescue has failed"

www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/03/ccview103.xml

[freddyv]

print more money? sure...why not...

p.s. - anyone know how we can work on a state/local level to get rid of the fed? it's obviously not going to happen on a national level...

AP
Fed Takes New Steps on Credit Crisis
Friday March 7, 10:43 am ET
By Jeannine Aversa, Associated Press Writer
Federal Reserve Announces Bigger Auctions to Banks to Help Ease the Credit Crisis

WASHINGTON (AP) -- The Federal Reserve is taking bigger steps to ease the nation's credit crisis, including increasing the amount of loans it plans to make available to banks this month to $100 billion.

The Federal Reserve announced Friday that it will boost the size of auctions planned for March 10 and March 24 to $50 billion each. That is up from the $30 billion limits it had previously announced. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers.

The Fed, in a statement, said it planned to continue the auctions for at least six months, and would move to even larger auction amounts if needed.

In a second step, the Fed said it will make $100 billion available to a broad range of financial players through a series of separate transactions starting on Friday.

The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit. The central bank started its new type of auction in December to provide short-term loans to cash-strapped banks in hopes of keeping them lending. So far, the Fed has made available a total of $160 billion in short-term loans to banks through six auctions.

Fears are growing that the country is teetering on the edge of a recession, if one has not already begun.

The picture worsened just after the Fed's announcement Friday when the Labor Department released a report showing employers slashed another 63,000 jobs in February, the most in five years.

Senior Federal Reserve officials said the steps announced Friday were geared to providing relief to credit markets, which have deteriorated further in recent days, and not related to the weak employment figures.

A meltdown in the housing and credit markets has made banks and other financial institutions reluctant to lend to each other, causing a cash crunch. Financial companies wracked up multibillion-dollar losses as investments in mortgage-backed securities soured with the housing market's bust. Problems first started in the market for subprime mortgages-- those made to people with blemished credit histories. However, troubles have spread to other areas.

[seanx]

here's some more news about this brilliant organization:

Rebate letters to cost $42 million
By DEVLIN BARRETT, Associated Press Writer
Fri Mar 7, 1:47 PM ET



WASHINGTON - At a cost of nearly $42 million, the IRS wants you to know: Your check is almost in the mail.

The Internal Revenue Service is spending the money on letters to alert taxpayers to expect rebate checks as part of the economic stimulus plan.

The notices are going out this month to an estimated 130 million households who filed returns for the 2006 tax year, at a cost $41.8 million, IRS spokesman John Lipold confirmed.

That works out to about 32 cents to print, process and mail each letter. It doesn't include the tab for another round of mailings planned for those who didn't file tax returns last year but may still qualify for a rebate.

Democrats accused the Bush administration of wasting time and postage.

"There are countless better uses for $42 million than a self-congratulatory mailer that gives the president a pat on the back for an idea that wasn't even his," Sen. Charles Schumer said Friday, arguing the IRS could more effectively spend the money to catch tax cheats.

Keith Hennessey, director of the president's National Economic Council, said the letters are being sent to explain how the tax rebates will work.

"Any time you do something as a government tens of millions of times, there is ample room for people to get confused. And so if you're going to have tens of millions of taxpayers getting checks, you want to get the information out so that you have as few people as possible confused about what's happening, they understand what's coming, and it reduces the number of incoming requests that IRS and Treasury have to figure out how to deal with it," said Hennessey.

"Dear Taxpayer," the letters will begin, going on to say the IRS is pleased to inform the recipient that Congress passed and President Bush signed into law a plan that will provide payments of up to $600 for individuals who qualify or $1,200 for married couples filing jointly. The rebates are the centerpiece of a $168 billion economic stimulus package.

The actual rebate checks are scheduled to go out starting in May, after the IRS has finished separately mailing out routine refunds for the 2007 tax year.

The letters will be a reminder that people need to file a 2007 tax return so they will receive the rebate if they are eligible for it.

Similar notices will go out later to some Social Security recipients and those who receive veterans benefits — groups that often do not file tax returns.

For those people to get a rebate check, they will need to file a tax return if they received at least $3,000 from a combination of certain Social Security benefits, veterans benefits and earned income. The minimum payment for this group will be $300 for an individual and $600 for a couple filing jointly.

Not everyone will be eligible. Singles with income of more than $75,000 and couples with more than $150,000 get only partial rebates, if any.

People who earn less than $3,000, illegal immigrants and anyone who does not file a tax return will miss out. Singles with incomes exceeding $87,000 and couples with incomes exceeding $174,000 also won't qualify, although those caps rise by $6,000 per child.

___

Associated Press Writer Deb Riechmann contributed to this report.

___

[seanx]

freddyv said:

p.s. - anyone know how we can work on a state/local level to get rid of the fed? it's obviously not going to happen on a national level...

I do, but it's not legal and would lead to incarceration..........

[freddyv]

Abolish the Fed - Ron Paul on CNBC

Congressman Paul explains why we should abolish the Federal Reserve. He was interviewed yesterday on CNBC's Kudlow & Company.

www.youtube.com/v/mBympCQcyzY&hl=en

[BT]

Time to boot the Money Changers out of the Temple.

America: Freedom to Fascism (2 hours):
video.google.com/videoplay?docid=-1656880303867390173

Zeitgeist part 3 (47 minutes):
video.google.com/videoplay?docid=497251819335380093

The Money Masters(3 1/2 hours):
video.google.com/videoplay?docid=-515319560256183936

Fiat Empire ( 1 hr.):
video.google.com/videoplay?docid=5232639329002339531

[freddyv]

more bad news

Fed Leaders Ponder an Expanded Mission
Wall Street Bailout Could Forever Alter Role of Central Bank

By Neil Irwin
Washington Post Staff Writer
Friday, March 28, 2008; A01



In the past two weeks, the Federal Reserve, long the guardian of the nation's banks, has redefined its role to also become protector and overseer of Wall Street.

With its March 14 decision to make a special loan to Bear Stearns and a decision two days later to become an emergency lender to all of the major investment firms, the central bank abandoned 75 years of precedent under which it offered direct backing only to traditional banks.

Inside the Fed and out, there is a realization that those moves amounted to crossing the Rubicon, setting the stage for deeper involvement in the little-regulated markets for capital that have come to dominate the financial world.

Leaders of the central bank had no master plan when they took those actions, no long-term strategy for taking on a more assertive role regulating Wall Street. They were focused on the immediate crisis in world financial markets. But they now recognize that a broader role may be the result of the unprecedented intervention and are being forced to consider whether it makes sense to expand the scope of their formal powers over the investment industry.

"This will redefine the Fed's role," said Charles Geisst, a Manhattan College finance professor who wrote a history of Wall Street. "We have to realize that central banking now takes into its orbit everything in the financial system in one way or another. Whether we like it or not, they've recreated the financial universe."

The Fed has made a special lending facility -- essentially a bottomless pit of cash -- available to large investment banks for at least the next six months. Even if that program is allowed to expire this fall, the Fed's actions will have lasting impact, economists and Wall Street veterans said.

As they made a series of decisions over St. Patrick's Day weekend, Fed leaders knew that they were setting a precedent that would indelibly affect perceptions of how the central bank would act in a crisis. Now that the central bank has intervened in the workings of Wall Street banks, all sorts of players in the financial markets will assume that it could do so again.

Major investment banks might be willing to take on more risk, assuming that the Fed will be there to bail them out if the bets go wrong. But Fed leaders, during those crucial meetings two weeks ago, concluded that because the rescue caused huge losses for Bear Stearns shareholders, other banks would not want to risk that outcome.

More worrisome, in the view of top Fed officials: The parties that do business with investment banks might be less careful about monitoring whether the bank will be able to honor obscure financial contracts if they assume the Fed will back up those contracts. That would eliminate a key form of self-regulation for investment banks.

Fed leaders concluded that it was worth taking that chance if their action prevented an all-out, run-for-the-doors financial panic.

Those decisions were made in a series of conference calls, some in the middle of the night, against hard deadlines of financial markets' opening bells. Fed insiders are just beginning to collect their thoughts on what might make sense for the longer term.

"It has wrought changes far more significant than they were probably thinking about at the time," said Vincent Reinhart, a resident fellow at the American Enterprise Institute who was until last year a senior Fed staffer.

Whether there is a formal, legal change in the Fed's power over Wall Street or not, the recent measures, which were taken under a 1930s law that can only be exploited in "unusual and exigent circumstances," represent a massive departure from past practice.

The central bank was created in 1913 to prevent the banking crises that were commonplace in the 19th century. The idea was that the Fed would be a backstop, offering a limitless source of cash if people got the bright idea to pull all their money at once out of an otherwise sound bank.

In exchange for putting up with regulation from the Fed and requirements over how much capital they can hold, banks have access to the "discount window," at which they can borrow emergency cash in exchange for sound collateral. A bank might take deposits from individuals and make loans to people buying a house. Hedge funds do something similar: borrow money in the asset-backed commercial paper market and use it to buy mortgage-backed securities. But the bank has lots of regulation and access to the discount window; the hedge fund does not.

In recent decades, more of the borrowing and lending that was the sole province of banks has come to be done in more lightly regulated markets.

A decade ago, the nation's commercial banks had $4 trillion in credit-market assets, and a whole range of other entities -- mutual funds, investment banks, pensions, and insurance companies -- had about twice that much. Now, those other entities have about three times as many assets, based on Fed data.

Still, the Fed has resisted broadening its authority. On March 4, Fed Vice Chairman Donald L. Kohn told the Senate Banking Committee that he "would be very cautious" about lending Fed money to institutions other than banks or, as he put it, "opening that window more generally." The Fed did exactly that 12 days later.

The New York Fed said yesterday that investment firms have borrowed an average of $33 billion through that program in the past week.

The Fed has intervened in the doings of Wall Street in the past, but in limited ways. Most notably, in 1998, the New York Fed brought in heads of the major investment banks to cajole them into a coordinated purchase of the assets of the hedge fund Long-Term Capital Management, to prevent a disorderly sell-off that could have sent ripples through the financial world.

"Long-Term Capital was the dress rehearsal for what happened with Bear Stearns," said David Shulman, a 20-year veteran of Wall Street who is now an economist at the UCLA Anderson Forecast.

Treasury Secretary Henry M. Paulson Jr. said that if investment banks are given permanent access to the Fed's emergency funds, they should have the same kind of supervision that the Fed requires for conventional banks. "This latest episode has highlighted that the world has changed, as has the role of other non-bank financial institutions, and the interconnectedness among all financial institutions," he said in a speech Wednesday.

If Congress and the administration do broaden the formal powers of the Fed, it would be the latest in a long history of financial policy made out of a crisis. The Great Depression fueled an array of stock exchange regulation. The 1987 stock market crash led to curbs on stock trades. The 2002 corporate scandals led to the Sarbanes-Oxley Act.

And after the panic of 1907, a National Monetary Commission was formed to figure out how to prevent such things from happening again. Its crowning achievement: The creation of the Federal Reserve.

[freddyv]

is it any wonder why the dollar is worth so little?

Fed offers $100 billion more to banks
By MARTIN CRUTSINGER, AP Economics Writer
16 minutes ago

WASHINGTON - The Federal Reserve announced Friday it will auction another $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.

The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.

All the moves have been designed to cope with a serious financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns Cos., the nation's fifth largest investment bank.

The Fed has been holding auctions every two seeks since December to provide short-term loans to commercial banks. It started with auctions of $20 billion, then pushed the level to $30 billion, and in early March raised the auction amount to $50 billion as the credit shortage grew more severe.

In announcing the move to $50 billion last month, the Fed said it would continue the auctions for at least the next six months, unless credit conditions show they are no longer needed.

The auctions are just one of a series of unorthodox steps the Fed has taken to battle the current crisis. The biggest of those moves was an announcement that it was allowing investment banks to borrow directly from the Fed. Previously, only commercial banks, which face tighter regulations, had that privilege.

The Fed also said it would make available $30 billion in financing to support the sale of troubled Bear Stearns to JP Morgan Chase & Co., hoping to prevent a bankruptcy that could have rocked Wall Street.

The Fed's auctions have drawn criticism from some that the central bank, and ultimately U.S. taxpayers, could be financing a bailout for big Wall Street firms that had engaged in risky lending practices.

Fed Chairman Ben Bernanke will fact questions about the Fed's recent moves when he testifies on Wednesday before the congressional Joint Economic Committee.

[seanx]

........our business/personal problems with the IRS may be coming to a conclusion shortly......with a fair settlement. Therefore, I will stick to my word and not post anymore crap about them on here...........(I can still comment on other's postings though......but I won't initiate the shit)


............of course, if they screw us over that'll change..............

[freddyv]

News from The Globe and Mail

A blunt former Fed chairman takes on Bernanke. Take heed of what he says
AVNER MANDELMAN


00:00 EDT Saturday, April 12, 2008

A few days ago an unusual event took place: Paul Volcker, the mythical U.S. Federal Reserve Board chairman from the Reagan years, criticized the policy of the current Fed chairman, Ben Bernanke, in a speech to the Economic Club of New York.

Just so you grasp how extraordinary this was, you should first understand that normally a past Fed chairman scrupulously avoids saying anything at all about current Fed policy - for the simple reason that the current Fed chairman's words are one of his most important tools: They can sway markets.

This ability does not fade entirely when a Fed chairman leaves.

So when a past Fed chairman speaks, his words can clash with those of the present one and make that one's job difficult. Out of professional courtesy, past Fed chairmen therefore keep quiet; Mr. Volcker especially - the man who hiked interest rates to 20 per cent to kill inflation, at the cost of a deep recession. But last week Mr. Volcker spoke his mind bluntly. He said, in effect, that the current Fed is not doing its job.

This would have been unusual enough. But Mr. Volcker went further. Not only is the Fed not doing its job, he said, but it is doing the wrong job: It is defending the economy and the market, instead of defending the dollar. And just to stick the knife in, Mr. Volcker added that this bad job now will make the real job - defending the greenback - much harder later. It'll cause even greater economic suffering.

In plain words, Mr. Volcker implied that the current Fed is not only incompetent, but that its actions are dangerous.

There is no record of Mr. Bernanke's reaction, nor that of anyone else inside the Fed. But there was plenty of buzz in the market because what Mr. Volcker said amounted to a rousing call to raise interest rates. Yes, raise rates, and do it now.

Can you imagine what this would do to the market? I sure can, which brings me to the gap between physical economic reality as we witness it every day in our physical investigations, and the surreal market chatter we see and hear on TV. This gap has never been wider - but it will inevitably close as markets catch up to reality - as just forecast by former president Ronald Reagan's Fed chairman. Let me cite three items, then go back to Mr. Volcker.

First, commercial real estate. You surely have read about the residential real estate problems - subprime loans syndicated and resold, causing the implosion of several U.S. financial institutions. The writeoffs and damage here total close to a trillion dollars, said the IMF recently. That's about one-seventh of the U.S. gross domestic product, or more than three years of growth.

But what of commercial real estate? I heard recently from some savvy private real estate investors that although commercial real estate fell by 20 per cent, it should fall by a further 20 to 30 per cent before it provides a reasonable rate of return. So whatever economic damage was done to the economy by residential real estate speculation may eventually be equalled by commercial real estate. Say another 10th or seventh of GDP erased, or another two-three years of growth gone.

Second, there's also the war in Iraq. Some U.S. economists recently estimated it has cost about two trillion dollars to date - another two-sevenths of U.S. GDP. That's five more years of GDP growth gone.

And third, we haven't even begun to tally the private equity blowups that are surely coming.

Taken all together, the economic damage spells a very bad and long recession. How to fix it? No problem, say the actions of Mr. Bernanke's Fed. Let's print the missing money - and it doesn't matter if it causes inflation and tanks the dollar. Because that's not our job.

Up to now Mr. Volcker kept quiet, but no more. In his speech he just said, in effect, that the recession is not the Fed's problem. It's the government's. The Fed's job is to defend the currency and fight inflation - exactly the opposite of what this Fed is doing. The solution? Raise interest rates, Mr. Volcker practically said, no matter the consequences now, because if you don't, you'll have to raise them even more later, with even more awful consequences.

Will rates indeed rise? I have no doubt they must. Not now, perhaps, but at the end of this year or the beginning of 2009, with a new president in the White House. The stock market, which usually looks six to nine months ahead, already understands this and may soon react. In fact, when Mr. Volcker's words sink in, the markets are likely to sink as this bear market rally ends.

For surely you understand we are still in a bear market - and only in the beginning of it? Yes, we are experiencing a rally, and like most bear rallies, it is sharp and spiky. But when bear rallies end, they leave a lot of spiked bulls behind - and this rally should be no different. When it is over - in the next few weeks, methinks - the waterfall could continue, as the market begins to digest the inevitability of higher inflation and higher interest rates ahead.

Against all protocol, Mr. Volcker just went out on a limb and warned you of this. I urge you to heed his words.

© The Globe and Mail