Lets start talking about better solutions or better controls but to talk about getting rid of the Fed without a reasonable alternative is ridiculous. I simply don’t see how another system would have served us any better. Ron Paul talks about abolishing the Fed to “…restore financial stability to America’s economy… ” Huh? By all historical standards, our economy is ridiculously stable. It is government policy in trade, banking and labor that creates far more problems for us than the Fed. I cannot imagine how going to a gold standard will give us more stability when a big gold strike in Russia (or the bogus announcement of one) will cause our currency to drop like a rock or a boycott of gold shipments by Russia in response to some foreign policy sleight sends gold spiking. If you think the control that our Arab “allies” has over our economy under OPEC is bad, imagine a gold producers’ cartel. Under the gold standards, the supply and to a significant degree the demand of our “currency” would be both outside our control and driven by random factors.

To start, the credit default swap market is not a money supply, except insofar as it effected balance sheets of financial institutions. CDSs are in fact one of several “innovative” accounting practices heralded by Barney Frank as a boon to our financial system. I shouldn’t have to explain how wrong that was, or why insurance type transactions (which swaps are in practice if not name) are not part of the money supply.

A more egregious error is your discussion of deflation. Asset deflation is very different from price deflation. For example, they have opposite affects on consumer wealth in real terms(and thus spending, and thus the economy). Asset deflation decreases the wealth investors have in real terms (depending of course which asset group we’re refering to, which would in the current crisis include homes, financial instruments, and stocks). Price deflation increases everyones purchasing power and thus quality of life

The fed is “doing the right thing” with it’s current policies, but that is only true because of the dangerously unstable and inherently insolvent fractional reserve banking practices. Abolishing those practices would prevent future crises, or at least reduce its severity and pervasiveness. Proping up the system of the status quo by every means possible only delays disaster until the next bubble creates the next credit crisis while birthing the spectre of inflation. If this seems suspect to you, then read some Austrian School economists, particularly Murray Rothbard (”The Case Against the Fed” by him would be a great place to start.

As for the federal governments fiscal responce, I could write a thesis detailing the myriad reasons a well planned one still wouldn’t work, and worse, why the one recently passed is “stimulus” in name only. We can leave it for the purpose of this diatribe with the empirical examples most prominent historically. The New Deal failed miserably at reversing the great depression, alowing 10 percent unemployment to drag on for a decade. Even more telling, the great society and nearly 20 years of responding to recessions with spending and credit boosts created the worst peacetime inflation this country has ever experienced, and a concurrent series of progressively worsening recessions with increasing frequency. Those who believe government spending (Keynesians, I’m looking @ you) helps ought to read “The Great Inflation”, which details the failures of these policies and the terrible social cost of (and hence political resistance to) the solution to the inevitable inflation.

Essentially, we have started down the path of 60’s and 70’s style semi-socialist keynseyian policy, and it will end the same way

The money supply isn’t expanding, it’s collapsing.

Few will agree with that, because M0, M1, M2 are all moving upwards. But none of these include newer debt instruments.

Debt is traded and transferred like other forms of money. Over 60 TRILLION dollars of credit default swaps (CDS) alone existed at their peak. The value of this form of money is plummetting, and this represents a rapid collapse of the effective money supply that is an order of magnitude greater in the downward direction than the upwards movement of M2 and other measures.

The Federal Reserve is expanding the more traditional measures of money supply to compensate for the collapse of the total real money supply. The seemingly-reckless expansion of M2 is a result of attempting to compensate for the far-larger collapse of the real money supply.

Thus, the “asset deflation” is really no different from price deflation and reflects the contraction of the money supply. Welcome to 1929, relived.

What the Federal Reserve is doing (quantitative easing) is absolutely correct, but probably still too small to achieve the needed effect.

The fiscal stimulus of big federal budget deficits is also perfectly appropriate, but probably too small to achieve the needed effect.

Steve

Submitted by Tore Toivicco

Who controls Federal reserve?

http://www.youtube.com/watch?v=NzLIz27GqWs

Most important question in US history?

http://www.usagold.com/federalreserve.html

Federal reserve controls US income/ finance?

http://library.thinkquest.org/03oct/00921/governmenttaxes.htm

Is Ron Paul talking about this?

-Tore Toivicco

http://www.opencurrency.com

or

http://www.freelakotabank.com

The foreigners are sitting on huge piles of US dollars and debt used as reserves in which they pyramid their own currencies. As the US congress is poised to launch a monstrous spending bill, they read: the US central bank printing press is about to rev up to full throttle and flood the world with tons of additional US paper dollars, again.

But unlike under the post World War ll monetary agreement called Bretton Woods, this time the foreign central bankers cannot exchange their rapidly debasing dollars for US gold.
Which is what they did then forcing Nixon to violate agreement terms to halt gold exodus from the US. ending Bretton Woods. It is the US overprinting that eventually lead to the demise of that monetary agreement.

And we are about to repeat the performance.

This could force foreign monetary authorities under domestic political pressure to break away from the established dollar-as-reserve-currency regime. Unthinkable?

I doubt if they will just sit around and watch the US debase their dollar holdings from afar. They didn’t before. And whatever alternate course they take will have repercussions here. So the change will come but not from here.

Even if we are getting paid 2 silver dollars an hour, we will ALWAYS be able to buy stuff by saving and the fact that the more production of an item will cause that item like a big screen plasma TV’s to reach low prices such as 50-60 dollars as they would be at this trading level.

On the other hand, the reason so many Americans understood money supply issues in 1896 was the same more people are questioning how money works today- because it was screwed up. Constrictive money supply in the face of the Industrial Revolution, the chase to extend railroads across the nation, and the growth of agricultural productivity was producing crushing deflation that cause farmers to starve, railroads to go bankrupt, and an unprecidented concentration of wealth. Names like Carnegie, Morgan, Vanderbilt gained prominence as did the image of the evil banker kicking the poor out of their house. Money supply has to grow with productive capacity- the addition .1 Trillion is not bad if there is additional .1 Trillion of capacity, and I’d propose there’s many tens of Trillions of productive capacity idle in the world today (and growing), which is why we’re seeing deflation now.

When GDP growth slows below interest, consumers, debtors, creditors- everyone- becomes more conservative, producing and risking less. If we didn’t live in a world with 3 billion people living on $2.50 a day and a majority of people in this country ready to vote to confiscate your wealth if you won’t share it- we better keep our eye on the ball of producing. Or else.

RON PAUL IS MY PRESIDENT!!!