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The Fed's Brilliant Plan? More Inflation and Higher Prices
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Federal Reserve Chairman Jerome Powell recently announced that the Fed is abandoning “inflation targeting” where the Fed aims to maintain a price inflation rate of up to two percent. Instead, the Fed will allow inflation to remain above two percent to balance out periods of lower inflation. Powell’s announcement is not a radical shift in policy. It is an acknowledgment that the Fed is unlikely to reverse course and stop increasing the money supply anytime soon.

Following the 2008 market meltdown, the Fed embarked on an unprecedented money-creation binge. The result was historically low interest rates and an explosion of debt. Today total household debt and business debt are each over 16 trillion dollars. Of course, the biggest debtor is the federal government.

The explosion of debt puts pressure on the Fed to keep increasing the money supply in order to maintain low interest rates. An increase in rates to anything close to what they would be in a free market could make it impossible for consumers, businesses, and (especially) the federal government to manage their debt. This would create a major economic crisis.

The Fed has also dramatically expanded its balance sheet since 2008 via multiple rounds of “quantitative easing.” According to Bloomberg, the Fed is now the world’s largest investor and holds about one-third of all bonds backed by US home mortgages.

Congress has expanded the Fed’s portfolio by giving the central bank authority to make trillions of dollars of payments to business as well as to state and local governments in order to help the economy recover from the unnecessary and destructive lockdowns.

Contrary to what most “mainstream” economists claim, a general increase in prices is an effect — not a cause — of inflation. Inflation occurs whenever the central bank creates money. Increasing the money supply lowers interest rates, which are the price of money, distorting the market and creating a bubble (or bubbles) that provides the illusion of prosperity. The illusion lasts until the inevitable crash. Since the distortions come from money creation, the system cannot be “fixed” by just requiring the Fed to adopt a “rules-based” monetary policy.

Once the lockdowns end, the Fed’s actions may lead to a short-term boom. However, the long-term effect will be even more debt, continued erosion of the average American’s standard of living, and the collapse of the fiat money system and the welfare-warfare state. The crisis will likely be brought on by a rejection of the dollar’s reserve currency status. This will be supported both by concerns about the stability of the US economy and resentment over America’s hyper-interventionist foreign policy.

The question is not if the current system will end. The question is how it will end.

If the end comes via a meltdown, the result will likely be chaos, violence, and increased support for authoritarian movements as desperate people trade their few remaining liberties in hopes of gaining security.

However, if pro-liberty Americans are able to force Congress to begin cutting spending — starting with the money wasted on militarism — and to move toward restoring a sound and sane monetary policy that includes ending the Federal Reserve, we can minimize an economic crisis and begin restoring limited constitutional government, a free-market economy, and respect for liberty.

(Republished from The Ron Paul Institute by permission of author or representative)
 
• Category: Economics, Ideology • Tags: Federal Reserve 
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  1. I have no problem with the logic here, Dr. Paul, but I would like to know* if you really believe the BLS’s inflation numbers. Peak Stupidity has a whole Topic Key on Inflation (scroll down). It’s pretty obvious if one is a consumer with any kind of long-term memory that inflation is nowhere near the 1 to 1 1/2% you read about in the WSJ. I’d estimate it at 4%**

    You are preaching to the choir here mostly, but I sure hope some of the unz readers from the more Socialist side of the site read a few of your articles. They are welcome to comment, show off a little of that stupidity, but still learn something in the process, if at all possible.

    .

    * Yeah, I know, readers, it’s not likely that Ron Paul ever reads comments here, but humor me.

    ** Not so bad, you say? How’s it feel to have 1/2 of whatever you save stolen by bankers and government every 17 1/2 years?

  2. Dr Paul’s last paragraph is pure fantasy. The end will come via meltdown, the result will be chaos, violence, and an increase in the police state for however long it last. The states may decide to ditch the Fed Gov when it no longer represents the deep pockets they were accustomed to rely on before the dollar’s inevitable demise.

    End the Fed Gov ASAP.

  3. @RoatanBill

    You know what, Bill? That was exactly what I mean to write in that first comment! I knew I’d left something out. Thank you.

    BTW, I also wanted to add a thanks to Ron Paul for distinguishing the root cause, inflation of the money supply from price inflation, the symptom or result, right there in the title.

    • Replies: @RoatanBill
  4. @Achmed E. Newman

    You’re welcome.

    Ron Paul is one of the very few people that were in gov’t with a conscience. He knows right from wrong instinctively, I believe. How he lasted as long as he did with all the sociopaths surrounding him and marginalizing his ideas is a wonder.

    I’m waiting patiently for the reaction from the population when price inflation doesn’t just become obvious but represents a serious threat to their welfare. This virus fiasco is a stroke of evil genius by TPTsB. The November election will probably light the fuse on more chaos which will help sink the dollar and that positive feedback loop will accelerate the coming pandemonium.

    Although I have no idea how things will turn out, the deep state probably has the various options already planned for. I fear the result will be a quite sudden deterioration in living standards and an unmistakable real depression possibly leading to a shooting war. I see no hope for optimism.

    • Replies: @animalogic
  5. Surveillance is out of control. Contact tracing proves that the entire surveillance state is filled with
    perverted, retarded, thieves and frauds and that they are incapable of fighting or preventing crime because they are in an organized crime ring. I have heard this government coming up with lame rationalizations to spy on people and violate their rights, but contact tracing is the lamest of them all.
    These are such wretched scumbags and truly lousy excuses for human beings! What a nation of scumbags and losers! No heroes in this shithole country! Just a lame excuse to hand trillions over to the surveillance state and tech sector filled with retarded, perverted, thieves, and frauds! No intelligent decent human being would stoop to such demoralizing levels!

    • Replies: @Achmed E. Newman
  6. Zanna says:

    If the end comes via a meltdown

    Yes it will come to a meltdown. For the Survival of the MEGACORPORATIONS ONLY. The fittest.

    ALL BY DESIGN. COVID, by design, is for killing thousands of businesses in many countries, like they did with their IMF in Turkey, Spain, Italy.

    By DECEMBER, WHO WILL REMAIN after they have CANIBALISE tens of thousands of small and middle companies? Amazon, Walmart, Starbucks, Macdos. No more little cafés or restaurants. No more little company.

    SIBEL EDMOND: CODID ‘MISTAKE’ is not and ”error”, ALL HAS BEEN CALCULATED TO DESTROY YOU, AMERICA, WAKE UP!

    • Agree: Mark G.
  7. @No Friend Of The Devil

    I hate to tell you, F.O.D., but it gets worse. There are things better about China and worse, but their surveillance state is years ahead of ours. The cashless economy is almost in place, some real Mark-o-the-Beast stuff. Good on you for being no friend of that guy.

  8. ” . . . ending the Federal Reserve . . . “?

    “Today I want to talk briefly about the Fed at a first principles level so we can better appreciate what they’re doing and why.
    Let’s start with some history. The 1800s were a mess of economic booms/busts with an average -22% GDP contraction every FOUR years. ”

  9. @RoatanBill

    A slow, peaceful shift away from the US dollar as reserve currency would be in everyone’s interests, including the US’s, in the long run. To be replaced by either a basket of currencies or a to-be-created international currency (as I believe Keynes wanted during Bretton Woods).
    The demise of the US dollar has been expected for years — but its still the main currency of international exchange (I think, its still used in 60% of international transactions).
    Of course, things are the way they are, until they are not.
    Re inflation (or indeed any Gov statistic) you are quite right to believe the real number is a lot higher.
    Further — you are right to believe that should US inflation “take off” beyond the deep state’s ability to cover it up, there will be significant social eructations. People have got a taste for anarchy now….

    • Replies: @RoatanBill
  10. @animalogic

    Keynes was an economist, aka professional bullshit artist. The idea of a basket of phony currencies replacing the dollar phony currency is a bad joke. Will it be tried? Absolutely. Will it fail? Absolutely. TPTsB want to maintain their strangle hold on their power and privilege and conjurable ‘money’ is their weapon against the average person.

    At the rate dollars are being produced while countries are simultaneously dedollarizing inevitably means more and more dollars will remain inside the US over time. Those former foreign owned dollars will chase goods and services inside the US and that’s the definition of price inflation. The quantity the Fed is pumping out will change the word ‘inflation’ to ‘hyperinflation’ once they lose control. No fiat currency in history has ever not collapsed, and the dollar is well on its way to oblivion.

    Given the current political climate, I hope the dollar’s demise is part of the greater good of the Fed Gov’s demise.

    • Replies: @animalogic
  11. Pandemic Skeptics…Proven Right!

    Was the whole coronavirus panic set off by a faulty understanding of the difference between infection fatality rate and case fatality rate? One doctor in the UK makes a strong case that the mania was set off by a math mistake. Also today, more mainstream outlets concluding that lockdowns were a terrible mistake. SF government gyms remain open while commercial gyms driven out of business. Baseball madness, as Nationals general manager ejected from game…for no mask in his own private booth in an empty stadium!

    • Thanks: Achmed E. Newman
    • Replies: @ulithi
  12. @James Charles

    Let’s continue with some more history, Mr. Roche (the tweeter):

    https:/www.peakstupidity.com/images/post_761A.jpg

    Questions? Read here.

  13. @James Charles

    Ahhh, shoot. I missed a slash, and this old browser doesn’t do the 5-minute edit window (plus a known bug is that one can’t do a Preview Comment on a post with an image or video, or it won’t appear either afterward).

    No problem, take 2:

    Let’s continue with some more history, Mr. Roche (the tweeter):

    Questions? Read here.

  14. Durruti says:

    However, if pro-liberty Americans are able to force Congress to begin cutting spending — starting with the money wasted on militarism — and to move toward restoring a sound and sane monetary policy that includes ending the Federal Reserve, we can minimize an economic crisis and begin restoring limited constitutional government, a free-market economy, and respect for liberty.

    The Pregnant Phrase:

    restoring limited constitutional government

    Our Republic, & its Constitution were overthrown, along with the Assassination of our Last Constitutional President, John F. Kennedy, on November 22, 1963. Yes, we Must Restore our Republic, with the Primacy of our Constitution.

    Ron Paul‘s son, Senator Rand Paul was the victim of an Assassination attempt (and if it had not been for the action of a neighbor who saw him lying unconscious on his lawn, and called for help, Rand Paul would not have survived). The Rothschild/MOSSAD/puppet CIA, continually eliminate and, or, marginalize the potential Leadership of American Patriots. The attempted – triggered murder of Senator Rand Paul constituted a warning to Ron Paul (the man who WON the 2012 Republican Presidential Primary – but was fraudulently denied his victory. But I digress (or do I?).

    * Need I remind of the assassinations of both Kennedys, ML King, Malcolm X, and John Lennon, all shot, and all by the same Murderers, and all these political murders covered up by the same Zionist owned & controlled Media?

    Our Only Road:

    1. Restore Our Republic.

    2. Restore our Sovereignty. Zionist Entity must be disarmed – everywhere (JFK was the last American leader to attempt that).

    3. Restore our economy ( including work to achieve full employment at a living wage for all workers, and the resulting advance of small business entrepreneurs-who will have millions of newly enabled customers, and the restauration of our Industrial Sector) requires a balanced approach. Indeed, the Covid/Corona Pandemic, hosted by the Zionist Banker Oligarch Tyrants, is finishing the assassination of the American Industrial & Business sectors that NAFTA and the Fed have begun.

    The sad Truth:

    Ron Paul and other Conservatives have been hesitant to provide a detailed look at what THEIR POLITICAL TRIUMPH, the return of the much touted LIBERTY, will allow for the badly injured American Workers and Business Sector.

    We may not fashion a Restorationist Revolution (as has suggested philosopher Alain Soral in France), if we do not have Broad Shoulders with which to lead and protect the vast majority of our American Citizens. Conservatives, have, all too often, left whole sections of the American People out of their political World (literally abandoning them to the ‘leftist’ Foreign enemy). Not long ago, our Greatest Statesman, Congressman Ron Paul found it necessary to DENY he would end Social Security, (a supposedly ‘socialist’ program), if he attained the Presidency. Dr. Paul‘s incomplete economic program/overview should have been fixed long ago.

    I do not deny having some fun with Dr. Ron Paul‘s (on the whole) fine essays. They deserve full examination.

    If I vote in this Hollywood electoral farce, I will write in Ron Paul, and for VP, Cynthia McKinney.

    Durruti – and his sidekick, Dr. Peter J. Antonsen

  15. Higher prices = Moar GDPee…

    So much winning!

    • Agree: Achmed E. Newman
  16. @Achmed E. Newman

    So, I guess the conclusion we can draw from the two visuals– Mr. Roche’s and your own– is that a certain amount of inflation is good when combating periods of economic decline.

    Who would’ve thought?

    • Replies: @Achmed E. Newman
  17. Following the 2008 market meltdown, the Fed embarked on an unprecedented money-creation binge. The result was historically low interest rates…An increase in rates to anything close to what they would be in a free market could make it impossible for consumers, businesses, and (especially) the federal government to manage their debt.

    Dr. Paul has come achingly close to outlining the truth here, but then inexplicably reverses course and ignores his own prediction by advocating for sky-high interest rates (e.g. “ending the Federal Reserve”) anyway. The fact of the matter is that the only parties which should want extremely tight monetary policy are the banks and extremely rich. These groups hold large amounts of liquid wealth, and are therefore hurt by inflation and would benefit from the high interest rates that would allow them to multiply their cash hoards without any risk or effort.

    Meanwhile, America’s remaining industrial base, and the working class still dependent on it, would be crushed under the immense interest payments they’d need to make just to avoid bankruptcy. The fact is that “productive industries” are some of the most heavily indebted institutions in the country, both because they’ve been crushed by decades of globalist/libertarian economic policies and because they naturally require more capital investment than FIRE companies. On top of that, Dr. Paul’s proposals would cause the value of the dollar to skyrocket, making US exporters totally noncompetitive and further gutting our industrial capacity. Mass unemployment would be its logical conclusion.

    So while I respect Ron Paul for his foreign policy stances, his economic plans would be catastrophic for anyone outside of the elites and financial sector.

  18. @Elmer's Washable School Glue

    Inflation is GREAT, man!

    I mean, except for people who want to work hard and save the fruits of their labor, perhaps to set up their children and children’s children to be successful. Inflation rewards the irresponsible, the debtors and the spendthrifts, so if that’s you, yeah, enjoy.

    .

    Did you read the part about 1/2 your money being stolen in 17 1/2 years? That’s at only 4%. We’ve seen a lot worse, and we’re going to see a lot worse than that.

  19. @Achmed E. Newman

    As I explain above, the “people who want to work hard” are exactly the same people that will be utterly crushed by tight monetary policy– all while the ultra-wealthy and big banks live out their wildest economic fantasies.

    BTW, high inflation doesn’t mean you can’t save. It means you can save by putting your money into productive assets rather than worthless financial instruments.

  20. @Elmer's Washable School Glue

    Achmed E. Newman, like all Austrians, is a shill {perhaps unintentionally?} for the plutocrats and the M.I.C..

    • Replies: @Achmed E. Newman
  21. @James Charles

    “Inflation can and does occur in a perfectly healthy economy. In fact, since 1913 when the Fed
    was founded inflation in the USA has consistently risen at 3.5% per year on average.3 One might
    assume that this means the country has experienced some great injustice, but the truth is that the
    1900’s were characterized by the greatest economic expansion and wealth creation the world has
    ever seen. Despite the common citation that “the \$USD has lost 98% of its value” Americans
    experienced an unprecedented period of prosperity during this inflation. In fact, the prosperity
    became so gross in the 1990’s that Americans felt entitled to second homes, second cars, and
    just about every other luxury good known to man. What has not occurred is hyperinflation, which
    is a very different animal than inflation.”
    https://poseidon01.ssrn.com/delivery.php?ID=945095103005024002074014066002029120109041081065021078070099126089013069000009117029022029039102029056034112117095090124018106102060001069021096117081068105122113010036041057105088126088076031098111017088085093127068098112086070111118099081125021091005&EXT=pdf

    • Replies: @Achmed E. Newman
  22. ulithi says:
    @Priss Factor

    Priss: Rizzo got tossed for yelling at the ump . He was not tossed from his box for not wearing a mask.

  23. @Elmer's Washable School Glue

    Your explanation, Mr. School Glue, was and still is, let me put it nicely, unsound. Tight monetary policy? We don’t need ANY steeeinking monetary policy. Interest rates are the price of money. Do you understand anything at all about this subject, because Ron Paul goes over this stuff again and again? Maybe you can look through some of Dr. Paul’s older columns and his Liberty Project shows and learn some of this, but I’ll give it a quick try.

    OK, if I’m a house contractor (builder) , I may want to borrow money for a project. I could get the smaller projects donefirst to save enough money (well, if INFLATION doesn’t eat too much of it) to bid on a similar one 4 years hence. Or, I could borrow it now. Whomever I borrow it from could have invested the money elsewhere, so there is interest charged as the price I must pay for having this money 4 years earlier. The price of money will be set very by well by the free market, if government leaves it alone, just like housing prices. If it’s worth it, I’ll pay it, if it’s not, I won’t.

    Creating extra money out of thin air is simply stealing. Why do you think this is a good thing, Mr. School Glue? Would you think it is just fine if I go ahead and print up 1 million Benjamins myself every month or so? I can put them right into the economy to go to work for everyone! If it works for the US Government, or the FED, it should be OK for me to do it.

    Besides the theft aspect, additional cash infusions do nothing but distort the markets. They cause people/companies to invest in things that are otherwise not sound investments. Interest rates have been held low right now to prop up the Stock Market and avoid a bust of the Feral Gov’t budget.* If rates were to go up, little old ladies who’s husbands socked away a quarter of a million \$ after 35 years of hard work could supplement SS nicely with regular low-risk CDs and such. Now, interest is almost 0 for the little guy. In order for him to get enough interest to cover inflation (4% or so) he must invest in risky stock market funds.

    It’s the same for pension funds. They can not remain solvent when they count on returns of 6-8% by staying in safe investments. It must go into the market and the market MUST go up, valuations be damned.

    .

    Right now interest payments are 6-7% of the budget – before the latest Kung Flu bailouts – at 1.2% net interest rates, mind you! This is all right on the back of the IRS 1040 .pdf instruction booklet, BTW. What would happen if rates go to a more natural 6%? Interest payments would be near 40% of the budget expenditures, but a higher than that percentage of budget revenue, of course!

  24. @James Charles

    Yes, of course, that explains it. It’s nothing to do with hating Socialism and Socialists.

    • Replies: @James Charles
  25. @James Charles

    a) Could you not lump the entire 20th century together and look at that graph, James? Things have absolutely NOT been better for the middle class and any wage earners since inflation got bad in the early 1970s. Ask someone who remembers 1979 sometime about inflation. Report back to me. Yes, the times after WWII were great for Americans, but that’s for a lot of reasons, one being the destruction of much of the industrial world but America. Secondly, we had a hell of a big free-market back then. The Feral Beast had not gotten completely out of control until (arguably) the 1980s or ’90s.

    b) Hyperinflation happens only when confidence in the currency is lost. That is partly a psychological thing, or at least the timing of it is. The US dollar will fail as the reserve currency for the world. Hyperinflation will probably happen. Right now, the fruits of your labor are just taken from you, year by year, decade by decade.

    c) Does the average American feel prosperous, James?

  26. @RoatanBill

    “Keynes was an economist, aka professional bullshit artist. The idea of a basket of phony currencies replacing the dollar phony currency is a bad joke.”
    Agree that economists are bullshit artists (few exceptions – Michael Hudson springs to mind & PCR)
    Agree with the gist of your point re dollars.
    In theory (not that it will happen) money can be removed from the market – ie Gov runs a surplus, FED sells bonds etc)
    An international currency does seem fanciful. And worrisome. Who (exactly) would control it etc etc?
    Fiat money is not evil, but it can be a weapon, which makes it dangerous…. wasn’t it a Rothschild who said he couldn’t care who ruled as long as he could control the money…..?

    • Replies: @RoatanBill
  27. @animalogic

    Money, not currency, should be completely outside any gov’t control. If given the opportunity to corrupt something, gov’t will do it and has done it by conflating currency with money.

    Although many commodities could function as money, history has already picked the precious metals that can’t be conjured into existence. The miners bring up the metals by expending time and energy. Those metals are refined by expending more time and energy. That’s money, and it’s value is the time and energy needed to produce the finished coin or bar. Each coin or bar is stamped with its weight in some agreed upon unit, meaning the concept of a dollar, euro, yen, disappears. There’s absolutely no need for gov’t intervention to produce real hard money.

    For convenience, the owners of metallic money could store it in banks where it never has to get moved. A debit card or block chain could hold a record of who owns what and transactions record the change in ownership as money is spent or earned. No gov’t needed.

    A car could cost 30:10:0 meaning 30 Gold oz, 10 Silver ounces and 0 Copper ounces, for example. Without the fraudulent currencies, there’s no arbitrage, no exchange rates, no dead politicians aggrandized on pieces of paper. There’s also no infinite deficit spending by profligate gov’t because the books must balance, which they obviously don’t now.

  28. I really, really wish that more of the Federal Reserve’s critics would move beyond the old cliché about how increasing the money supply is bad because it causes inflation.

    There is no such thing as a central bank that doesn’t constantly increase the money supply – and if there was, the economy would crash.

    The way that central banking works is that money is created only when the central bank loans it into existence. Other banks then continue the process by loaning it out to people like me and you. The amount of money owed to the banks is always greater than the amount that exists, and because of compound interest, the debt load is always increasing.

    Thus, the money supply has to increase in order to enable people to service their debts. This doesn’t allow them to get out of debt – remember that all new money is also loaned into existence – but it makes it possible to survive in an economy where the amount of debt is going to increase year after year no matter what anyone does.

    Here is a good article explaining what is really going on. It was written shortly after the Coronavirus came to the US, so the author talks for a while about why the US economy is so vulnerable to disruptions before introducing the concept of central banking and the “debt economy.”

    https://www.twilightpatriot.com/2020/03/coronavirus-vs-debt-economy.html

  29. @Achmed E. Newman

    I’m perfectly aware of how inflation and interest rates work; I’ve also written on the subject quite a bit over at AE’s blog. Nonetheless, thanks for the detailed response.

    We don’t need ANY steeeinking monetary policy…. The price of money will be set very by well by the free market, if government leaves it alone, just like housing prices. If it’s worth it, I’ll pay it, if it’s not, I won’t.

    This doesn’t make any sense; I can’t even say it’s incorrect because it’s just so hopelessly confused. Truly abolishing “any” monetary policy would entail abolishing the national currency altogether. This would be catastrophic–each private bank would have to issue its own currency, which would cause chaos as well as massive inflation– but I’m assuming that’s not what you really meant.

    Otherwise, the price of money can’t be “set by the free market,” period. It’s pretty funny that someone would even think something so nonsensical. To ensure a uniform currency, either the government has to print it directly, or it has to grant a particular bank a monopoly on cash creation; the US currently uses the latter option. This money is distributed through loans from that designated bank (e.g., the Fed) to other banks.

    What you probably meant is that the Fed should stop issuing new loans on top of the value of already existing ones, so the total quantity of money remains relatively static. First off, this would still constitute a “monetary policy.” Secondly, it would actually cause deflation as the demand for money would grow but the supply would remain remain static. Deflation has all kinds of really horrible distortionary effects on the economy and is universally considered far worse than all but the most extreme hyperinflation.

    Creating extra money out of thin air is simply stealing. Why do you think this is a good thing, Mr. School Glue? Would you think it is just fine if I go ahead and print up 1 million Benjamins myself every month or so?

    By that logic, taxation is also stealing. I realize you’re inclined toward libertarianism but I sincerely hope you’re not that far gone.

    If rates were to go up, little old ladies who’s husbands socked away a quarter of a million \$ after 35 years of hard work could supplement SS nicely with regular low-risk CDs and such. Now, interest is almost 0 for the little guy. In order for him to get enough interest to cover inflation (4% or so) he must invest in risky stock market funds.

    This is a good thing; investing in the stock market means capital is being put toward something productive. FYI not all stocks are “risky,” but they all resist inflation by their very nature because companies own real assets instead of just sitting on cash.

    Also, its extremely disingenuous of you to bring up theoretical savings of “little old ladies” when in reality, “abolishing the Fed” would have gotten their husbands laid off long ago.

    Speaking of which, you still haven’t addressed the issue of the dollar’s valuation. A pricey dollar–and Dr. Paul’s schemes would cause its price to skyrocket–would utterly crush any remaining hope of an American industrial base. If you think the trade balance is bad now, this would be far worse.

    Bankers and currency speculators dancing on the graves of an overdosing, broken working class: that is the vision of Ron Paul’s dystopian future.

  30. @Elmer's Washable School Glue

    Firstly, “monetary policy” and “fiscal policy” have definitions for (I’m not gonna say “economists” because they are mostly full of it) people who understand economics. You ought to know very well what I meant by “monetary policy”, which is the use of interest rates to control the price of money. Yes, of course SOME money must remain in existence, but no, there is absolutely no reason more must be continually made.* All it does is devalue that money that is already in circulation or saved.

    The FED is not just a “designated bank” to distribute the currency that the US Treasury actually makes at the mints or is created via keyboard. It is much more than that, and that you don’t know all the shenanigans that go on in this non-Federal bank says that you could use to read some more by this great patriot Ron Paul. I first suggest you read “The Creature from Jekyll Island”. That’s a sea island off of Brunswick, Georgia where the FED was created surreptitiously during a ‘hunting trip” near Christmas time while the public’s attention was on holidays, not devious deeds by your evil bankers.

    Ron Paul has more knowledge of the FED and the workings of this corrupt system in the last digit of his pinky finger than most Americans (including you or me) have in our brains. The FED should not be in the business of making ANY loans, because it should not be in business, PERIOD. There is no reason private banks not hooked up to Big Gov and the thieving Big Banks cannot lend out money for whatever pays off based on reward vs. risk.

    Did you check out the graph? Other than during (and after, for the South) the War of Northern Aggression, was the 19th century some sort of financial shitshow to you, Mr. Glue? No, there is nothing wrong with deflation. It means one’s savings are increasing in purchasing power, and one can therefore afford more, including investments. The only people who hate deflation are idiot writers at the Wall Street Journal. I had a clipping saved in 2005 or so from that newspaper on this very subject. Each time I read it, I said to myself “this is BS. They never did describe what is wrong with deflation”.

    .

    * Sure, since we still use some coinage and plenty of paper currency, the worn out paper and the rubbed-out, or, more importantly when it was REAL money, shaved-off coins, must be replaced, so there is enough in circulation to enable transactions. In the modern world of digital money, this point is moot.

  31. @Elmer's Washable School Glue

    That last comment was getting pretty long, Mr. Glue, so here’s the rest:

    I’m not sure how you equate taxation with counterfeiting money. However, that does not at all mean I don’t agree that yes, taxation IS indeed theft. Some of it is a necessary evil, but most is not. That’s another subject.

    The little old ladies and savers of all sorts have gotten screwed by 12 years running of this rates-to-the-ground FED policy. Oh, they can invest in the markets? I’d see that as a better thing 50 years ago when American companies MADE SHIT for this country and the whole world. Now the valuations of the companies do not represent assets most of the time but intangible things like goodwill and worse, number of clicks, number of members, rate of expansion (take amazon, please …) It’s a house of cards, man, and people and pension funds should not be left with this as the only option to get something for the use of their money.

    Speaking of the manufacturing and your position that high rates will make the dollar expensive, I’m not sure how you see that one comes from the other. The dollar goes high when people have confidence in it. It helps when your country’s economy is sound. Ours is not close to sound. High rates will make borrowing less prevalent, sure. The price of money needs to rise to its natural market rate. This will cut out the mal-investment made just for returns, supporting business that is not really competitive. That doesn’t work out in the long run.

    Listen, we seem to agree on all the warfare-state business, as per comments under A.E.’s post. Dr. Paul would agree with you there. Do you think this bright and principled guy suddenly loses his shit when he discusses economic matters?

    Anyway, this is a good conversation. I gotta go for now.

  32. @Achmed E. Newman

    Firstly, “monetary policy” and “fiscal policy” have definitions for (I’m not gonna say “economists” because they are mostly full of it) people who understand economics. You ought to know very well what I meant by “monetary policy”, which is the use of interest rates to control the price of money. Yes, of course SOME money must remain in existence, but no, there is absolutely no reason more must be continually made.

    More money absolutely does need to be continually made in order to counterbalance the impact of economic growth. Growth causes the demand for cash to go up, hence for the price to remain somewhat stable, supply also has to go up.

    As for fiscal policy, that refers to something entirely different–how the formal government spends and collects money. Although they both influence the economy, they aren’t directly related. We’ve both been discussing monetary policy the whole time, fiscal hasn’t really come up.

    In any case, arguing that the total money supply shouldn’t go up because it “devalues the currency” is question-begging. I’ve seen no evidence to suggest gradual currency devaluation hurts the economy, quite the opposite in fact.

    The FED is not just a “designated bank” to distribute the currency that the US Treasury actually makes at the mints or is created via keyboard. It is much more than that, and that you don’t know all the shenanigans that go on in this non-Federal bank says that you could use to read some more by this great patriot Ron Paul. …The FED should not be in the business of making ANY loans, because it should not be in business, PERIOD.

    I’m extremely skeptical of claims that the Fed is uniquely evil because pretty much every other currency on Earth has its own equivalent. The ECB regulates the Euro, China Central Bank the yuan, Central Bank of Russia the Ruble, and so forth. These countries all came to the conclusion that a central bank was a good thing. Whether the US Fed in particular had a shady beginning has no bearing on its economic soundness.

    Did you check out the graph?

    19th century inflation was flat in the long term. So what? You’re once again question-begging by presupposing that a lack of inflation is the primary measure of economic success. I reject that premise.

    Was the 19th century some sort of financial shitshow to you, Mr. Glue?

    Measured by something actually relevant–the severity of recessions–unequivocally yes.

    No, there is nothing wrong with deflation.

    Even heterodox economists would strongly disagree with you, let alone mainstream ones. Deflation is terrible for the economy because a) people can just sit on a pile of cash instead of investing it, thus making any kind of financing prohibitive (catastrophic for the manufacturing sector), and b) people delay purchases beyond their natural timeframe hoping for a better deal, leading to a crash in domestic production.

    (Continued in part 2)

  33. @Achmed E. Newman

    I’m not sure how you equate taxation with counterfeiting money.

    You compared creating money out of thin air to “stealing.” I was merely pointing out that taxation could also be considered “stealing.” If you accept, in principle, the idea of taxation, there is no reason you shouldn’t accept, in principal, the idea of money creation.

    However, that does not at all mean I don’t agree that yes, taxation IS indeed theft. Some of it is a necessary evil, but most is not.

    Ok, sure. Then why can’t gradual inflation also be considered a “necessary evil?” My point is trying to argue from a moral angle is extremely suspect; if taxation is morally permissible, then monetary expansion should be as well.

    Oh, they can invest in the markets? I’d see that as a better thing 50 years ago when American companies MADE SHIT for this country and the whole world. Now the valuations of the companies do not represent assets most of the time but intangible things like goodwill and worse, number of clicks, number of members, rate of expansion (take amazon, please …)

    Yep, I 100% agree with you here. The tech/FIRE economy is unsustainable and contrived. BUT, I would like to point out that the remaining companies that do “make shit” in America are extremely reliant on financing to sustain and upgrade their capital-intensive operations. They would be obliterated by high interest rates.

    Speaking of the manufacturing and your position that high rates will make the dollar expensive, I’m not sure how you see that one comes from the other.

    Its pretty simple: low interest rates imply some degree of inflation. You’ve demonstrated you already understand this relationship. So if we implemented high rates, other world currencies would see gradual inflation while the dollar would not. Hence, the dollar’s relative value would increase.

    This would mean foreign goods would become cheaper to Americans, while American goods would become more expensive to foreigners. Essentially a reverse-tariff, and catastrophic to our already free-trade scarred domestic industry.

    Listen, we seem to agree on all the warfare-state business, as per comments under A.E.’s post. Dr. Paul would agree with you there. Do you think this bright and principled guy suddenly loses his shit when he discusses economic matters? Anyway, this is a good conversation.

    I think Dr. Paul has a good heart, which is more than can be said of most politicians. But that doesn’t make him infallible. And yeah, thanks to you for keeping it civil, which is pretty unique around here.

    • Replies: @Achmed E. Newman
  34. And yeah, thanks to you for keeping it civil, which is pretty unique around here.

    Pretty unique even for me! I am too tired to properly respond now, but I’ll have more in the morning. I’m sure you’re looking forward to it. ;-}

  35. @RoatanBill

    I am going to stop posting.

    Because RoatanBill invariably posts exactly what I would like to say anyway.

    Thank you RoatanBill.

    • Replies: @RoatanBill
  36. @Ralph Seymour

    Don’t stop. Speak your mind and don’t care what kind of flack it generates. The whole point is to wake people up completely. Very few realize that it is gov’t that produces the conditions for all our problems.

    The average person is a shallow thinker that absolutely knows the gov’t must exist because they build the road, because the gov’t protects us, because only the gov’t can supply justice, etc, etc, etc when the plain truth is the exact opposite upon critical examination.

    What’s needed to start correcting much of what’s wrong is to pass all the laws through a text editor replacing all references to categories of people (minority, LGBT, black, Hispanic, female, jew, etc) with the word person, and if that law still makes sense, keep it. If it doesn’t make sense get rid of it. It is the micro management via law that has pit one group against another because the law purposely causes discrimination to create the friction currently in evidence.

    Gov’t is there to cause problems so they can come to the rescue by reducing our rights while elevating the State. Wash, rinse, repeat.

  37. @Elmer's Washable School Glue

    (If I address part of your part 2 in my part 1 or vice versa, keep in mind that we’re both doing this just to keep the comments of reasonable length.)

    Yes, Mr. Glue, first of all, I agree we are not talking about fiscal policy, but I just put that and monetary policy together, as those two terms are what you read about a lot from economists, or rather “people who claim to understand economics.”

    No, I don’t agree that more money must be created to put into the economy, EVER. Yes, it devalues the currency, and I think you are using the wrong term when you say that deflation devalues the currency. It is quite the opposite. It you mean the US \$ may be in less demand by foreigners if our economy is less sound, or, as you claim (but not I) will be the case if interest rates are higher, sure. That is just a demand for the currency, but not a devaluation. The dollar loses its buying power when the economy becomes less productive for the same inputs or when money is created out of thin air – something the FED was created to do. The law of Supply & Demand cannot be repealed, even by Communists.

    Speaking of productivity, if it goes up, and money is not created, sure, we have the same amount of currency with more goods and services around to purchase, so the dollar buys more. That’s deflation (in layman’s terms*), and I maintain there is not a thing wrong with it. (It ain’t like I’m gonna be all broken up when I can use a penny to buy a gumball out of a machine again, and stop leaving them on the counter or throwing them in the bushes.)

    Now, regarding the other central banks, let’s go back to old America, just as you may remember your old self with your Mom saying “just because Johnny does it doesn’t mean you have to.” It’s not my or our business as Americans, but all the central banks create the same economic problems. The BIS and the IMF are the Globalist versions, in a higher circle of economic hell.

    Shoot, there will probably be 3 parts, and I may have to get off this for just a bit here…

    .

    * Per this very article title, I suppose that is not the official definition of deflation, as the amount of money in circulation has not been reduced. Prices will go down though, so in common parlance, this is the opposite of inflation.

  38. @Elmer's Washable School Glue

    I am sorry that I put too much other text in between my “look at the graph” part and “was the 19th century some kind of economic shitshow…” part. My point was to explain that that very steady CPI of the 19th century (excepting during wars, as per usual) meant that there was not the economic stress on the common man that we’ve had since the mid-1960’s, or arguably early 1970s, with inflation (more on why I’m starting there later on).

    I’ve seen those graphs of the “panics” and the downfalls and whatever the hell. First of all, these were for people who were in the big money. It’s not like the small farmer, rancher, or hardware store owner was hard hit on his ass. That was most Americans then, farmers, ranchers, and small businessmen. I wonder if many of them heard much about each of these “panics”. I just don’t care about the big-money men that much. It’s good on them that they set the direction of entire industries, but the heart of America’s economy used to be small business, not that long ago, in fact. They don’t directly depend so much on financial shenanigans that go on on Wall Street.

    Small businessmen and the other self-employed have not always been investors. Here’s the reason. The money used to hold it’s value. The fruit of one’s labor would not be stolen by inflation, so getting a few percentage points from the small banker who lent it at a slightly higher rate to those buying farms and equipment was a winning game for one’s future. That’s not the case anymore.

    Was it so bad for the economy that they didn’t all push the Dow Jones to the sky? As Adam Smith, the commenter, not the Scottish economist, wrote above “Higher prices = Moar GDPee… So much winning!” I could write more about GDP and the bullshit it includes now, but that’s another comment…

    Regular Americans who couldn’t give a damn really about the valuation of Google and Amazon otherwise, MUST put their money in the now-risky stock or they are losing out to inflation. We are caught between artificially low interest rates (arranged by the FED) AND inflation (caused by the FED). These twin evils that screw over little old ladies, you and me, pension funds, everyone and everything BUT the rich* and the government-dependent poor both come from the FED now.

    Whooo boy, I’m just getting started, as the guy in the movie said …

    .

    * But, per Mr. Charles, I am the shill. Right!

  39. @Elmer's Washable School Glue

    Heh! I’m still on your 1st one, Mr. Glue. Why do you think investments won’t be made by people with sound money “in their hands”? Yes, they can save the money in a bank, getting most of (the bank gets the rest) the value of the time value of that money via a decent amount of interest.* The bank can invest in a manufacturing firm just as an individual can. The main point is that they don’t have to get into risky investments to keep the value they have saved.

    Without the FED forcing them into the basement via creating money and lending it out for cheap (how do you compete with this with higher rates?), interest rates would be at a natural, market-set rate. These rates would automatically be ones at which companies find it reasonable to borrow.

    As for (b), I’ve read that before. During the very high (though not “hyper” by any means) inflation of the late 1970s/early 1980s, people did feel that better buy durable goods or anything with a shelf life before it went up some more stuff. That’s just near panic buying. Preppers don’t spend any more money or less money in the long run than everyone else, after they’ve gotten a good stash and system worked out. However, does that increase demand in the long run? No, your income can only afford so much.

    If there were any real deflation, such as in the computer/electronics sector, would that stop people from buying? It’s been quite to the contrary. How about in the real estate market? In the very short term, people were smart to have held off buying from ’06 till ’10 or so. That’s just another short-term thing, that involved more FED shenanigans (with the US government anti-redlining BS being a part of the problem too). However, if you want to live in a house to raise your family, you’ve gotta get one sometime.

    .

    * Let’s please separate out interest and inflation. Long ago, I was under the impression that interest was about keeping up with inflation, but, of course, even with an inflation rate of 0, there is that time value of money. (I know you know this, Mr. Glue, but it’s for the record.) See Inflation and Interest on the Peak Stupidity site.

  40. @Elmer's Washable School Glue

    OK, just piling it on. Don’t mind me.;-}

    Gradual inflation can’t be considered a “necessary evil” because of the “necessary” part. It is most certainly not necessary for a good economy. America changed from having a respectable, but nowhere near top tier, economy in 1850, say (just picking a time when there was a decent sized population here), to a the top economy in the world by the time the FED was created in 1913 (see here, and I only bring up 1913 because that’s in the table therein.)

    America had its most amazing growth from 1870 to 1900, with the Feral Gov’t staying well out of most people’s business and with sound money available. Inflation was not at all necessary.

    This reminds me that I didn’t even get to a subject I meant to write about, sound money. I’ll leave that, and your discussion about the trade balance and that “low interest rates imply some degree of inflation”, which, no, I don’t agree with, another time, or if you write back.

    • Agree: J
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