Central Banking Discussed

[NickF]

To start off the discussion, I thought I'd show this comical video on youtube, along with some links to Ron Paul's perspective.
YouTube - Newstopia explains the Reserve Bank

YouTube - On Restoring Confidence in the Markets
YouTube - On Market Intervention
YouTube - On the End of Capitalism?
YouTube - On Safety Nets
YouTube - On Capital and Capitalism

[Eppie]

That was a quite a funny video, it reminded me of "The Front Fell Off". I agree with Ron Paul's stance on this issue, I think we do need to reinstate a gold standard.

[NickF]

I thought the part about people jumping otu of windows was ****ing halarious, but that aside, We need to restructure our monetary system. Whoever's elected should pull an Andrew Jackson and kill the bank. I like this quote from him.

Mischief springs from the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges... which are employed altogether for their benefit.
Andrew Jackson

[unimailer1972]

I used to think that a return to the gold standard would be a good solution. I recently read an article and I've been forced to continue to research the issue.

There's gold in them thar standards! - Megan McArdle

I'll get back to you when I've done more researching and reading.

[CrazyGerbilEater]

Originally Posted by unimailer1972

I used to think that a return to the gold standard would be a good solution. I recently read an article and I've been forced to continue to research the issue.

There's gold in them thar standards! - Megan McArdle

I'll get back to you when I've done more researching and reading.

after reading the article, i thought perhaps, then after reading almost the entire page of comments, down to about 9/10's of the way down, i reafirmed my beleifs in the gold standard, though i defined it further(though in my mind it was already defined this way) as not jsut gold, but other assets backing up the dollar.

the comments were very interesting, an truly intelligent debate, with many persuasive people.

[unimailer1972]

Originally Posted by CrazyGerbilEater

after reading the article, i thought perhaps, then after reading almost the entire page of comments, down to about 9/10's of the way down, i reafirmed my beleifs in the gold standard, though i defined it further(though in my mind it was already defined this way) as not jsut gold, but other assets backing up the dollar.

the comments were very interesting, an truly intelligent debate, with many persuasive people.

The issue I keep coming back to is this: With all monies backed by something, it can stifle the money supply, thereby stifling the global economic growth. Now, according the the Austrian school of economics, which I'm still quite ignorant of, the opposite effect is usually observed: namely, any increase of the money supply has a negative effect on economic growth. This seems counter-intuitive, and many people laugh at the Austrian school for one reason. The Austrian school propounds that the market itself, no government interference, is the best regulator. I would say that the jury is still out on this.

Something that I did not know is that the Community Reinvestment Act set the foundation in 1977 for the current economic disaster. Here's a comprehensive synopsis, not mine:

The following is a condensation of a series from the Investor's Business
Daily explaining "What Caused the Loan Crisis":

1977: Pres. Jimmy Carter signs into Law the Community Reinvestment Act the
foundation and cornerstone for the impending disaster.. The law pressured
financial institutions to extend home loans to those who would otherwise not
qualify.

The publicized premise: Home ownership would improve poor and crime-ridden
communities and neighborhoods in terms of crime, investment, jobs, etc.

The Results: Statistics bear out that it did not help.

How did the government get so deeply involved in the housing market?
Answer: Bill Clinton wanted it that way.

1992: Republican representative Jim Leach (IO) warned of the danger that
Fannie and Freddie were changing from being agencies of the public at large
to money machines for the principals and the stock-holding few.

1993: Clinton extensively rewrote Fannie Mae and Freddie Mac's rules
turning the quasi-private mortgage-funding firms into semi-nationalized
monopolies dispensing cash and loans to large Democratic voting blocks and
handing favors, jobs and contributions to political allies. This potent mix
led inevitably to corruption and now the collapse of Freddie and Fannie.

1994: Despite warnings, Clinton unveiled his National Home-Ownership
Strategy, which broadened the CRA in ways congress never intended.

1995: Congress, about to change from a Democrat majority to Republican.
Clinton orders Robert Rubin's Treasury Dept to rewrite the rules. Robt.
Rubin's Treasury reworked rules, forcing banks to satisfy quotas for
sub-prime and minority loans to get a satisfactory CRA rating. The rating
was key to expansion or mergers for banks. Loans began to be made on the
basis of race and little else.

1997 - 1999: Clinton, bypassing Republicans in Congress, enlisted Andrew
Cuomo, then Secretary of Housing and Urban Dev elopement, allowing Freddie
and Fannie to get into the sub-prime market in a BIG way. Led by Rep.
Barney Frank and Sen. Chris Dodd, congress doubled down on the risk by
easing capital limits and allowing them to hold just 2.5% of capital to back
their investments vs. 10% for banks. Since they could borrow at lower rates
than banks their enterprises boomed.

With incentives in place, banks poured billions in loans into poor
communities, often "no doc", "no income", requiring no money down and no
verification of income. Worse still was the cronyism: Fannie and Freddie
became home to out-of work-politicians, mostly Clinton Democrats. 384
politicians got big campaign donations from Fannie and Freddie. Over $200
million had been spent on lobbying and political activities. During the
1990's Fannie and Freddie enjoyed a subsidy of as musch as $182 Billion,
most of it going to principals and shareholders, not poor borrowers as
claimed.

Did it work? Minorities made up 49% of the 12.5 million new homeowners but
many of those loans have gone bad and the minority homeownership rates are
shrinking fast.

1999: New Treasury Secretary, Lawrence Summers, became alarmed at Fannie and
Freddie's excesses. Congress held hearings the ensuing year but nothing was
done because Fannie and Freddie had donated millions to key congressmen and
radical groups, ensuring no meaningful changes would take place. "We manage
our political risk with the same intensity that we manage our credit and
interest rate risks," Fannie CEO Franklin Raines, a former Clinton official
and current Barack Obama advisor, bragged to investors in 1999.

2000: Secretary Summers sent Undersecretary Gary Gensler to Congress
seeking an end to the "special status". Democrats raised a ruckus as did
Fannie and Freddie, headed by politically connected CEO's who knew how to
reward and punish. "We think that the statements evidence a contempt for
the nation's housing and mortgage markets" Freddie spokesperson Sharon
McHale said. It was the last chance during the Clinton era for reform.

2001: Republicans try repeatedly to bring fiscal sanity to Fannie and
Freddie but Democrats blocked any attempt at reform; especially Rep. Barney
Frank and Sen.Chris Dodd who now run key banking committees and were huge
beneficiaries of campaign contributions from the mortgage giants.

2003: Bush proposes what the NY Times called "the most significant
regulatory overhaul in the housing finance industry since the savings and
loan crisis a decade ago". Even after discovering a scheme by Fannie and
Freddie to overstate earnings by $10.6 billion to boost their bonuses, the
Democrats killed reform.

2005: Then Fed chairman Alan Greenspan warns Congress: "We are placing the
total financial system at substantial risk". Sen. McCain, with two others,
sponsored a Fannie/Freddie reform bill and said, "If congress does not act,
American taxpayers will continue to be exposed to the enormous risk that
Fannie Mae and Freddie Mac pose to the housing market, the overall financial
system and the economy as a whole". Sen. Harry Reid accused the GOP ;of
trying to "cripple the ability of Fannie and Freddie to carry out their
mission of expanding homeownership" The bill went nowhere.

2007: By now Fannie and Freddie own or guarantee over HALF of the $12
trillion US mortgage market. The mortgage giants, whose executive suites
were top-heavy with former Democratic officials, had been working with Wall
St. to repackage the bad loans and sell them to investors. As the housing
market fell in '07, subprime mortgage portfolios suffered major losses. The
crisis was on, though it was 15 years in the making.

2008: McCain has repeatedly called for reforming the behemoths, Bush urged
reform 17 times. Still the media have repeated Democrats' talking points
about this being a "Republican" disaster. A few Republicans are complicit
but Fannie and Freddie were created by Democrats, regulated by Democrats,
largely run by Democrats and protected by Democrats. That's why taxpayers
are now being asked for $700 billion!!

If you doubt any of this, just click the links below and listen to your
lawmakers' own words. They are condemning!

YouTube - Fannie & Freddie: The Real Story Behind The Economic Crisis

YouTube - The origins of the 2008 financial crisis

YouTube - How democrats lied to America, while using community reinvestment act and acorn to destroy the American financial system.

Postscript: ACORN is one of the principlal beneficiaries of Fannie/
Freddie's slush funds. They are currently under indictment or investigation
in many states. Barack Obama served as their legal counsel, defending their
activities for several years.

[NickF]

You failed to recognize that the Austrian School predicted the Great Depression, The oil crisis, and what is going on now.

Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market’s attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over - not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”

Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?

Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end… It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul

[unimailer1972]

Originally Posted by NickF

You failed to recognize that the Austrian School predicted the Great Depression, The oil crisis, and what is going on now.

Like I said, I have a lot to learn.

[CrazyGerbilEater]

im no expert on the economy, which im trying to become by reading up on it. But I really dislike the thought of imaginary money, the dollar doesnt stand for anything, so its value can be anything.
I dont want to use money that could be worthless, which is why i like the gold standard, then the dollar cannot be worthless, because its worth exactly how much the assets that back it up are worth.

im also against loans. Borrowing is somthing I've always been against. banks should just be a place to store your money, id be fine with paying the bank a small fee to store my money because its holding my money safely.