After-the-Fed Proposed Solutions

I have stumbled across an article by Eric Blair on the website Activist Post entitled "The After-the-Fed Solutions Debate Begins: Greenbackers vs. Goldbugs" which states that it may be that conventional wisdom is on the side now of ending the Fed but it's clear we disagree on how and we need to have a public debate.

Here is how the article ends:

. . . it is unfair to suggest that fiat currencies are not redeemable in gold, as any widely acceptable unit of exchange can be traded for gold. Currently, one can buy an ounce of bullion for around 1400 Fed-deflated U.S. fiat Dollars.

I don't want people to get the wrong impression. I believe gold is a great investment, especially in these turbulent times. And I also believe gold has a place in securing America's currency. However, I worry that those who hold dear that a currency must be backed partially by gold in order to have legitimacy are susceptible to supporting a global currency if it includes gold as part of its currency basket. Perhaps I'm naive, but I'm not sure why a combination of the two solutions is not feasible, with interest-free paper Greenbacks redeemable in gold or silver, while also producing silver and gold coins for circulation -- all tightly controlled by Congress, not a private organization, as per the Constitution. After all, Fort Knox is supposed to be the people's gold, right?

Let the debate begin. Tell us what you think would be the best system to replace the Fed.

I think it's interesting that Eric points out that you can buy gold with fiat dollars if you want to. Is that a compromise between the goldbugs and the greenbackers? I don't know.

But I believe that if we want to keep the United States of America and not lose our sovereignty to a New World Order we are going to have to figure out how to do better than what we have with the Fed. So I hope we can have a civil, productive, debate.

reply to post by Mary Rose


- By Michael Suede (me):

Eric Blair of the Activist Post recent published an article entitled The After-the-Fed Solutions Debate Begins: Greenbackers vs. Goldbugs as a response to Gary North’s article that slammed the “Greenbacker” movement.

In brief, what the Greenbackers want is an entirely fiat interest free money printed by the US Treasury, where the Congress gets to print as much interest free money as they want to pay for whatever spending programs they want.

The people who back the gold standard want a fixed currency that simply represents a unit of gold and can be redeemed for gold at any given moment.

Both parties want the central bank abolished.

To understand why the Greenback movement is nothing but “progressivism” in disguise, one must understand the fundamental nature of money and how it arises in a free society. One must also understand the nature of interest, how it arises, and how it affects the over-all economy. Blair seems to think that interest, in and of itself, is some kind of evil mechanism without presenting any real reasoning as to why this is so.

So let us look at the nature of money and how it arises in an economy. If we were to remove all money from an economy, people would be reduced to bartering for goods and services. This means that if I am chicken owner and I want a pickle, I have to find a chicken wanting pickle owner with whom I can trade.

What people realized is that if they traded the chicken for something that everyone wants, they could then use that new commodity to barter for the other goods more easily. So the pickle wanting chicken owner would trade his chicken for gold and then trade the gold for the pickle.

As this intermediary of trade becomes the market chosen standard against which all other goods are bartered, it takes on the form and property of money. Shop owners begin to price their goods in terms of the market money, which history shows us is almost always gold or silver.

This is how money and prices arise in a free market. First the market chooses the money, and then the market sets the prices of all goods based on the supply and demand of that market “money”. No violent or coercive force is necessary for this to take place. It takes place all on its own without the use of weapons, police, brutality, or courts. People freely chose to engage in trade with this money because it is in their best interest to do so.

This gold-as-money system arose, and can arise, without any government at all. In a completely anarchic system, this is how money would come into existence – no violence or force is necessary.

None of what I have written is true of fiat currency. Fiat currency cannot be introduced into a market without gold first being used as a currency, and when it is introduced, it requires violent enforcement of legal tender laws to make it work. For example, if there were no money in a society and everyone simply engaged in barter, I could not print up a bunch of 100 dollar bills and start buying things with them. No one would have any idea what prices should be or how much the 100 dollar bill was worth. First, the paper money must be used to represent gold; otherwise it would be impossible for anyone to set prices.

Only after paper money is used to represent gold can a criminal counterfeiter step in and replace the gold backed money with unbacked fiat paper money. This is why government loves fiat money and why almost all governments use fiat paper money today. Fiat paper money can be easily counterfeited.

In reality, inflation is nothing more than the government stealing gold out of your pockets through the mechanism of counterfeiting. When the government expands the money supply by creating more debt (issuing more treasury bills), it steals from the value of all the money already existing. In a Greenback system, this inflationary expansion is simply accomplished by running a printing press rather than issuing more bonds at interest, but the net effect is the same. By adding more money into an economy, the government artificially suppresses interest rates and steals from the value of all the existing currency.

To understand how this inflation distorts the market, we must turn to the Austrian School of economics. The Austrian’s use a method known as praxeology to determine the effects of rational actors in a market. Praxeology starts with logical truisms about individual actors and then works its way up to describe the entire economy. It is a unified theory of economics, unlike the current Keynesian nonsense that separates macro and micro economics and has no way to relate the two. This is the same school of economic thought that Ron Paul and Peter Schiff subscribe to, and it is the only school to have consistently predicted the market chaos that is now unfolding.

In our former gold backed system, inflation was caused by banks lending out more money than they had in gold reserves or by an increase in the gold supply. Lending out more money than the banks have in reserves is called fractional reserve banking. Fractional reserve banking means that if a bank had 100 dollars in physical gold reserves, they could lend out 1000 dollars of loans. The Austrian school opposes this kind of fraudulent activity. It is important to understand this crucial difference between the gold standard advocated by the Austrians and the gold standard that is advocated by bankers. The Austrians want a 100% reserve gold backed system of private currencies.

A 100% reserve system means the banks essentially act like warehouses. They hold the people’s money and charge a nominal fee for this service. They don’t actually create money through lending like they do now. Inflation in a 100% reserve gold system can only occur if the supply of gold is increased, which requires a large amount of time and effort on the part of gold miners. The mining operations also must be profitable, which means the miners will only undertake new mines if they feel the value of gold has increased to a point where opening a new mine would yield profitable results. The scarcity of gold and the profitability requirements of mining operations naturally limit the expansion of the gold supply.

In a greenback system, inflation is caused by government simply running a printing press and then spending that newly printed money into the economy. Inflation under the proposed greenback system would be constant and rapid. Since government would continue to hold the reins of power over the printing press, it would ceaselessly print, rather than ceaselessly borrow, in its ever expanding quest for more power. If government can’t control its borrowing now, it is ridiculous to think it will be able to control its printing under a greenback system.

Business cycles are directly related to this fraudulent activity of excessive lending (or printing in the case of greenbacks) since the act of lending more paper money than the banks actually have in gold reserves artificially reduces interest rates, which leads to “booms” in the business cycle. An increase in the money supply increases the reserves of banks, which then allows them to further pyramid loans in a fractional reserve system. The current rate of this expansion is tightly controlled by the Fed through its monetary policy.

When money is made “cheap” (low interest rates), either by printing in a greenback system or by pyramiding in a fractional reserve system, it causes wild distortions in the structure of production. Interest rates are nothing more than the price of borrowing. They are a price, and like all prices, any government interference in the price causes massive economic problems.

For example, no rational person would advocate government price controls on commodities. When government places price controls on a good and artificially drives down its price, it causes all manner of distortions in the production of that good. Producers have less incentive to produce, the consumers have incentive to horde, and it generally causes massive shortages of the good in question.

The same general distortions apply to the price of borrowing. When government drives down the price of borrowing by printing money in a greenback system or by expanding bank reserves and pyramiding in a fractional reserve system, it causes “booms” in the business cycle.

These “booms” are when the malinvestment takes place due to excessively “cheap” money (credit) being available. Since money is cheap, investors are willing to take more risk than they otherwise would. The cheap cost of borrowing also sends a signal to investors that there is more capital goods available for future production than actually exists. Producers see the cheap rates and assume people have lots of savings available to spend on future consumption so industry reorganizes itself into the production of long term goods. Only later is it revealed that consumers are broke and the existing capital stock of goods that producers were relying on to finish their projects does not actually exist. For a great layman’s overview that proves why this is so, watch this presentation by Professor Roger W. Garrison.

From this we can see that interest rates are a necessary coordinating factor that harmonizes the production of high order and lower order goods. The reason why we have such a screwed up economy today is mostly due to the Fed artificially suppressing interest rates which drove the housing boom by screwing up this crucial investment signal.

Further, suppressing rates through inflation also causes people to SPEND their money rather than SAVE their money. If people cannot get a reasonable return above the rate of inflation on their savings, they MUST necessarily spend their money or they will lose it. If they don’t spend it, the government will essentially steal it through the mechanism of inflation. Obviously this destroys any real investment capital that an economy might have. This is also a primary cause of our current economic crisis.

We also must not neglect the fact that when government spends money it takes resources away from the productive private sector of the economy that would otherwise be available. For example, if the government decides it wants to create a large number of propaganda websites, it must necessarily hire a large number of web developers. This obviously causes the price of web developers to increase since web developers would be scarcer. So now a private company that wishes to expand its online presence must spend more than it otherwise would have had the government not involved itself through spending in the web development market.

After looking at the above evidence, it is easy to see why a Greenback system would not bring prosperity to the American public, which is really what this is all about to begin with.

Money is far too important to be left in the hands of government – it must be left in the hands of the people.

reply to post by mnemeth1


What would you suggest the U.S. do about the national debt?

Originally posted by Mary Rose
reply to post by mnemeth1

 

What would you suggest the U.S. do about the national debt?

Write it down.

What do all companies do when they go bankrupt?

They declare a bankruptcy, discharge the debt, and liquidate assets.

They then are either put out of business or they are restructured in such a way as to make them profitable once again - which for the US government would entail not being able to spend more than they take in.

Whatever spending the US government does, it must back 100% through taxation, AFTER the taxes have been collected. None of this forward estimation of revenue nonsense.

Basically the printing press and the credit card must be taken away from the politicians.

Originally posted by mnemeth1

Write it down.

What do all companies do when they go bankrupt?

They declare a bankruptcy, discharge the debt, and liquidate assets.

A government is not a company.

Originally posted by Mary Rose

A government is not a company.

Yeah, its a mafia looting organization run at gun point.

Originally posted by Mary Rose


A government is not a company.

A government has employees, customers, takes in money, spends money...

how exactly is a government not a company?

reply to post by eNumbra


A government is formed for citizens, not employees, regardless of the fact that people work for the government, which is irrelevant to this discussion.

In the case of the national debt, it is backed by the full faith and credit of the United States, which is us. Everyone, including people like me, who has invested in U.S. treasuries has done so under that assumption. Treasuries have been considered the safest investment. You're suggesting that people's retirement accounts in treasuries should be wiped out?

Originally posted by Mary Rose
reply to post by eNumbra

 

A government is formed for citizens, not employees, regardless of the fact that people work for the government, which is irrelevant to this discussion.

A government is formed to provide a service to its citizens.

A company is formed to provide a service to its customers.


The ability to profit is what determines whether or not a company stays in business. The same should go for government.

Originally posted by Mary Rose
reply to post by eNumbra

 

A government is formed for citizens, not employees, regardless of the fact that people work for the government, which is irrelevant to this discussion.

In the case of the national debt, it is backed by the full faith and credit of the United States, which is us. Everyone, including people like me, who has invested in U.S. treasuries has done so under that assumption. Treasuries have been considered the safest investment. You're suggesting that people's retirement accounts in treasuries should be wiped out?

The US Government does not have the right to obligate my labor to the payment of debts it creates.

If my mom were to run up a huge credit card debt, she could not then turn and use violence against me to have me pay her debt.

And yes, the Socialist Security system must be liquidated and privatized. It is an insolvent ponzi scheme no different than Madoff operated. The US government does not have the right to use violence against the citizenry to impose a ponzi scheme upon them.

This system must be eliminated and the people must be allowed to save for their own retirement in solvent investments that are not operated as ponzi schemes.

Originally posted by mnemeth1
The US Government does not have the right to obligate my labor to the payment of debts it creates.

Are you an American?

Originally posted by Mary Rose

Originally posted by mnemeth1
The US Government does not have the right to obligate my labor to the payment of debts it creates.

Are you an American?

Yes.

reply to post by mnemeth1


You're comfortable with your country defaulting on their debt?

I'm not. As corrupt as the government is, it's still my country and I would not support defaulting on the debt - except those held by the Fed - because they got them for free in the first place.

Originally posted by Mary Rose
reply to post by mnemeth1

 

You're comfortable with your country defaulting on their debt?

I'm not. As corrupt as the government is, it's still my country and I would not support defaulting on the debt - except those held by the Fed - because they got them for free in the first place.

I am more comfortable with a default than I am with violent looting.

If it's "your country" then you should pay the debt voluntarily out of your own pocket.

You should not expect men with guns to take my wealth to pay for spending programs you enjoy.

reply to post by mnemeth1


You sound like it's my country and not yours.

The country is in a huge mess but it's going to be up to us to take it upon ourselves to fix it in my opinion. Peacefully. And responsibly.

Originally posted by Mary Rose
reply to post by mnemeth1

 

You sound like it's my country and not yours.

The country is in a huge mess but it's going to be up to us to take it upon ourselves to fix it in my opinion. Peacefully. And responsibly.

I don't believe in violent looting, so it's your government and not mine.

The country is simply a pile of rock that I stand on.

reply to post by mnemeth1


No one I know believes in violent looting. I think that statement is off-topic as well.

What is your proposal for after the Fed in practical terms? Leaving history and theory aside. Are you saying the people should ignore the government and do their own thing?

Originally posted by Mary Rose
reply to post by mnemeth1

 

No one I know believes in violent looting. I think that statement is off-topic as well.

What is your proposal for after the Fed in practical terms? Leaving history and theory aside. Are you saying the people should ignore the government and do their own thing?

If you are advocating a fiat currency, then you are advocating government:

1. violently impose that currency on the people

2. should be allowed to inflate and steal from the people through inflation

I am advocating that government simply get out of the way and stop using violence against the people.

What would happen is private mints would be established and they would begin coining gold and silver, along with producing bullion. The private mints might also act as depositories of this bullion.

The private mints would begin printing receipts for this gold to act as money, just as we saw with the Liberty Dollar before they were violently attacked by federal agents.

This real money would begin circulating and eventually it would drive out the phony fiat money being printed by the Federal Reserve.

The solution is to let voluntary markets work.

reply to post by mnemeth1


You do know that it was the goldsmiths who originated fractional reserve lending?

Originally posted by Mary Rose
reply to post by mnemeth1

 

You do know that it was the goldsmiths who originated fractional reserve lending?

Yes, and it was the courts that endorsed that fraudulent practice.

Government courts.

Private courts would not allow such fraud.

Hulsmann details some of the case history of the fractional reserve system from antiquity here:
www.independent.org...

What we can see is that bankers used fraud and deceit to make the case that deposits were not really deposits like a warehouse, but they were loans to the bank that the bank could do with as they pleased.