Why is the Fed so bad and why is gold so good?

[Howard_Roark]

I'm a libertarian and agree with most everything about Ron Paul with the exception of the fed and gold. I am very financially literate and know in-depth how to disect companies balance sheets, income statements ect however after extensive research I have yet to really grasp why the fed is so bad. I'm an independent thinker and won't just digest anything Ron Paul says without external research, and most research I've done hasn't pointed to the fed being as bad as Ron Paul says though I woulden't say its good either. I don't understand how issuing say $1 trillion in T-bills to foreign countries is "printing money" anymore than me borrowing $1000 would be. Secondly, I quote Warren Buffett (hes very liberal I know) on gold "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." I can't really poke a hole in that, gold isn't oil or corn it has no industrial utility. If its such a good currency, why arent any other countries on the gold standard?

[Young Paleocon]

The FED and by association fractional reserve banking causes the business cycle and thus many of the economic ills we are in. By artificially lowering interest rates on bank lending to the point that they do not reflect the real savings rates, it causes malinvestment and the allocation of capital to occur in areas that if left to real interest rates that are indicative of a banks reserves wouldn't receive the capital. This malinvestment comes to the fore when credit dries up due to over leveraging and capital goods markets that require large amounts of capital such as housing and construction are hit the worst because they are the long term project industries that require being lent capital at low interest rates, and since such a large amount of these projects were created when interest rates were kept artificially depressed they are in far more supply than demand. Therefore, many businesses in these asset classes go out of business due to the malinvestment and over supply.

[Young Paleocon]

Hopefully that isn't too incoherent.

[Howard_Roark]

The FED and by association fractional reserve banking causes the business cycle and thus many of the economic ills we are in. By artificially lowering interest rates on bank lending to the point that they do not reflect the real savings rates, it causes malinvestment and the allocation of capital to occur in areas that if left to real interest rates that are indicative of a banks reserves wouldn't receive the capital. This malinvestment comes to the fore when credit dries up due to over leveraging and capital goods markets that require large amounts of capital such as housing and construction are hit the worst because they are the long term project industries that require being lent capital at low interest rates, and since such a large amount of these projects were created when interest rates were kept artificially depressed they are in far more supply than demand. Therefore, many businesses in these asset classes go out of business due to the malinvestment and over supply.

How would interest rates be set by the market and how does the fed set interest rates?

[Young Paleocon]

Interest rates would be set by the market, and you'll have to excuse me I may be wrong but I don't think so, by the amount of savings invested in each bank. The fed sets rates by infusing the banks with credit. Thus resupplying them with reserves and allowing them to lend out the cash at lower interest rates. This creates an atmosphere of debt in the host nation, and the shortfall must be made up by foreign savers. Because if the money doesn't come from other savings it would just be money created by the fed that doesn't represent anything and would cause massive inflation off the bat Zimbabwe style.

[brandon]

I encourage you to read the two following essays as they will answer your questions with more accuracy and in more depth than anyone on the forum will.

The Case Against The Fed (http://mises.org/books/fed.pdf)

What has Government Done to Our Money (http://mises.org/money.asp)

Both are available online for free at the above links.

Young Paleo makes some good points and I will add some of my own thoughts in a minute

[brandon]

Secondly, I quote Warren Buffett (hes very liberal I know) on gold "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." I can't really poke a hole in that, gold isn't oil or corn it has no industrial utility. If its such a good currency, why arent any other countries on the gold standard?

Mr. Buffet makes a keen observation in the above quote. However, replace "gold" with "small pieces of paper" in the above quote and it becomes even more absurd.

Gold may not have many industrial uses, but it's value comes because it possesses many desirable traits for a currency. It is in limited supply. It cannot be counterfeited. It doesn't drastically decay over time. It stores well. And others.

Gold may not be the best currency, but if you look at history you will see that the value of gold has fluctuated far less than any paper currency. In fact, all historic paper currencies have ultimately become worthless except for the ones still in use today. Gold however, has retained value throughout several millenia.

[Young Paleocon]

And the argument I have given is just one of the economic arguments against the fed, but there is also a moral, legal, constitutional, sovereignty, and I'm sure many other arguments against the fed. Besides the fact that a progressive income tax and a monopoly on the control of money are two planks out of the communist manifesto.

[Mitt Romneys sideburns]

I don't understand how issuing say $1 trillion in T-bills to foreign countries is "printing money" anymore than me borrowing $1000 would be.

um. . .

you are not financially literate at all.

The Fed doesnt issue T-Bills. The Treasury does. In this case, as announced last week, we are not going to be issuing T-Bills to foreign countries. Instead, the FED will begin buying T-Bills.

So, with what money does the Fed buy those T-Bills? This is where the printing money comes in.


Gold is money. And gold is a scarce metal, that you have to mine out of the ground. There is only a finite amount of it. Paper currency, other other hand, is infinite. This is why so many governments abandoned the gold standard. Gold instills responsibility. If there is anything politicians dont like, its responsibility.

[Mitt Romneys sideburns]

How would interest rates be set by the market and how does the fed set interest rates?

The same way the market sets the price of milk and loafs of bread.

The fed manipulates interest rates according to whatever the political goals of the time are.

[trey4sports]

How would interest rates be set by the market and how does the fed set interest rates?

the Fed doesnt directly set interest rates. they can move intrabank rates up or down by buying bonds from banks low on reserve thus artificially lowering the interest rate they will loan to other banks which gets passed down to consumer loans.

gov't continues to accumulate more debt. thats not even the worse part. since rates are below market level, more malinvestment comes about since the borrowing rate is below market.

[WarDog]

I am very financially literate and know in-depth how to disect companies balance sheets, income statements ect however after extensive research I have yet to really grasp.
Really I dont see the connection here. How could you claim this statement and know nothing about Gold & it's value you make no since.

As the economist Dr. Stuart Crane was fond of saying, Things in the monetary world don’t just happen to happen. They happen because they were planned to happen.

I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power of money should be taken away from the banks and restored to the people to whom it properly belongs." Thomas Jefferson 1743-1826 3rd U.S. President.

By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft. John Maynard Keynes 1883-1946 British economist

With the exception only of the period of the gold standard,all governments of history have used their exclusive power to issue paper to defraud and plunder the people. Friedrich Von Hayek


The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the government of the U.S. ever since the days of Andrew Jackson. History depicts Andrew Jackson as the last truly honorable and incorruptible American president.

I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them. Thomas Jefferson

Paper is poverty, it is only the ghost of money, and not money itself." Thomas Jefferson to Edward Carrington, 1788


President FDR (on Fascist rule in a letter to corporate con man “Colonel” Edward M. House, a founder of the Council on Foreign Relations and political fixer for the ruling class. House also handled President Wilson for the foisting of the privately rigged “Federal Reserve” Corp bank monopoly. 11/21/ 1933)

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin (1802)

When all government, domestic and foreign, in little as in great things, shall be drawn to Washington as the center of all power, it will render powerless the checks provided of one government on another, and will become as venal and oppressive as the government from which we separated - Thomas Jefferson

Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out. Andrew Jackson


"When one gets in bed with government, one must expect the diseases it spreads." – Ron Paul

Capitalists can exploit you only with your permission: by trading with you, selling to you, asking you to sell out.


Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master... George Washington



As long as you limit the power of the latter, the former can only exploit by providing better products, services and options. if they collude, then all bets are off. But that is a problem with government--in that case fascism--not capitalism.

"A goverment that is big enough to give you all you want is big enough to take it all away." Barry Goldwater

"The liberties of a people never were, nor ever will be, secure, when the transactions of their rulers may be concealed from them." Patrick Henry


Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.F.A. Hayek


Keep the people frightened
Of things they cannot know
Is the secret of the Tomb

If they knew what you and I know
They would know it is just men
Who rob them, cheat them, kill them
Then start it all again
- Orville X

In politics, nothing happens by accident. If it happens, you can bet it was planned that way. Franklin D. Roosevelt, Father of the Welfare State



The Democracy will cease to exist when you take from those who are willing to work and give to those who would not "TJ"

The Natural progress of things for liberty to yield and government to gain ground "TJ"

"Reform cannot be achieved by a well-intentioned leader who recruits his followers from the very people whose moral confusion is the cause of the disorder." - Socrates


A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine. - Thomas Jefferson


Ron Suskind's One Percent Doctrine,
"We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors . . . and you, all of you, will be left to just study what we do." Unknown Freemason

[Howard_Roark]

um. . .

you are not financially literate at all.

The Fed doesnt issue T-Bills. The Treasury does. In this case, as announced last week, we are not going to be issuing T-Bills to foreign countries. Instead, the FED will begin buying T-Bills.

So, with what money does the Fed buy those T-Bills? This is where the printing money comes in.


Gold is money. And gold is a scarce metal, that you have to mine out of the ground. There is only a finite amount of it. Paper currency, other other hand, is infinite. This is why so many governments abandoned the gold standard. Gold instills responsibility. If there is anything politicians dont like, its responsibility.

Obviously the reason I am posting is to try to understand it. Lets say the Fed purchases $1T in bonds from the treasury. Does that go onto there balance sheet? Do they have to repay it or is it just basically absorbed into the economy diluting the value of money as a whole.

[brandon]

Does that go onto there balance sheet?

And this leads to another argument against the fed.

The fed operates in complete secrecy. They have never been audited and have no government oversight.

No one knows what is on the fed's balance sheet or if the fed even has a balance sheet.

[Bruno]

Read the Creature from Jekyll Island

[Danke]

I don't understand how issuing say $1 trillion in T-bills to foreign countries is "printing money" anymore than me borrowing $1000 would be.

The Chicago Federal Reserve took it down from their website a few years ago, but if you can find it, read "Two Faces of Debt."

Taking out a loan is actually creating "money."

[Zippyjuan]

The Fed only sets the interest rates which banks can borrow from the Fed at. Other interest rates are set by the market. As for Treasuries- they are of course sold by the Treasury Department and sold via auction- the more demand for the notes, the higher price they go for and thus the lower yield they pay out (they have face value at maturity and buyers offer a lower amount than that to buy them). When the Fed decides to buy Treasuries they also buy them on the open market- not directly from the Treasury.

The Fed balance sheet is not secret. It is published regularly. Just try a google search. It is quite easy to find. This article included the December info: http://www.econbrowser.com/archives/2008/12/federal_reserve_1.html It has some other useful information about the Fed as well.

If the Fed is buying Treasury notes (or other securities) they are putting money out into the economy. They can later resell their notes if they want to reduce the money supply.

[Truth Warrior]

Fed ( coercive ), gold ( voluntary ). OR the politicians can neither inflate nor print gold. ;)

http://www.gold-eagle.com/greenspan041998.html (http://www.gold-eagle.com/greenspan041998.html)

http://i75.photobucket.com/albums/i304/Truth_Warrior/feddees.jpg

[acptulsa]

You're well educated in this stuff but don't know that loans are how the money is introduced into circulation? Hell, I have a friend who will tell you herself that she knows nothing but she gets it. If I may quote her, "The value of the dollar is determined by nothing but supply and demand!?!

You sound young, Mr. Roark. Open your eyes and look around you right now. You are surrounded by people who have been working their whole lives and, yes, thinking about retirement. Do you believe the media when it alledges and continually reiterates that Americans don't save? Bull. Our grandparents put their money in the bank. They got robbed by inflation. They put a ten aside for a rainy day thinking they might need a tank of gas or a week's worth of groceries sometime in the future, and they pulled it out of the cookie jar and found it would buy neither any more. So, their kids said 'I won't fall into that trap' and instead found out why their parents disdained the stock market as gambling. There is no safe way to save any more.

Dig your hole and put something in for your old age. Put gold in and it won't shrink like a damned wool shirt in a hot dryer, will it?

Money isn't about theory. Money is about value received for hard work. The work great grandpa did back when he was young enough to do it was no less hard for the fact that his dollar a day has turned into a damned nickel (so far as buying power, and I'm not exaggerating). Someone robbed him. Guess who?

[Auntie Republicrat]

ZIPPYJUAN: "The Fed balance sheet is not secret. It is published regularly."

:rolleyes:

...(as one mexican monetary realist puts it: 'the Fed balance sheet is pure bullsheet') ;)

...I believe you'll find that 'the Fed HAS NEVER BEEN HONESTLY, INDEPENDENTLY, etc. AUDITED..

..ooga booga, Republicrat Fed cheerleaders..i sense you will be thoroughly exposed as goddamned fools in my lifetime!..

[tremendoustie]

I'm a libertarian and agree with most everything about Ron Paul with the exception of the fed and gold. I am very financially literate and know in-depth how to disect companies balance sheets, income statements ect however after extensive research I have yet to really grasp why the fed is so bad. I'm an independent thinker and won't just digest anything Ron Paul says without external research, and most research I've done hasn't pointed to the fed being as bad as Ron Paul says though I woulden't say its good either. I don't understand how issuing say $1 trillion in T-bills to foreign countries is "printing money" anymore than me borrowing $1000 would be. Secondly, I quote Warren Buffett (hes very liberal I know) on gold "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." I can't really poke a hole in that, gold isn't oil or corn it has no industrial utility. If its such a good currency, why arent any other countries on the gold standard?

The intent of money is not to be useful, but to facilitate transactions, be portable, and a stable representation of value. Neither gold nor paper is useful otherwise -- especially paper. The thing is, paper is also not stable. It can be manipulated, because it is not scarce.

If we were on a gold standard, the government could not cause these bubbles, because they could not simply "print more gold". It serves as a check on governmental excess, and it ensures that the holder of gold will not have his value stolen away from him through inflation.

Countries are not on the gold standard, because the gold standard severely reduces government power and bank profits.

When the Fed takes action as Greenspan did, in forcing interest rates down, it creates an artificial expansion of credit, the negative consequences of which we are experiencing today.

In a free market, interest rates would be set by supply and demand, as they should be. If a lot of people are saving money, but few are borrowing, interest rates would be low, because deposits are easy to come by, and money is readily available to loan out -- but customers for those loans are more rare. If few people are saving, but many are borrowing, interest rates would be high, to attract more depositors, and discourage marginal borrowers.

Instead, the Fed enables reckless borrowing, by forcing interest rates down when they should be going higher. So, there is no market signal, "slow down, save some more, we're becoming over leveraged" -- the Fed just creates more cheap money.

[Freedom 4 all]

The world's governments used to back all their money with gold. However, upon discovering gold was like rare, they decided to back their money with something easier to come by, namely nothing.
~Dave Barry

[Kraig]

I'm a libertarian and agree with most everything about Ron Paul with the exception of the fed and gold. I am very financially literate and know in-depth how to disect companies balance sheets, income statements ect however after extensive research I have yet to really grasp why the fed is so bad. I'm an independent thinker and won't just digest anything Ron Paul says without external research, and most research I've done hasn't pointed to the fed being as bad as Ron Paul says though I woulden't say its good either. I don't understand how issuing say $1 trillion in T-bills to foreign countries is "printing money" anymore than me borrowing $1000 would be. Secondly, I quote Warren Buffett (hes very liberal I know) on gold "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." I can't really poke a hole in that, gold isn't oil or corn it has no industrial utility. If its such a good currency, why arent any other countries on the gold standard?

Money in itself is a utility so naturally you would want to use an object that best suits the purposes of that utility. You want something portable, dividable, and not easily duplicated. If something is useful you're going to be better off using it for what it was intended for, so it won't make the greatest money. Obviously we don't use dollars as money because they are so useful to write on. Paper money is considered the best money by some, you might want to consider who and why they value it - ultimately what does it get for them.

As for the Fed, if you had one finger to point at the cause of this economic meltdown, it would be pointed at the fed. Is that not enough reason for you or do you not believe it?

[purplechoe]

I am very financially literate and know in-depth how to disect companies balance sheets, income statements ect however after extensive research I have yet to really grasp why the fed is so bad.

Maybe you're not as financially literate as you think?

[dannno]

Geez calm down guys he's trying to learn.

I'd second those two essays posted earlier, and I also second The Creature from Jeckyll Island.

[shocker315]

I'm a libertarian and agree with most everything about Ron Paul with the exception of the fed and gold.....Secondly, I quote Warren Buffett (hes very liberal I know) on gold "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." I can't really poke a hole in that, gold isn't oil or corn it has no industrial utility.


What gives gold intrinsic value is precisely that fact that it can't be created out of nothing like fiat currency. In early days gold was deemed valuable because the work involved in finding a piece of gold in a river might be roughly equal to the amount of work required to...catch 10 fish... or to make a piece of furniture...or whatever. Therefore a piece of gold could buy you (in trade)10 fish, or that piece of furniture. It was recognized that gold was somewhat hard to obtain and required labor to produce therefore it had intrinsic value. The trade or purchase represents an exchange of labor. It is not possible to just make extra gold, or extra fish, or extra furniture without more human labor.

If someone where to suddenly stumble on a huge stash of gold...or suddenly catch a huge crop of fish...or find an easier way to make a bunch of furniture, the relative values would adjust to reflect this new supply and difference in labor. This change in value is determined by the market and individual people operating in freedom. Nothing immoral in any of those circumstances. Why? Because their values are not set by government decree (legal tender laws) and forced upon the market.

However, if the goldsmith found a magic wand that allowed him to create gold at any time and at any amount. Then passed laws forcing everyone to accept only gold and nothing else... and at specific values that the goldsmith engraved on each piece. Then it would be immoral like fiat currency.

Fiat money has no intrinsic value and requires no labor to produce...it can be created and destroyed at the whim of keystroke by the FED or the banking system with their "magic wands". The value of fiat currency is set by government decree (legal tender laws) and we all must use it ...nothing else. All of us must follow this system, and exchange our labor for these pieces of paper. Yet those in control can create it to for themselves to suit their purposes and their goals with no labor. It's an uneven playing field that can be manipulated to benefit some at the expense of others. The Fed (made up of banks) creates it to facilitate government spending and increased government power (see.. War/Welfare etc)...and to facilitate the banking system (see...reserves/bailouts). Which in turn profits by charging interest on the money they just created. It is immoral because they use the force of law to make us use this unequal system. So in my opinion, there is a huge difference between something with intrinsic value and something created out of nothing...

Something with intrinsic value people will freely and willingly accept because the recognize its inherint value (see...Freedom). But with fiat currency made of nothing, the only way people will accept it is if you pass laws and force them to. (see...Totalitarianism).


http://www.constitution.org/mon/greenspan_gold.htm


look below ;)

[Live_Free_Or_Die]

It is not about whether gold is good or paper is bad. It is about control. It is about who is the master and who is the servant.

If the money has no intrinsic value the individual loses all power and control over money. If money has no intrinsic value the individual is servant to the master who determines the value of the money.

[hugolp]

I'm a libertarian and agree with most everything about Ron Paul with the exception of the fed and gold. I am very financially literate and know in-depth how to disect companies balance sheets, income statements ect however after extensive research I have yet to really grasp why the fed is so bad. I'm an independent thinker and won't just digest anything Ron Paul says without external research, and most research I've done hasn't pointed to the fed being as bad as Ron Paul says though I woulden't say its good either. I don't understand how issuing say $1 trillion in T-bills to foreign countries is "printing money" anymore than me borrowing $1000 would be. Secondly, I quote Warren Buffett (hes very liberal I know) on gold "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." I can't really poke a hole in that, gold isn't oil or corn it has no industrial utility. If its such a good currency, why arent any other countries on the gold standard?

Check the video I just posted here ( http://www.ronpaulforums.com/showthread.php?p=2042423). At the beggining at the video he shows a chart with the efficient GDP and it started going down big time when USA left the gold standar. The whole video is very good, but I think at least that part will give you a good take on why the gold standar is important (because it prevents malinvestments of inflation and masive goverment spending).

[malkusm]

Ok, try to think about things this way:

If you owned a bank, and it's 2001, and a bunch of people who WERE credit-worthy have just defaulted on loans that they took out to invest in tech companies that busted....

Are you more likely to:
A) Raise interest rates, or
B) Lower interest rates?

As a bank, your level of risk has increased. You are more likely to require higher interest payments on loans, which will also increase the number of people lending to your bank, which will allow you to more easily cover your losses on the bad loans you've given out. Eventually, the "new money" coming into your bank will erase the debts that you have from not having your loans repaid, and you will be able to lower your interest rates to loan out money again.

Guess what the Fed did in 2001?






http://www.fixedincomeadvisor.com/wp-content/uploads/2008/03/ffr20.gif

Hmm, looks like in 2001 they lowered their key interest rate from around 6.5% to 1.75%. In other words, the opposite of what banks would rationally do.

The reason is that the Fed tries to use monetary policy to "ward off recessions." The problem is that recessions are natural corrections in the business cycle and should be allowed to occur. In fact, the free market approach of tightening lending standards would drive out the bad loans quicker than any other approach the banks could take. When the Fed lowers their interest rate, the banks can also lower their interest rates, because they are "covered" by the Fed in case they need to borrow money short-term to cover reserve requirements.

Basically, this keeps bad investments present in the economy, and they will (and do) resurface when the next problem comes up.

[ChaosControl]

Just look at an inflationary chart since 1913, fed creation, and again since 1972 (complete abandonment of gold standard).

That alone should tell you.