bobbyw24
07-10-2009, 04:20 AM
http://www.webcommentary.com/php/ShowArticle.php?id=andersonm&date=090709
Congressman Ron Paul's H.R. 1207: Federal Reserve transparency
I am all for sunshine at the Fed. But one thing I find to be disturbing is that there are almost as many reasons for wanting transparency of Fed operations as there are co-sponsors to Ron Paul's legislation. This brings to me my point: there is no virtue in an audit for the sake of an audit. I am afraid that by focusing on an audit, we are losing focus on the reasons why we need the audit: for the ends that can be achieved, i.e., abolishing the Fed.
Albeit, an audit could be a first-step towards the goal. But if we don't take time to understand the issues and prepare our arguments carefully, we will never be able to make a compelling case for abolishing the Fed.
As champions of liberty, it is important that we devote time to reading and understanding the works of Mises, Rothbard, Hazlitt, et al. Many of our arguments can be found in writings going back as far to David Hume in 1752 and transcripts of the "Stabilization Hearings" held by the House Committee on Currency and Banking in 1928.
Back in 1928, Fed officials testified before the House committee that gold was driven overseas by artificially lowering interest rates through Open Market operations, and that gold could be brought back into the system by tightening. Although we haven't been on a gold standard for decades, the same principle applies today. The only difference today is that the inflation is even greater, and the central bank can drive out of the country more than just the gold stock. And that, gentle reader, is an arsenal of information that can deconstruct almost every prevailing argument on the economy, if properly understood.
By trying to artificially lower interest rates, the central bank is actually undermining the very system of credit that it is trying to prop up, sending bank reserves overseas. Net-saving countries accumulate these reserves. The way to reverse this and protect bank reserves is not to loosen even more, but to tighten. Another faux solution being offered is to try to come up with some type of global scheme (e.g., internationalizing bank reserves and setting a global funds rate) where other countries commit economic hara-kiri with us, through synchronized currency devaluations. We already have had such a system in place, and it is called the IMF. It hasn't worked. Anything absent a monetary system based upon production and savings will not work.
In short, there can be no credit extended beyond the pool of real savings. The cheaper the central bank makes credit, the more we burn through what remains of capital and savings, the further the credit system is impaired. The only way out of this mess is to let the free market set interest rates pursuant to the true supply of savings.
Modern macroeconomics is myopic in that it misses the individual and treats capital as a blob to be manipulated through central economic planning. Prevailing orthodoxy tells us that inflation mitigates a negative balance of trade. In truth, however, inflation engenders a negative balance of trade and a dependency upon cheaper foreign markets to supply us with real wealth, i.e., savings. That is otherwise known as insolvency. (Note: I have explained in my previous commentaries how macroeconomics, by only dealing with aggregates, misses the effects of inflation on the cycle of international trade. I encourage the reader to read my archives, particularly the one on the trade deficit declining and Bernanke not understanding why.)
If a firm or institution is dependent upon inflationary credit expansion to fund its operations, then it is, by definition, insolvent. No nation has ever succeeded at substituting a printing press for income-generating investment. If we keep inflating to prop up this false economic activity, i.e., bubble activity, this only aggravates the situation and the dollar itself goes bankrupt. What can't be emphasized enough is that the problem here is not a dollar shortage, but the dollar leakage that is inherent with an inflationary system, i.e., anything other than a classical gold standard.
The obstacle to meaningful reform is not so much the Fed as it is the Congress itself. The biggest sub-prime borrower of all is the U.S. Congress. The political regime is so bankrupt that it can't operate without a continually-falling real rate of interest that is also in negative territory. The second the real rate of interest climbs, insolvencies are exposed, placing the present political structure of over-reaching power at risk. It is all about politicians who refuse to relinquish a single inch of power by curtailing spending. With the Fed's key rate at zero, the Fed has but one tool left to manipulate interest rates in favor of the political regime: balloon its balance sheet. The collapse of this false economic activity, i.e., counter-productive consumption, and the end of central economic planning is not the problem. It is the solution.
The Fed promises us that it will chase its own tail, by tightening as soon its inflation becomes visible. If they can't tighten today and let the recession happen, then why should we believe they will tighten in the future? The second the Fed tightens and the real rate of interest climbs, the collapse of false economic activity, i.e., non-self-sustaining activity - otherwise known as a "recession" - which central planners are trying desperately to avoid, happens.
There is a limit to how far a continually-falling real rate of interest can go: the total bankruptcy of the currency. It takes greater levels of inflation to sustain the same false economic activity as it did before. And that is what we are witnessing today. Thus, by trying to prop up the system and refusing to make the hard choices today, central planners are guaranteeing an even worse crisis tomorrow. They are only buying themselves a little bit more time holding onto such vast amounts of power. By trying to avoid the unavoidable, the unavoidable is being made worse. Inflation isn't even a short-term fix, as it benefits nobody but a narrow group of beneficiaries.
While we should be promoting H.R. 1207 and Federal Reserve transparency, let us not forget why we want this. Equip yourselves with the information necessary to engage central planners in intellectual warfare. The idea that we can continue to pay for consumption with inflation, i.e., consume without the underlying production, is a dream for the ages. Let our mantra be: BRING ON THE RECESSION! AND MAY THE FALSE ECONOMY COLLAPSE!
Mark Anderson
VoteAnderson.com
Send email feedback to Mark Anderson
Congressman Ron Paul's H.R. 1207: Federal Reserve transparency
I am all for sunshine at the Fed. But one thing I find to be disturbing is that there are almost as many reasons for wanting transparency of Fed operations as there are co-sponsors to Ron Paul's legislation. This brings to me my point: there is no virtue in an audit for the sake of an audit. I am afraid that by focusing on an audit, we are losing focus on the reasons why we need the audit: for the ends that can be achieved, i.e., abolishing the Fed.
Albeit, an audit could be a first-step towards the goal. But if we don't take time to understand the issues and prepare our arguments carefully, we will never be able to make a compelling case for abolishing the Fed.
As champions of liberty, it is important that we devote time to reading and understanding the works of Mises, Rothbard, Hazlitt, et al. Many of our arguments can be found in writings going back as far to David Hume in 1752 and transcripts of the "Stabilization Hearings" held by the House Committee on Currency and Banking in 1928.
Back in 1928, Fed officials testified before the House committee that gold was driven overseas by artificially lowering interest rates through Open Market operations, and that gold could be brought back into the system by tightening. Although we haven't been on a gold standard for decades, the same principle applies today. The only difference today is that the inflation is even greater, and the central bank can drive out of the country more than just the gold stock. And that, gentle reader, is an arsenal of information that can deconstruct almost every prevailing argument on the economy, if properly understood.
By trying to artificially lower interest rates, the central bank is actually undermining the very system of credit that it is trying to prop up, sending bank reserves overseas. Net-saving countries accumulate these reserves. The way to reverse this and protect bank reserves is not to loosen even more, but to tighten. Another faux solution being offered is to try to come up with some type of global scheme (e.g., internationalizing bank reserves and setting a global funds rate) where other countries commit economic hara-kiri with us, through synchronized currency devaluations. We already have had such a system in place, and it is called the IMF. It hasn't worked. Anything absent a monetary system based upon production and savings will not work.
In short, there can be no credit extended beyond the pool of real savings. The cheaper the central bank makes credit, the more we burn through what remains of capital and savings, the further the credit system is impaired. The only way out of this mess is to let the free market set interest rates pursuant to the true supply of savings.
Modern macroeconomics is myopic in that it misses the individual and treats capital as a blob to be manipulated through central economic planning. Prevailing orthodoxy tells us that inflation mitigates a negative balance of trade. In truth, however, inflation engenders a negative balance of trade and a dependency upon cheaper foreign markets to supply us with real wealth, i.e., savings. That is otherwise known as insolvency. (Note: I have explained in my previous commentaries how macroeconomics, by only dealing with aggregates, misses the effects of inflation on the cycle of international trade. I encourage the reader to read my archives, particularly the one on the trade deficit declining and Bernanke not understanding why.)
If a firm or institution is dependent upon inflationary credit expansion to fund its operations, then it is, by definition, insolvent. No nation has ever succeeded at substituting a printing press for income-generating investment. If we keep inflating to prop up this false economic activity, i.e., bubble activity, this only aggravates the situation and the dollar itself goes bankrupt. What can't be emphasized enough is that the problem here is not a dollar shortage, but the dollar leakage that is inherent with an inflationary system, i.e., anything other than a classical gold standard.
The obstacle to meaningful reform is not so much the Fed as it is the Congress itself. The biggest sub-prime borrower of all is the U.S. Congress. The political regime is so bankrupt that it can't operate without a continually-falling real rate of interest that is also in negative territory. The second the real rate of interest climbs, insolvencies are exposed, placing the present political structure of over-reaching power at risk. It is all about politicians who refuse to relinquish a single inch of power by curtailing spending. With the Fed's key rate at zero, the Fed has but one tool left to manipulate interest rates in favor of the political regime: balloon its balance sheet. The collapse of this false economic activity, i.e., counter-productive consumption, and the end of central economic planning is not the problem. It is the solution.
The Fed promises us that it will chase its own tail, by tightening as soon its inflation becomes visible. If they can't tighten today and let the recession happen, then why should we believe they will tighten in the future? The second the Fed tightens and the real rate of interest climbs, the collapse of false economic activity, i.e., non-self-sustaining activity - otherwise known as a "recession" - which central planners are trying desperately to avoid, happens.
There is a limit to how far a continually-falling real rate of interest can go: the total bankruptcy of the currency. It takes greater levels of inflation to sustain the same false economic activity as it did before. And that is what we are witnessing today. Thus, by trying to prop up the system and refusing to make the hard choices today, central planners are guaranteeing an even worse crisis tomorrow. They are only buying themselves a little bit more time holding onto such vast amounts of power. By trying to avoid the unavoidable, the unavoidable is being made worse. Inflation isn't even a short-term fix, as it benefits nobody but a narrow group of beneficiaries.
While we should be promoting H.R. 1207 and Federal Reserve transparency, let us not forget why we want this. Equip yourselves with the information necessary to engage central planners in intellectual warfare. The idea that we can continue to pay for consumption with inflation, i.e., consume without the underlying production, is a dream for the ages. Let our mantra be: BRING ON THE RECESSION! AND MAY THE FALSE ECONOMY COLLAPSE!
Mark Anderson
VoteAnderson.com
Send email feedback to Mark Anderson