View Full Version : If we end the FED, what happens to our money?
Warrior_of_Freedom
10-09-2009, 04:28 AM
Let's say money is backed by gold again, will inflation be locked on the current value of the dollar, or will currency have to be reset and some kind of exchange program started, or something else??
hugolp
10-09-2009, 05:39 AM
Ron Paul has addressed this several times.
He says the USA could have compiting currencies. Federal Reserve Notes and gold backed notes could circulate for some time. The Federal Reserve Notes would loose value in front of the gold backed notes until they would disapear naturally.
fisharmor
10-09-2009, 06:09 AM
From my limited understanding, I think the more likely scenario is that competing currencies would exert pressure on the Fed to keep the value of the dollar stable. They CAN do it, they just WON'T do it in the face of political pressures. A competing currency would compete - that's the point - and in order to keep up with competition the Fed would have to stop the chicanery. They would face a complete collapse of their system if they didn't (the market calls this "being competed out of business" and it's generally a good thing).
Then there's the second thing nobody mentions (at least that I've heard) - the effect that competing currencies would have on taxes.
If I own a small business and I do mixed business in gold, FRNs, and something based on a commodity basket, how do I figure out what goes on my 1040? How can the IRS possibly adapt quickly enough to changes in currencies? That's even on a federal level: how many state tax departments will get utterly drowned in the confusion?
The whole point of a unified currency is to be able to tax it efficiently. The current system is too efficient, and needs to be changed, but if we did legalize competing currencies, the statist alarmists are sure to figure out that tax revenue is going in the toilet, as people start to disobey, either out of a sense of protection the competing currency gives them, or simple ignorance of how to get through the paperwork nightmare that would ensue.
We would probably welcome it - I, for one, consider this potentially exciting and confusing and market-driven freedom to be a great opportunity for our society, and I'm sure the possibility is not lost on guys like RP. But how would we get through that politically?
hugolp
10-09-2009, 06:24 AM
From my limited understanding, I think the more likely scenario is that competing currencies would exert pressure on the Fed to keep the value of the dollar stable. They CAN do it, they just WON'T do it in the face of political pressures. A competing currency would compete - that's the point - and in order to keep up with competition the Fed would have to stop the chicanery. They would face a complete collapse of their system if they didn't (the market calls this "being competed out of business" and it's generally a good thing).
Then there's the second thing nobody mentions (at least that I've heard) - the effect that competing currencies would have on taxes.
If I own a small business and I do mixed business in gold, FRNs, and something based on a commodity basket, how do I figure out what goes on my 1040? How can the IRS possibly adapt quickly enough to changes in currencies? That's even on a federal level: how many state tax departments will get utterly drowned in the confusion?
The whole point of a unified currency is to be able to tax it efficiently. The current system is too efficient, and needs to be changed, but if we did legalize competing currencies, the statist alarmists are sure to figure out that tax revenue is going in the toilet, as people start to disobey, either out of a sense of protection the competing currency gives them, or simple ignorance of how to get through the paperwork nightmare that would ensue.
We would probably welcome it - I, for one, consider this potentially exciting and confusing and market-driven freedom to be a great opportunity for our society, and I'm sure the possibility is not lost on guys like RP. But how would we get through that politically?
Thats the whole point. The Fed can not and will not be responsable and will go broke. And then you can make the IRS go away.
apropos
10-09-2009, 06:37 AM
It largely depends on where your assets lie.
If your money has all been invested in a factory that produces a staple of the American household, you will likely be unaffected by the coin of the realm long term. Dollars only represent value.
However, what would happen to a large dollar position is unknown if the Fed was snapped out of existence (as it would almost have to be). Likely the dollar would suffer badly, since the authority that prints them would now be defunct and the trust of fiat is gone. Dollars really are just paper, after all. The reality is that this would bring large and lasting pain to millions of people...a true reboot. As ingrained as the Fed is in daily operations, expect the initial upheaval to be great. The principles trumpeted here won't come cheaply and the unwinding will be immense.
I think the real question is what will happen to fractional reserve banking and the idea of credit after the Fed? These will not be going away in a world of competing currencies.
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