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Thread: Money control doesn't work

  1. #1

    Money control doesn't work

    http://www.yumasun.com/opinion/money..._interest.html

    Money control doesn't work

    BY HOWARD J. BLITZ
    January 15, 2008 - 9:36PM

    Federal Reserve System board chairman Ben Bernanke has pledged to lower interest rates as needed in order to avoid a possible recession. Another Federal Reserve official stated that the Fed will do whatever is necessary to prevent damage to the United States economy caused by the current credit crunch and to foster sustainable economic growth and price stability.

    However, it is precisely the tinkering with the free market system and the control of the money supply by the Fed that caused the credit crunch in the first place. The solution offered is like telling the guy who is experiencing his Saturday morning hangover to drink more beer so he will feel better when in fact it was the overdrinking that caused the hangover to begin with.

    The Federal Reserve System is the only authority that can legally create money. One of the methods used is by artificially lowering the discount interest rate, which impacts the movement of other interest rates.

    The price of goods and services in any economy is what tells producers and consumers what and how much to buy and sell. Individuals respond to lower prices by increasing their purchases and decrease their purchases when prices increase. Producers, on the other hand, tend to reduce their production when prices decline and increase production when prices increase.

    By tinkering with the price of money (interest rate), the Fed artificially encourages individuals to borrow and spend more than they normally would. In other words, it gives both consumers (spenders) and suppliers (savers) of money a false signal similar to the false signal the beer drinker receives when he drinks an excess amount whereby his body appears to feel pretty good. The individual receives a false sense of security.

    As a result of the artificially lower interest rates caused by the Fed, individuals borrow and spend money they do not have, laying the groundwork for the coming economic hangover. This scenario has been played out over and over again ever since the depression of the 1930s.

    Because of politics, the Fed never allows the economy to go through the withdrawal that is necessary to flush out the excess money in the economy, just like the body flushes out the excess alcohol in order to get itself back to normal.

    If the individual never allows his body to correct itself and continues to drink, a very severe illness results or even death. If the Fed continues to control the money supply and increases it every time the economy attempts to correct itself (i.e., artificially lowers interest rates), the value of the currency (money) depreciates at faster and faster rates, as is being seen today, and the economic welfare of everyone is impacted negatively.

    History is strewn with examples of the results of government officials printing money to pay expenses. At times between 1920 and 1923, nightmarish German inflation resulted in the cost of living for the German citizen increasing 1,600 percent in six months. Argentina in 1989-90 had a 20,000 percent annual inflation rate. The old Soviet Union was brought to its knees because of hyper-inflation.

    The current inflation situation in Zimbabwe - where a single two-ply sheet of toilet paper costs $US400 - is another example of how the printing of money by government authorities damages the economic lives of individuals, especially those in the lower income category.

    The American founding fathers witnessed this type of inflation when they tried to pay for the Revolutionary War with printed dollars. The Confederacy during the Civil War experienced the same result: extremely high prices and a depressed economy.

    Congress is no help either because its members think that reducing taxes and increasing government spending are also the solution to the economic woes of America. However, exercising that thought just increases the deficit, which increases the amount of interest needed to pay for the extra borrowing that is incurred - putting even more pressure on the Fed to print even more money.

    Government expenditures must be reduced if the economy is to grow.

    If Fed officials truly care for the American people and desire economic growth and want to foster stable prices, they would abandon all activity in setting interest rates, get out of the business of controlling the supply of money and shut the doors of the Federal Reserve.

    By letting the economy squeeze itself of the excess dollars and leaving the economy alone, individuals will then have a true picture of the real price of goods and services and be able to make more accurate decisions about their purchases and how much to produce, just like the body is able to return to normalcy after it squeezes out all of the excess alcohol it took in.

    Real economic growth takes place through individual savings and investment, not increased government spending financed by the printing of money.

    ---

    An opportunity to earn a $1,000 scholarship through The Freedom Library Education and Scholarship Program begins again Feb. 5 at 6 p.m. Please register through the Freedom Library Web site at www.freedomlibrary.org or call 726-8050 for more information.

    Also, Conrad Ballweg, volunteer coordinator for the two initiatives being circulated concerning Arizona property tax reform, will discuss those initiatives Thursday evening at 7 at The Freedom Library. The public is invited to attend free of charge.

    ---

    Howard J. Blitz is a local libertarian and president of The Freedom Library Inc., 2435 S. 8th Ave. His e-mail address is info@freedomlibrary.org.
    My review of the For Liberty documentary:
    digg.com/d315eji
    (please Digg and post comments on the HuffPost site)

    "This political train-wreck Republicans face can largely be traced to Bush’s philosophical metamorphosis from a traditional, non-interventionist conservative to the neoconservatives’ exemplar of a 'War President', and his positioning of the Republicans as the 'War Party'."

    Nicholas Sanchez on Bush's legacy, September 30, 2007.



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  3. #2
    Quote Originally Posted by Bradley in DC View Post
    The current inflation situation in Zimbabwe - where a single two-ply sheet of toilet paper costs $US400
    I believe that's 400 Zimbabwe dollars not 400 US dollars. Or else everyone in the world would be rushing in to Zimbabwe with toilet rolls to sell.

  4. #3
    Quote Originally Posted by Bradley in DC View Post
    [If the Fed continues to control the money supply and increases it every time the economy attempts to correct itself (i.e., artificially lowers interest rates), the value of the currency (money) depreciates at faster and faster rates, as is being seen today, and the economic welfare of everyone is impacted negatively.
    As has been noted, this opinion piece has a bunch of mistakes -- there's another one in this one, which belies a fundamental misunderstanding of how the reserve deals with interest rates.

    Also, his "shut the doors" prescription is less than particularly compelling. Even Ron Paul would not "shut the doors" -- heck, even gold standard people wouldn't!

  5. #4
    thank you for your great articles!<< links!
    let it be remembered that never again in the future of political campaigns will a candidate receive the same support, enthusiasm and donations UNLESS the message is about liberty, freedom, peace, and the constituion. accept no imitations

  6. #5
    Quote Originally Posted by diesirae View Post
    Also, his "shut the doors" prescription is less than particularly compelling. Even Ron Paul would not "shut the doors" -- heck, even gold standard people wouldn't!
    Not immediately at least, or even if they wouldn't, they would probably want to thoroughly remake the character of the Fed.

  7. #6
    Quote Originally Posted by jon_perez View Post
    I believe that's 400 Zimbabwe dollars not 400 US dollars. Or else everyone in the world would be rushing in to Zimbabwe with toilet rolls to sell.
    I also just realized something, at 400 Zimbabwe dollars per 2-ply sheet of toilet paper, I believe that the paper money has suddenly found its intrinsic value!

    As toilet paper, of course...



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