"Give me control over a nation's currency, and I care not who makes its laws."
– Baron M.A. Rothschild
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Central banking is a curse. You can't "get it right" with monopoly fiat. You can have a free market in every facet of the economy but if the money itself is controlled, forget about it. You're doomed to recession, depression, inflation and, ultimately, social chaos and resurgent ruin. Some understand it better than others.
ABSTRACT: In The Mystery of Banking, Murray Rothbard explained how the origins of central banking in the U.S. were rooted in a lobbying effort by Robert Morris and other “nationalists” to create a bank modeled after the Bank of England that would subsidize their businesses with cheap credit and other forms of corporate welfare. This paper argues that there was more to it than that, namely, that the chief proponent of a central bank, Alexander Hamilton, wanted the bank to be a more comprehensive engine of political corruption because of his belief that, without such corruption, government would be too small and ineffective. Members of Congress had to be “bought off” if they were to support the nationalists’ economic agenda, Hamilton believed, and a central bank was necessary to achieve that goal.read the entire paper
The Mogambo Guru writes:
Well, I am sure you can understand how I could easily make the mistake, and now we are screwed because Alan Greenspan was a lying, slimy little treacherous weasel who could not “afford to be blunt,” but who could afford to keep creating more and more money, gradually destroying the US dollar’s buying power with constant, simmering inflation in prices, so that even the lying US government is forced to admit that $1 in 1987, when Greenspan took over the Fed, had the buying power of $1.77 in 2006 when he retired, which is a compounding inflation rate of 3%! Yikes!
Long-term 3% inflation is, as you can probably tell by the expression on my face, outrageous! And it is especially outrageous because the Federal Reserve was created to prevent inflation! Their mission was to preserve the value of the dollar, and Alan Greenspan gave us a cumulative 77% inflation in the 19 years he was in office! Gaaahhh!...
What is being ignored is the more fundamental question of whether the Fed should be attempting to set or influence interest rates in the market. The presumption is that it is both legitimate and desirable for central banks to manipulate a market price, in this case the price of borrowing and lending. The only disagreements among the analysts and commentators are over whether the central banks should keep interest rates low or nudge them up and if so by how much...
At the heart of the problem is that fact that the Federal Reserve’s manipulation of the money supply prevents interest rates from telling the truth: How much are people really choosing to save out of income, and therefore how much of the society’s resources – land, labor, capital – are really available to support sustainable investment activities in the longer run? What is the real cost of borrowing, independent of Fed distortions of interest rates, so businessmen could make realistic and fair estimates about which investment projects might be truly profitable, without the unnecessary risk of being drawn into unsustainable bubble ventures?
Unfortunately, as long as there are central banks, we will be the victims of the monetary central planners who have the monopoly power to control the amount of money and credit in the economy; manipulate interest rates by expanding or contracting bank reserves used for lending purposes; threaten the rollercoaster of business cycle booms and busts; and undermine the soundness of the monetary system through debasement of the currency and price inflation.
Interest rates, like market prices in general, cannot tell the truth about real supply and demand conditions when governments and their central banks prevent them from doing their job. All that government produces from their interventions, regulations and manipulations is false signals and bad information. And all of us suffer from this abridgement of our right to freedom of speech to talk honestly to each other through the competitive communication of market prices and interest rates, without governments and central banks getting in the way.
read the entire essay
Among other false items, which are too numerous too list in their entirety:
Myths:
- The federal government in Washington is an essential agent in providing economic security and stability for the country as a whole. False.
- The entire economy of the country can be beneficially manipulated through macroeconomic policies devised and executed in Washington. False.
- Americans cannot be trusted to operate the price and market system on their own. They need constant supervision and regulation (from Washington) of almost every element of economic activity. False.
- The economic activity of Americans needs constant correction and adjustment by Washington (as to consumption, saving, employment, interest rates, investment, production, credit, liquidity, mortgages, etc.) False.
- Americans cannot be trusted to produce money and credit on their own. They need Washington to do this. False.
- The country’s economy is unstable and needs constant control and guidance from Washington. Otherwise, recessions and unemployment occur that Americans cannot themselves correct. False.
- Economic stability requires an overall monetary policy stemming from Washington. False.
- Americans are unable to produce a stable price level (to the extent that such a thing is measurable). They need the FED to do this for them. False.
- Maximum employment is a socially optimal objective. False.
- The federal government and the FED do not create economic instability and insecurity. False.
- The federal government and the FED are capable and adept at moderating and alleviating economic instability at little or no cost. False.
- Exceptional performance of the economy, when it occurs, is due to the skill and wisdom of Washington’s economic policy makers who successfully manipulate Americans into behaving in their own interests. False.
- The FED has had success in producing price stability and moderating the business cycle. False.
Myth #1 is that its inflation offsets the negative economic effects that are occurring. Their theory is that the costs, if any, of inflation are lower than the benefits.
Myth #2 is that the FED’s loans offset economic problems by providing liquidity to the private sector and supporting credit extensions.
Myth #3 is that the FED promotes systemic stability by supporting such institutions as AIG, Citigroup, Fannie Mae and Freddie Mac.
Myth #4 concludes by saying that the government has an interest (on behalf of the public) in supporting the systemic company when it has troubles.
No part of Myth #4 is true, and every part of it is inconsistent with a free market economy. Either one has a market economy or one has state socialism or fascism. There is no middle ground, for the reason that when the government becomes a player in any given market, the fundamental character of that market disappears.
read the entire essay
The Fed Didn't Cause the Housing BubbleThere are at least two broad and competing explanations of the origins of this crisis. The first is that the "easy money" policies of the Federal Reserve produced the U.S. housing bubble that is at the core of today's financial mess.
The second, and far more credible, explanation agrees that it was indeed lower interest rates that spawned the speculative euphoria...
However, starting in mid-2007, history began to be rewritten, in large part by my good friend and former colleague, Stanford University Professor John Taylor, with whom I have rarely disagreed. Yet writing in these pages last month, Mr. Taylor unequivocally claimed that had the Federal Reserve from 2003-2005 kept short-term interest rates at the levels implied by his "Taylor Rule," "it would have prevented this housing boom and bust. "This notion has been cited and repeated so often that it has taken on the aura of conventional wisdom...
read the WSJ article
With a collapsing housing market, a falling stock market, and a serious economic recession on the immediate horizon, the blame game about who or what has been behind the financial nightmare is in full swing.
In recent testimony before a congressional committee former Federal Reserve Board Chairman, Alan Greenspan, pointed his finger at various financial insurance schemes and the inescapable uncertainty of the future. “We’re not smart enough as people,” he said. “We just cannot see events that far in advance.”
The one thing he did not admit was that it was his own monetary policy when he was at the helm of America’s central bank that created the boom that has now resulted in a crash.
The ballooning housing market and the rising stock market of the past decade would have been impossible if not for the easy money policy of the Federal Reserve. Monetary expansion through the banking system and resulting low rates of interest fed the housing and stock market frenzy, indeed it made them possible....
Greenspan was certainly right that an uncertain future makes it difficult to predict when speculative bubbles will burst. But it was not unpredictable to know that years of easy monetary policy and accompanying near zero or negative real interest rates were creating an unsustainable boom that was setting the stage for an inevitable great crash.
read the entire essay
In somber remarks in the Treasury Department's ornate Cash Room, Mr. Paulson said the government's latest moves were necessary given the deep financial crisis.
While he had been reluctant to take such steps, his actions Tuesday, coupled with the administration's moves over the past six months, have injected the government more deeply into the financial sector than at any time since the 1930s. Mr. Paulson and other regulators said the steps were temporary. But, historically, it's often hard to undo new rules in Washington after businesses, consumers and policy makers adjust to changes.
At the core of Tuesday's announcement is a plan to buy $250 billion worth of preferred stock in banks, a step the government sees as crucial to getting banks to make new loans and to lure private capital from the sidelines.
While the program is voluntary, Treasury essentially forced the nine major U.S. banks to agree to take $125 billion from the federal government. Treasury will buy $25 billion in preferred stock from Bank of America -- including Merrill Lynch -- as well as J.P. Morgan and Citigroup; between $20 billion and $25 billion from Wells Fargo & Co.; $10 billion from Goldman Sachs Group Inc. and Morgan Stanley; $3 billion from Bank of New York Mellon; and about $2 billion from State Street. The remainder will be available to small- and medium-size institutions that apply for an investment.
The money will come from the $700 billion that Congress recently approved for Treasury to buy bad loans and other troubled assets from financial institutions. Treasury still intends to proceed with that program within the next few weeks.
read the Wall Street Journal articleIt was Monday afternoon at 3 p.m. at the Treasury headquarters. Messrs. Paulson and Bernanke had called one of the most important gatherings of bankers in American history. For an hour, the nine executives drank coffee and water and listened to the two men paint a dire portrait of the U.S. economy and the unfolding financial crisis. As the meeting neared a close, each banker was handed a term sheet detailing how the government would take stakes valued at a combined $125 billion in their banks, combined with new restrictions over executive pay and dividend policies.
The participants, among the nation's best deal makers, were in a peculiar position. They weren't allowed to negotiate. Mr. Paulson requested that each of them sign. It was for their own good and the good of the country, he said, according to a person in the room...
It would take years to disentangle banks from the federal government. Some of these temporary steps would be hard to undo...
During the discussion, the most animated response came from Wells Fargo Chairman Richard Kovacevich, say people present. Why was this necessary, he asked. Why did the government need to buy stakes in these banks?...
Toward the end of the meeting, Bank of America's Kenneth Lewis said the debate had lasted long enough, and everyone needed to sign...
Mr. Paulson, in his rapid staccato, said the public had lost confidence in the banking system, despite each banker's view of his institution.
"The system needs more money, and all of you will be better off if there's more capital in the system," Mr. Paulson told the bankers.
Mr. Bernanke said the situation was the worst the country had endured since the Great Depression. He said action was for the collective good, an understated appeal. The room was silent as he described the economy's fragile condition...
The meeting ended at about 4 p.m. By 6:30 p.m., all of the sheets had been turned in and signed by the CEOs. No second meeting was held.
read the Wall Street Journal articleMy thoughts: We are witnessing the death of capitalism and the birth of financial fascism. Necessity: the plea of tyrants; the creed of slaves.
1) In which way do the central banks contribute to the problems we see now?
The central bank created the problem in the first place...
2) Can or should the government or central banks do anything to prevent a collapse of the banking system, at this point? Why not?
No...
3) What will be the consequences of the continued attempts by the authorities to prevent more bank failures and the seizing up of the credit markets?
Bailout policies are what turn normal recessions into depressions...
4) Is a world without central banks possible or desirable? Please explain.
Central banks are unnecessary and harmful...
The contrasting ways Mr. Bernanke and Mr. Trichet responded to the crisis in the markets reflect something more than the differing economic and financial conditions in the United States and Europe.
At a more fundamental level, they reflect surprisingly different views of how each economy responds to the underlying forces affecting growth and inflation.
The Fed’s mandate, balanced between fighting inflation and encouraging full employment, leads to a simple investor calculus: if growth sags, the Fed is virtually certain to cut interest rates...
The European bank, by contrast, is skeptical of the notion that inflation automatically falls when growth cools, and it has a mandate, inherited from the German central bank, to keep prices stable above all else. So the view from the European bank’s sleek silvery headquarters here is very different from the Fed’s perspective in Washington, whatever market participants may think about the inevitability of lower European interest rates.
Why Not Abolish the Fed?
Jacob HornbergerBoth Milton Friedman and Friedrich Hayek called for the abolition of the Fed during their careers. While Friedman spent much of his life advocating externally imposed constraints on the Fed’s power to expand the money supply, his first wish was to have the Fed abolished, as he pointed out in a 1995 Reason magazine interview. In his book Denationalisation of Money: An Analysis of the Theory and Practise of Concurrent Currencies, Hayek advocated a free-market monetary system of competing currencies.
Most Americans probably still believe that the Great Depression was caused by “the failure of the free-enterprise system.” It is a false belief. The truth is that the worst economic disaster in American history was caused by the Federal Reserve. Give current Fed Chairman Ben Bernanke credit for publicly acknowledging that fact in a speech delivered in 2002 commemorating Friedman’s 90th birthday...
As Friedman and Hayek and other free-market economists (most notably Ludwig von Mises) pointed out, the Federal Reserve is the prime destroyer of currency and, therefore, one of the greatest threats to the freedom and well-being of a citizenry. As the monetary crisis facing our country continues to worsen, it’s important that we keep in mind that there is only one long-term solution — the one advocated by people such as Republican presidential candidate Ron Paul and Nobel Laureates Milton Friedman and Friedrich Hayek: Abolish the Fed.
