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The Eclipse of Ben Bernanke by Ron Paul
New York Sun ^ | 03/04/2011

Posted on 03/04/2011 6:59:10 AM PST by SeekAndFind

It’s a sign of the times that the chairman of the Federal Reserve Board, Ben Bernanke, testified before the House Financial Services Committee yesterday and the part of the hearing that everyone wanted to know about is what was said by Congressman Ron Paul. He is the chairman of the monetary policy subcommittee that directly oversees the Fed, and he is the one, who, in a poll some months back, was ranked as being neck and neck with President Obama. The reason people are more interested in what he has to say is that it is Dr. Paul who has the deeper understanding of our national predicament.

This was illuminated in in an exchange yesterday in which Dr. Paul asked the chairman of the Fed, which issues the currency notes Americans are required to accept in payment of debts, what was his definition of a dollar. Forgive us, but we’ve been waiting for years to hear that question asked of a Fed chairman the way Dr. Paul put it. And Mr. Bernanke walked right into it. “My definition of the dollar is what it can buy. Consumers don't want to buy gold. They want to buy food and gasoline and clothes and all the other things that are in the consumer basket.”

If the Founders of America had been on the Committee, why, they might well have had the chairman brought up for contempt. They were fairly obsessed with the dangers of paper money, and they had a clear idea of the meaning of money. When, in the Constitution, they delegated to the Congress the power to coin money, they did so in the same sentence in which they also delegated to Congress the power to fix the standard of weights and measures.

(Excerpt) Read more at nysun.com ...


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: benbernanke; bernanke; dollar; economy; fed; lunatic; paul; ronpaul; thefed
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1 posted on 03/04/2011 6:59:13 AM PST by SeekAndFind
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To: SeekAndFind

Ron Paul might be an anti-semitic muzzie-loving SOB, but he’s good on this issue.


2 posted on 03/04/2011 7:02:50 AM PST by samtheman
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To: SeekAndFind

Good article, well worth reading.


3 posted on 03/04/2011 7:06:26 AM PST by YankeeReb
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To: SeekAndFind

I would be fun if the next GOP president appointed Paul to be the next head of the Fed. Just to watch him take it apart from the inside out.


4 posted on 03/04/2011 7:07:35 AM PST by GonzoGOP (There are millions of paranoid people in the world and they are all out to get me.)
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To: SeekAndFind
“They were fairly obsessed with the dangers of paper money,” Obsessed? They were horrified of it.
5 posted on 03/04/2011 7:07:39 AM PST by crz
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To: GonzoGOP

That would be great. But I doubt it would ever happen.


6 posted on 03/04/2011 7:09:09 AM PST by Republic_of_Secession.
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To: SeekAndFind

Take the inflation created since the fed reserve act into account and you can see what our actual debt would be if we were under the gold and silver standard.


7 posted on 03/04/2011 7:10:00 AM PST by crz
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To: SeekAndFind

People have a hard time accepting that Ron Paul is closer to our founder’s than anyone else elected at this time.

Although I don’t agree with everything that Ron Paul says he is an inspiration to what our country was intended to be.


8 posted on 03/04/2011 7:10:00 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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To: Republic_of_Secession.
That would be great. But I doubt it would ever happen.

Actually it would be an extremely shrewd strategic move by a big "C" Conservative president. It puts the highly organized Paulites firmly in your support group. Ron Paul is put in charge of something where his views are almost completely in line with the conservatives. Yet it gets him out of congress where his libertarian foreign policy is a constant threat to the solidarity of the conservative voting block. After all can you name the last time anyone did a half hour interview with Al Greenspan about our policy in Central America?

And at least the new president wouldn't have to worry about high inflation.
9 posted on 03/04/2011 7:19:06 AM PST by GonzoGOP (There are millions of paranoid people in the world and they are all out to get me.)
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To: SeekAndFind

They want to see what Ron Paul said for the same reason they want to know what’s going on with Charlie Sheen. Everyone loves a train wreck.

The dollar has been more stable under the FED than it ever was under the gold standard. Under the gold standard we had wild swings of inflation and deflation on a year to year basis. Only if you intend to hoard dollars in your mattress for 80 years instead of invest them is the gold standard better than paper money.


10 posted on 03/04/2011 7:21:57 AM PST by DannyTN
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To: SeekAndFind
Oh and remember how Ron Paul wants to audit the Fed?

Independent audits are on the web for everyone to see.

2009 Combined Federal Reserve banks - Independent Auditor Report on Page 3

2009 Federal Reserve Board financial statements - Independent Auditor Statement Page 2

Financial Statements of the Federal Reserve Banks (Combined and Individual banks)

Annual Report - Federal Reserve Board 2010 Budget Review.

There is one component of the board that is not subject to congressional audit. And it was congress who made it that way. That’s the policy decisions. Of course interest rate policy is announced as soon as the Board of Governors meet. Which pretty much just leaves the Open Market Committee meetings.

They’re the ones that stabilize exchange rates, and shore up the system when a part becomes shaky. You don’t want those decisions public while the FED is actually trying to implement the plan, because people like Soros will work against them. But the money is all accounted for.

11 posted on 03/04/2011 7:24:10 AM PST by DannyTN
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To: DannyTN

Sorry Danny...you are drinking the kool-aid. You have bought the whole Fed story hook line and sinker.

All you have to do is understand who was behind the Fed, why they wanted it created and what happened with those people after the Fed was created.

The Fed has done far more damage to the long-term viability of our free country than it has ever helped. If we ever learn the truth about the Fed it will be plain for all to see just how criminal and corrupt the organization. Why else would you run an organization with absolutely no accountability or audit? Just a semi-legitmized version of organized crime.


12 posted on 03/04/2011 7:26:09 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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To: surfer
I'm afraid it's you that is drinking the conspiracy koolaid. "All you have to do is understand who was behind the Fed, why they wanted it created and what happened with those people after the Fed was created."

Take a look at how the FED is organized, which directors are elected which are appointed. And the rules on that. How many votes a big bank gets vs a small bank. Who really owns the banks. It's all public information. Go to Finance.yahoo.com, and you can see the major shareholders of any publicly traded company.

When you understand that, you'll understand it's not the monster conspiracy nuts have made it out to be.

"Why else would you run an organization with absolutely no accountability or audit?"

Links to the audits were in the post you replied to. The FED absolutely has accountability and audits. And history shows they've done a good job.

It's in our enemies interest to destroy the Federal Reserve, not ours.

13 posted on 03/04/2011 7:37:25 AM PST by DannyTN
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To: SeekAndFind
"... in a poll some months back, was ranked as being neck and neck with President Obama."

Let me fix it....

"... in a poll heavily compromized by the Paulhroids, "one Paulhroid = 10,000 votes" campaign some months back, was ranked as being neck and neck with President Obama. "

14 posted on 03/04/2011 7:37:30 AM PST by lormand (A Government who robs Peter to pay Paul, will always have the support of Paul)
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Dr. Paul asked The Bernanke what was his definition of a dollar.

The Bernanke answered, "My definition of the dollar is what it can buy. Consumers don't want to buy gold. They want to buy food and gasoline and clothes and all the other things that are in the consumer basket."


And The Bernanke still refuses to give a clear, concise and honest answers to THE straight-forward questions, "What is The Bernanke's definition of a US dollar ?" and "Where in all of the Code is the actual measurement stated of one US dollar ?"

15 posted on 03/04/2011 7:45:43 AM PST by pyx (Rule#1.The LEFT lies.Rule#2.See Rule#1. IF THE LEFT CONTROLS THE LANGUAGE, IT CONTROLS THE ARGUMENT.)
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To: DannyTN

The facts do not align with your statements.

You are spewing misleading propoganda.


16 posted on 03/04/2011 7:49:16 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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A example of a clear, concise and honest answer to Dr. Paul's question from The Bernanke would have been something along the lines of;

One US dollar is equal to 0.00031 troy ounces of gold minted by the US mint to 0.999 percent purity. This measurement can be found on page 1029 in the third paragraph.

17 posted on 03/04/2011 7:52:01 AM PST by pyx (Rule#1.The LEFT lies.Rule#2.See Rule#1. IF THE LEFT CONTROLS THE LANGUAGE, IT CONTROLS THE ARGUMENT.)
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To: surfer
No, It's Ron Paul who is spewing misleading propoganda when he says the Federal Reserve isn't audited. And he's doing it for his own political gain.

I bet you are making that statment and you can't even tell me how the Board of Governors of the Federal Reserve are appointed or elected without looking it up.

And I bet you can't tell me about the 3 classes of directors of each Federal Reserve Bank and what the difference between the 3 are without looking it up either.

18 posted on 03/04/2011 7:52:58 AM PST by DannyTN
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To: pyx
"One US dollar is equal to 0.00031 troy ounces"

And nobody cares. Gold is highly manipulative because it's scarce. Why would we want to link our currency to something like that?

China is one of the largest gold producers today. Do you want China to have more say over our currency growth than we do? Then by all means go for the gold standard.

19 posted on 03/04/2011 7:55:28 AM PST by DannyTN
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To: pyx

Bernanke did answer it. It’s the “consumer basket”. It’s not defined in statute, nor does it need to be.

But Bernanke is right. I don’t want to buy gold. And I certainly don’t want gold speculators determining the cost of my food.


20 posted on 03/04/2011 7:58:51 AM PST by DannyTN
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To: DannyTN

Just because you can name who the heads of an organized crime family doesn’t make it right.

I have studied the Fed very carefully and long before Ron Paul ever stated anything about it.

Bernanke has even testified on multiple occassions that they will not release information.

He has also testified that the Fed would never monetize the debt and that is exactly what they have done and are putting our future at great risk with the reckless and illegal transactions (illegal in the sense that any other business in our country would find themselve in court over it).

The abuse by the Fed is well documented and more and more is becoming clear.

Why is it that people actually believe less transparency is better? IT NEVER IS.

Finally you have Woodrow Wilson involved...ANYTHING Woodrow Wilson ever did has hurt our country.


21 posted on 03/04/2011 7:59:03 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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To: DannyTN

>> It’s in our enemies interest to destroy the Federal Reserve, not ours. <<

Agreed. But I think it’s an absolute waste of time when you try to have a rational discussion with the Paulbots, conspiracy theorists and gold-nuts. They have only the most superficial acquaintance with monetary history and policy. Moreover, to make matters worse, they aren’t about to put in the hours of study it would take to achieve true understanding of the issues. So if I were you, I wouldn’t expend any effort on attempting to persuade these folks.


22 posted on 03/04/2011 7:59:39 AM PST by Hawthorn
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To: surfer

Funny..Day before yesterday I gave a “lesson” on the value of paper money.

I took a 5 gram gold bar, and a 1950 20 dollar note that was backed by the gold and silver standard and 14 2010 20 dollar bills in which represented the value of the 5 gram bar-about 280 dollars in that days money.

I asked the fellows what they would sooner do. Work for 20 dollars an hour, and work one hour for one of these?-being the 1950 note, or work 14 hours for 14 of these?-being the 2010 notes. The value of the gold backed 20 dollar note was worth 14 of the 2010 notes. I held the notes right smack up in their faces.

You should have seen the look on their faces.


23 posted on 03/04/2011 7:59:53 AM PST by crz
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To: pyx
One US dollar is equal to 0.00031 troy ounces of gold minted by the US mint to 0.999 percent purity.

But the dollar is no longer equal to a fixed weight of gold.....or silver.....or anything.

24 posted on 03/04/2011 8:09:00 AM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: crz

It is interesting when you go back before the Fed and take NY city for example back at the turn of the century a $20 gold coin could buy a nice a suit.

100 years later that same $20 gold coin can buy a nice suit but $20 can’t.

case closed :)


25 posted on 03/04/2011 8:42:28 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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To: Hawthorn

Funny I have a degree in economics with a focus on money credit and banking. I did my thesis on Penn Square and subsequent failure of Continental Illinois.

What an elitist bunch of crap you just spewed...you must be a progressive. Do you hold up photos of Woodrow Wilson with one hand?


26 posted on 03/04/2011 8:45:56 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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To: surfer
"I have studied the Fed very carefully and long before Ron Paul ever stated anything about it.'

Yet you didn't answer two very simple questions about it's governance. How is the board of governors selected, and how are each of the Federal Reserve Bank directors selected?

"Bernanke has even testified on multiple occassions that they will not release information."

They don't release "policy information" when they are intervening in markets. They do that to maintain stable currency exchange rates and sometimes to prevent bank runs and other instabilities. Otherwise people like George Soros would work against you. It was set up that way by Congress on purpose.

But there are still audits. All of the money is accounted for. The audits are by independent non-government auditors. And they have been made public.

"Finally you have Woodrow Wilson involved...ANYTHING Woodrow Wilson ever did has hurt our country.

WOODROW WILSON!!!! HOLY DEAD PRESIDENT BATMAN!

If the zombie of Woodrow Wilson is currently secretly running the government, then I'll admit we have a problem.

27 posted on 03/04/2011 9:06:12 AM PST by DannyTN
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To: surfer
"100 years later that same $20 gold coin can buy a nice suit but $20 can’t. case closed :)"

Again, nobody cares. If you put that $20 in a savings account for 100 years, you'd still have enough to buy a suit. If you invested in 10 Year T-Bills you'd have enough to buy several suits.

If you want to hoard money in your mattress for 100 years, suffer deflationary depressions every few years, and have wild year to year swings in deflation and inflation, then the gold standard is for you.

100 years ago the average salary was $750 a year.

28 posted on 03/04/2011 9:19:43 AM PST by DannyTN
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To: Hawthorn
"I think it’s an absolute waste of time when you try to have a rational discussion with the Paulbots, conspiracy theorists and gold-nuts."

Probably, but posting the audits, have made at least a few realize that Ron Paul wasn't being honest.

29 posted on 03/04/2011 9:22:26 AM PST by DannyTN
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To: surfer
"Funny I have a degree in economics with a focus on money credit and banking"

LOL, I find that really hard to believe. What school?

You still haven't answered my two simple questions on FED governance.

30 posted on 03/04/2011 9:27:25 AM PST by DannyTN
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To: DannyTN

How you twist everything?

You can pick up the same $20 gold coin from the turn of the century...not have to do ANYTHING to it and have it still have the same value today as 100 years ago.

You can’t do that with a greenback. PERIOD.

Paper money is worthless and they want it that way.

We will see how you feel when the dollar isn’t the reserve currency anymore...meanwhile I will laugh my way to the bank with my gold and silver while you use your greenbacks to wipe your butt.


31 posted on 03/04/2011 9:31:33 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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To: surfer
"You can pick up the same $20 gold coin from the turn of the century...not have to do ANYTHING to it and have it still have the same value today as 100 years ago. You can’t do that with a greenback. PERIOD."

But who wants to? Being able to store value in the greenback for 100 years is not an economic goal that anyone cares about.

What we care about is have a stable currency that facilitates business decisions. We don't store wealth in currency. We store wealth in real assets, equities, etc.

From that standpoint, the paper money has dramatically outperformed the gold standard. Year to year variations in the CPI have been far smaller with paper money.

32 posted on 03/04/2011 9:36:28 AM PST by DannyTN
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To: DannyTN

Only because of dervative type scams...there is no basis for the value or the growth in the value.

It could be argued that the housing crisis would not have happened if we still had a tangible value behind our money.

The reality is the Fed was the most stable when the gold standard was in place it has been since we have ditched the gold standard that things are getting wildly out of hand and the Fed is now forced to make drastic moves that will come back to bite us all.

In a sense the Fed today is only shifting the effects of one bubble to another bubble and there is no floor to fall back on and that is the achillies heal that we are facing and will pay the price for.

When the US dollar is no longer the reserve currency and that will probably happen in 2011 we will see the true value of your paper money and it won’t be good.

Somehow you think gold isn’t a real asset or are you saying real property assets?


33 posted on 03/04/2011 9:44:57 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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To: DannyTN

“Yet you didn’t answer two very simple questions about it’s governance. How is the board of governors selected, and how are each of the Federal Reserve Bank directors selected?”

I, for one, cannot answer that question off the top of my head. I am too busy, and my brain has to deal with too many other things that have an immediate and more direct impact on my daily life—like trying to remember my wife’s birthday, work, kid’s activities for the weekend, etc. I should also point out that I remember exactly why, for example, vitamin D is good for me, as in spouting off the medical terms from something I read years ago, but I do make sure I get enough sunlight during the winter months, and that does seem to keep me healthy.

However, I have read up on the Fed matter over the years, even wrote a brief college paper on the Fed (a few decades ago), so I can say that I have at least some knowledge about finance (with a strong Austrian economics bias). In that vein, I would suggest that you at least consider an hour of your time to take a look at the evidence against the Fed’s value. A good working paper, called “Has the Fed Been a Failure?,” may be found here:

http://www.cato.org/pubs/researchnotes/WorkingPaper-2.pdf


34 posted on 03/04/2011 9:48:53 AM PST by Stat-boy
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To: surfer
"It could be argued that the housing crisis would not have happened if we still had a tangible value behind our money."

You need to go back and look at the real estate bubbles of the 1800's when we were on the gold standard.

The reality is the Fed was the most stable when the gold standard was in place it has been since we have ditched the gold standard that things are getting wildly out of hand and the Fed is now forced to make drastic moves that will come back to bite us all."

That's just not true. Go back and look at the CPI swings when we were on the Gold standard.

"Somehow you think gold isn’t a real asset or are you saying real property assets?"

I was saying most of our wealth is in real property, businesses, equity. We use currency as a temporary store of value, not as a long term store of value.

Gold is a real asset, but it's not one that returns much. The real return is usually close to 0. It's better than holding dollars long term, but not much. If you want to store wealth long term, Gold is ok. But there are better safer investments than gold.

35 posted on 03/04/2011 10:12:34 AM PST by DannyTN
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To: DannyTN
And nobody cares. Gold is highly manipulative because it's scarce.

I disagree. Perhaps, you do not care, however, many people do care. See the URL below. Printing more paper money which devalues it, is manipulative. Having no standard is manipulative. China already holds most of the US debt and they already have a say and that is manipulative. A undefined consumer "basket" that has no proportion or size or set contents is manipulative.

Utah is already considering returning to the gold standard, as discussed in the Fox News article posted on Free Republic. Other states in the US may be considering following suit. Consumers want the FED to be accountable and that includes being accountable in its monetary policy standards which would include defining and measuring the US dollar.

36 posted on 03/04/2011 10:32:42 AM PST by pyx (Rule#1.The LEFT lies.Rule#2.See Rule#1. IF THE LEFT CONTROLS THE LANGUAGE, IT CONTROLS THE ARGUMENT.)
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To: pyx
Printing more paper money which devalues it, is manipulative.

What happens if you don't print more money, yet your population doubles and the amount of goods per person doubles? Massive deflation. You need to print some money to provide for population growth and the growth in the supply of goods.

"Having no standard is manipulative.

Anything you do or don't do is "manipulative", so unless you have a more specific beef, so what?

"China already holds most of the US debt and they already have a say and that is manipulative."

No China doesn't hold most of the US debt. The U.S. is the largest holder of U.S. debt. And Japan holds almost as much as China.

China doesn't have very much say. That's why they are whining all over the press about QE2. And claiming they are going to start another world reserve currency.

But you know what? There is nothing stopping China from investing in other country's currency, or even a basket of currencies. They hold the U.S. currency because they want to. China is a little scared that we are going to monetarize the debt and leave them holding worthless paper. It's not in our interest to do that, but it is in our interest to fix the trade issues with China. A undefined consumer "basket" that has no proportion or size or set contents is manipulative. Utah is already considering returning to the gold standard, as discussed in the Fox News article posted on Free Republic. Other states in the US may be considering following suit. Consumers want the FED to be accountable and that includes being accountable in its monetary policy standards which would include defining and measuring the US dollar.

37 posted on 03/04/2011 10:48:34 AM PST by DannyTN
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To: pyx
Repost with formatting fixed. "Printing more paper money which devalues it, is manipulative."

What happens if you don't print more money, yet your population doubles and the amount of goods per person doubles? Massive deflation. You need to print some money to provide for population growth and the growth in the supply of goods.

"Having no standard is manipulative.

Anything you do or don't do is "manipulative", so unless you have a more specific beef, so what?

"China already holds most of the US debt and they already have a say and that is manipulative."

No China doesn't hold most of the US debt. The U.S. is the largest holder of U.S. debt. And Japan holds almost as much as China.

China doesn't have very much say. That's why they are whining all over the press about QE2. And claiming they are going to start another world reserve currency.

But you know what? There is nothing stopping China from investing in other country's currency, or even a basket of currencies. They hold the U.S. currency because they want to. China is a little scared that we are going to monetarize the debt and leave them holding worthless paper. It's not in our interest to do that, but it is in our interest to fix the trade issues with China.

38 posted on 03/04/2011 10:50:36 AM PST by DannyTN
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To: DannyTN

Good clear expression of your assessment.
Thanks.
What do you think of the Pentegon assessment that we are subject to a Sovereign fund being able to kill our currency by dumping our T-Bonds. G. Beck and others have cited this report that came out with little fanfare.


39 posted on 03/04/2011 11:00:05 AM PST by KC Burke
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To: DannyTN

Actually there were 6 housing bubbles since the Civil War and I have researched over the years as much as I could. It was that research that allowed to me to completely capitalize during this bubble.

You are relating the problems that were caused by government intervention as somehow connected to the gold standard. The gold standard wasn’t the problem and in fact it was never the problem it was the poorly constructed regulations and/or cronie crap that has gone on in our government that is far more of a factor than having a gold standard in place.

You are missing on key part of gold and silver (silver by the way is what I called as the key investment vehicle 3 years ago and my close friends thank me all the time for it) is that you can create a solid inheritence vehicle - if you catch my drift :).

A so called “safer” investment is worthless long-term if the inheritence tax is 90% or more.

Gold or silver to me is like a tangible real piece of property (the dirt - not the improvement). The key to any long-term family success is having enough of that “free and clear” to keep things going.

Currency isn’t something I would consider as an investment vehicle for one primary reason...it just isn’t tangible. It is all smoke and mirrors.

We are about to see a period of time where people will be screaming for a return to the gold standard as soon or shortely thereafter as we lose reserve status.


40 posted on 03/04/2011 11:05:21 AM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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To: crz; DannyTN
Here's another "lesson": My parents bought a house in 1961 for $41,500.

If the seller had asked to be paid in silver certificates, cashed them in, and buried the silver in the back yard, the seller would have $1,134,750 worth of silver at the noon spot price (plus more for the copper, less smelting charge).

Despite all the "gains" and the "wealth" tied up in this house and land, there is a very good chance that the seller would be ahead on the deal. Add in taxes and expenses, and the seller is massively ahead.

And for DannyTN: As John Maynard Keynes famously said when challenged about the long run consequences of debt-based money, "In the long run, we're all dead".

Of course as a gay man, Keynes had no interest in posterity. But most of us do.

In the example above, to be specific - the grandchildren of the imaginary seller would be better off than the grandchildren of the owner of the house in question.

THAT is what honest money is all about. It is a keystone in the blessings of Liberty, which we are supposed to be preserving for our posterity.

41 posted on 03/04/2011 11:12:23 AM PST by Jim Noble (House GOP: If you can't stand the heat, get out of the kitchen.)
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To: KC Burke
"What do you think of the Pentegon assessment that we are subject to a Sovereign fund being able to kill our currency by dumping our T-Bonds. G. Beck and others have cited this report that came out with little fanfare."

I haven't read the actual report. If you have a link to it, I would appreciate it.

I do think that our markets are subject to manipulation due to uncontrolled derivative use.

I also think whether or not there was external manipulation in the price of oil, that oil is our Achilles hill. We should have been building nuclear plants, refining capacity, and drilling capacity long ago. We've known this since the first oil shock in the 70's and we've done little to guard against it. And I do suspect manipulation in the price.

As far as a Sovereign being able to destroy our currency by dumping T-bonds, I think that's a little bit of chicken little. I think they could cause some economic disruption, but lets take a practical look at what happens if China dumps there 880 billion in U.S. debt on the market all at once.

It's not like that those bonds get converted to US currency instantly. They are still bonds, they get paid on schedule and not before. So there would be a bunch of debt on the market, which would depress the demand for current US issues. Because there is so much supply at once the market would demand a discount to buy them, which would drive up interest rates until the excess is absorbed. But the FED could step in and buy them up, so that there is no effect on the markets at all except that the dumper takes a haircut. That's to our benefit, we'd be buying back debt cheaper than we issued it. Certainly doesn't "kill the currency".

The other scenario is that actual currency held abroad suddenly comes flooding back. I'm not sure what percent of our currency is held abroad. I've seen some reports that I don't believe that estimate it's half of what is in circulation. I doubt it's that high, but lets assume that.

What happens if a group of sovereigns arrange for all that money comes to come flooding back all at once. Absolute worse case is that you have twice as much money chasing the same amount of goods, so you get a one time spike of 100% inflation. Certainly enough to cause economic disruption.

But more likely as prices rise, more goods become available, and the effect is mitigated probably by as much as 50%. Still wouldn't want to see 50% inflation.

The FED, though could sell treasuries into the market soaking up that excess currency. I suspect that such an event could probably be mitigated to 10% inflation. The dumper would take a haircut for dumping so much at one time and life would go on.

In reality, that currency held overseas is held by many countries, people and businesses. A coordinated attack isn't going to return but a fraction of it. If they got 20% of it, it would be an impressive attack, but it would be mitigated for all of the above reasons, and we might see a couple of percent additional inflation for a year.

42 posted on 03/04/2011 11:44:21 AM PST by DannyTN
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To: DannyTN
What did that $750.00 buy?
It's not the amount its what it can buy.
Basic question.
How much did it cost in Morris County, New Jersey?
a survey of retail prices advertised in the Daily Record, October 1-15, 1900

Clothing
Hat, Men's, Fine Felt Alpines, .48/each
Hat, Women's, French felt, untrimmed, .35/each
Men's coat, top coat, 6.98/each
Men's shirt, Eighmie, White, 1.00-2.00/each
Men's suspenders, “President” brand, .50/pair
Men's suit, worsted, 7.00-16.00/each
Men's underwear, blue ribbed, 1.00/suit
Same place in 1940 Check the prices. Almost the same for some iGirl’s dress, cotton, 1.55-1.98/each
Girl's skirt, wool, 1.59-2.39 Girl's snow suit, wool, 2 pieces, 4.85-5.98/each
Girl's white pinafore, .79-1.00/each
Men's flannel shirt, .98/each
Men's hat, 1.00-4.95/each
Men's hunting boots, leather, 2.98/pair
Men's jacket, suede, 6.50/each
Men's suit, tweed, 25.00/each
Women's coat, rain, 1.79/each
Women's dress, wool, 3.98/each
Women's jacket, “mannish” style, 2.98/each
Women's skirt, wool flannel, pleated front, 5.98/each
Women's stockings, Berkshire, .79/pairtems. Where is the huge inflation, price swings etc?

I have to lecture my students all the time on this simple point. Growing up in the 60’s the min. wage was $1.60. Gas was .23 per gallon etc. I have low six figure income now. I drive a 1999 van. The money is worthless.

43 posted on 03/04/2011 11:44:49 AM PST by prof.h.mandingo
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To: KC Burke
Actually, I take part of that back.

In the scenario where China dumps their debt, if the FED buys it off the market, it does convert it to currency, and we'd see inflation from it.

So I don't see the FED buying them all. I think they would let the market's absorb them. The debt securities would be a bargain, so the world wide market would probably step up pretty quick to absorb them.

The biggest implication would be for the U.S. trying to issue debt while the market adjusts. We'd either have to pay a high rate to issue during that time, or the FED would have to step in and buy the U.S. issues at a below market rate. That could avoid both an increase in currency and a disruption to US debt issuance.

44 posted on 03/04/2011 11:51:38 AM PST by DannyTN
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To: prof.h.mandingo
It's not the amount its what it can buy.

It's both the amount and what it can buy, and you should be lecturing your students that way.

"Growing up in the 60’s the min. wage was $1.60. Gas was .23 per gallon etc. I have low six figure income now. I drive a 1999 van. The money is worthless."

So in the 60's, you could afford 6.95 gallons for every hour you worked.

Now you make at least $100,000, which is equal to $50/hour and at today's price of $3.50/gallon, you can afford 14 gallons for every hour you worked.

You're making a lot more gallons per hour than you were in the 60's, so a low level of inflation over 50 years has not stopped economic progress.

45 posted on 03/04/2011 12:13:42 PM PST by DannyTN
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To: DannyTN
I think you missed my point. Look at prices from 1900 to 1940. Very slight increases in prices. You have a point on amounts but lets look at real wages. I don't clear $50.00 per hour. There is the slight bite from taxes, healthcare, insurance etc. Real wage is closer to $28.00 to $30.00 per hour. The 7 gallons of gas I could purchase in the 60’s is about 9 now. Not much better in 50 years. We have not progressed by this measure. Net vs. gross income.
46 posted on 03/04/2011 12:39:54 PM PST by prof.h.mandingo
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To: prof.h.mandingo
"Not much better in 50 years. We have not progressed by this measure. Net vs. gross income."

Yet we have. Look around. We live in much larger, nicer houses, we drive large SUV's which get better gas mileage than the cars of the 60's. We've got greater access to entertainment. We've got better access to better medicine (for now).

Gasoline is not a real good example because we have had ridiculously stupid energy polices for the last 40 years. And world demand has dramatically increased.

The cumulative effect of small amounts of inflation has not had any noticeable detrimental effect on our standard of lifestyles. Only if you stored massive amounts of money in a mattress would you notice the difference.

Currency is not meant to be a long-term store of value. It's meant to be a short term store of value to facilitate transactions, and on that measure, our paper money far outperforms gold because it has less year to year fluctuations.

47 posted on 03/04/2011 1:02:09 PM PST by DannyTN
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To: prof.h.mandingo
People also confuse tax policy and Federal spending with monetary policy. And those two should be kept separate.

The FED has not facilitated congressional spending. And they can borrow money almost as easily on a gold system as they can on paper money. After all, they can promise that our children will pay it back in anything they want to.

The FED is not the cause of taxation or over-regulation or unwise trade policies. Let's keep the blame where it belongs on Congress and the Executive.

48 posted on 03/04/2011 1:05:22 PM PST by DannyTN
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To: Jim Noble

Back in the day when I was in fifth grade, the year Kennedy was killed, if we had any money and we had a permission slip from Ma or Pa, we could go to the local store at noon recess.
I was always doing something for a nickel..hauling and splitting wood for my aunt or whatever, and they always tossed a nickel or dime my way. You remember that red Liquorice? Well, those were 5 for a penny. Bubble gum was about three for a penney. For a nickel, you could come back from that store with a whole little sack full of candy.

Then I’d sell it for double.


49 posted on 03/04/2011 4:12:30 PM PST by crz
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To: DannyTN

http://www.freerepublic.com/focus/f-news/2683963/posts


50 posted on 03/04/2011 10:54:41 PM PST by surfer (To err is human, to really foul things up takes a Democrat, don't expect the GOP to have the answer!)
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