Skip to comments.The Eclipse of Ben Bernanke by Ron Paul
Posted on 03/04/2011 6:59:10 AM PST by SeekAndFind
Its 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 weve 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 ...
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.
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.
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.
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.
It's both the amount and what it can buy, and you should be lecturing your students that way.
"Growing up in the 60s 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.
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.
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.
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.
There was a time when conservatives wold have been in line with the views of Ron Paul as his views are old school aka paleo conservative which were later overshadowed by the rise of the neo conservatives who are simply reformed Trotskytes like Irving Kristol who helped to shift the pro war position from the left to the right.