Posted on 02/06/2002 4:39:25 PM PST by agitator
This week on The Agitator Hour, heard Wednesdays at 9pm Eastern/6pm Pacific the guest is Mr. Bernard von NotHaus Chief Economist of the National Organization for the Repeal of the FEDeral Reserve Act and the Internal Revenue Code.
NORFED, the National Organization for the Repeal of the FEDeral Reserve Act and the Internal Revenue Code, is a supporter-based nonprofit organization dedicated to using all its revenue to restore a honest monetary system for all Americans, as required by our Constitution. It is governed by a Board of Directors and a Supporters Advisory Council. NORFED solicits your support to effect a change to our nation's monetary standards.
| Guest: | Mr. Mr. Bernard von NotHaus |
| Date: | Feb. 6, 2002 |
| Showtime: | 9pm EST / 6pm PST |
| Where: | The Agitator Hour - Click here to Listen Live at 9pm |
The toll-free call-in line is 1-800-478-7780
If you want to see what backs up your currency, look at the clothes you're wearing, the computer you're typing on, and the furnishings of your home.
Organization for the
Repeal of
Flat
Earth
Dissent
Not to start an argument, but is there anything in what I said that you can rebut?
Man Argentinians have learned the hard way the difference between fiat money and specie. Is that what it will take to make you change your mind?
Hank
This is simply not true, unless you mean the interest on the national debt, which we would pay no matter what kind of money we had. All earnings of the Federal Reserve above and beyond expenses go to the U.S. Treasury.
Yes, inflation is certainly a problem. However, going to a gold standard (or platinum, or silver, or gummy bears) will not eliminate inflation. We certainly had both inflation and deflation while we were still on a gold standard.The discovery of a huge gold deposit could jack up inflation while a war or coup in South Africa would bring about deflation. While our banking system can leave much to be desired -- especially during time of rampant goverment spending -- I would rather trust the value of the dollar to them than to mining companies in South Africa.
That's absolutely correct. However, they do create money, stangely enough. Has to do with fractional reserve. Checking also creates money.
Hank
See my post at 13.
It's generally agreed by economists that the gold standard was one of the things that kept countries like the United States and France bogged down in the Depression of the 1930s. Also, do you remember the run on its currency that Mexico -- a gold standard country -- had in 1995? If a gold standard is the panacea for all financial ills, then why did Mexico have such a tough time? And how would you explain the history of inflation and deflation in this country before we went off the gold standard in 1971?
You may in fact believe this in good faith. The last paragraph is nonesense--none of the stuff anybody has backs either the "medium of exchange" or "store of value" element of the money supply. But the rest of what you say is is a parody of the party line. But you will get to eat these words with the establishment at a very near point in the future when the contractural or fiat system will cease to work.
The idea that you can create a system of rights (to use the paper to extinguish "all debts, public and private") by writing down and describing them in legislation or in contracts is a fine idea supported by the lawyers.
Conceptually it works pretty well when the rights and obligations are simple--I promise to pay $100 for your car which you promise to deliver in exchange for the $100. It still works pretty well when the res--the car--is a complicated asset, or where what I agreed to do in exchange is complicated--pay you a number of dollars based on the trading value of the dollar or London Interbank Interest rates or whatever.
Now however, we have not only the problems incident to the fact that the value at which the paper is to be accepted is subject to whims of government spending, or the need to create more dollars to meet the requirements of spending in excess of revenue, we have also some much larger scarier problems. People have entered into agreements to pay money to buy portions of aggregated portfolios of debt or debt instruments (bonds or notes secured by mortgages) and those agreements are themselves either banked or borrowed so that the bankor or borrower in effect creates more fiat money increasing the money supply. We have other contracts where a large market maker buys Natural Gas from producers at a fixed price today, agreeing to take delivery a year hence and pay the price thirty days after delivery (Enron for example) and where the market maker (Enron) then either resells all or part of its right to take delivery or sells electricity it plans to make with the NG to some third party, Enron banking the right to get paid for the electricity and creating money and where the guy that contracts to sell the gas creates private money with the receivable side of that transaction also. What are the rights of the parties now? Even the smart lawyers will have a difficult time figureing it out.
When performance of some of these contracts becomes a problem for the obligor, they don't perform--they hire lawyers to help them get out of the obligation or to excuse their non performance. When this happens to Enron, the consequences are largely manageable.
When this happened to LTCM, the Fed was concerned that it might not be able to manage the consequences.
Where we are now in the real world is that the total of these contractural relationships that result in creation of money or credits that have been used as money is so large that any number of foreseeable defaults would be large enough to bring down the fiat money system. Some people think it is only a matter of time until that happens.
To address the point, in a specie money system, that risk would not be there. Further, although the establishment money managers are of the view that money cannot be manufactured fast enough to support our modern commercial economy (gold can't be dug fast enough), there is no evidence to support that proposition and thus I tend to think that is wrong.
If you want to look at a more complete definition of the problem of the Credit money system, look at Doug Noland's weekly colums for the past two or three months under the title Credit Bubble Bulletin, at PrudentBear.com. Noland has become the online expert in the financial system exposure to the instability of excess credit money.
Another good piece of evidence is what has happened in the international gold markets the last week or so--something is about to occur that will dramatically impact the purchasing power of the US dollar. I tend to think this subject is about to move from the discussion stage to the real world.
I expect a book report on my desk tomorrow or you'll get no pudding.
Man, you gold-standard guys are long on the insults and short on the useful information. No one here has yet even offered to explain why, if the gold standard is such a cure-all, gold standard countries have been just as subject to inflation and deflation and other financial problems as non-gold standard countries.
Anyone care to explain the financial troubles that Mexico experienced in 1994-1995 while on the gold standard or do you just want to tell me that I need to take more economics classes? Why did the US have periods of inflation and deflaiton while on the the gold standard? If I need to take classes, then teach me instead of parroting the usual we're-all-going-to-die-very-soon scenarios that we've heard since 1971?
Here are the links to play tonight's show.
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Streaming Links |
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Windows Media version - RealPlayer version |
I'm well-versed in the Federal Reserve System. So are you saying that you're not in favor of the gold standard (or silver, platinum, whatever)?
By the time the bill came due, all of the politicians involved in that fiasco were long since out of office enjoying their 100% pension. I was standing there like one of the Three Stooges when Moe slaps Larry, Larry slaps Curly, and Curly is wondering who he's going to slap. That disconnect between what government does and when the bill has to be paid means that we have no effective control over what politicians do.
A free economy is not a guarnatee everyone will be rich and there will no be periods of inflation of certain things used as money, but a regulated economy, especially regulation of the monetary system, does guarantee the periodic and often permanent impovrishment of most of its citizens, especially those who trust their economic well-being to the government.
Show me a country without a government regulated economy, where people have freely chosen to use gold, silver or, as in the early years of this country, tobacco, or any other material as the basis of their money that has had depressions. When was the first depression in this country, by the way, and what do you think cause it?
Hank
Mike, obviously you're not a student of History.
All you have to do is look at what happened in the Soviet Union after Gorby got booted, or better yet, look at NAZI Germany and Mussolini's Italy. - Wheel barrels full of their 'contract' (as you called fiat money/currency) could not buy a sandwich. - All because it was backed by nothing.
If you believe that Mexico was really on any standard at all, then I would love to have you on my realestate 'seminar' list!
Mexico was theoretically on the 'dollar' standard (Argentina too) but it is all talk, and everybody that has money to invest knows it; that's why it didn't work, it wasn't real.
OK let's try.
In the first place, inflation and deflation are determined by this simple formula: MV = PT in which M= the money supply; V = the number of transactions each unit of money supports at the relevant point in time (T); P is the price of all goods and services at the time point of measurement (T). Inflation occurs when MV exceeds the goods and services for which it is expended; deflation occurs when MV is less than the goods and services. Inflation and deflation are monetary events--they are only about the purchaseing power value of money.
Even in a specie money system, you can have inflation and deflation. If more gold is dug up than goods and services are produced to support the value of the gold, there will be inflation (loss of purchasing power of the money--ie gold will go down in value). That happened during the 18th century in Europe when silver which was the primary monetary base increased in supply as a result of the New World discoveries. Not a common event in a specie money system but it can happen.
Can also have deflation. The argument for fiat money was that a specie money system would have built in deflation--we would not have enough money supply to support the economic system. We can't dig the gold fast enough.
The answer is both cases is "so what". The inflation event was tiny (comparable to our stated inflation now) and of very short term impact. I don't think anyone can point to an example where the kind of deflation that is built in to the gold monetary system was a problem. Interest rates would be low or non existent because the gold the creditor gets paid back is likely to be worth more than the gold he lent.
But the manufacturer is hurt by having to sell his goods for less than the cost of production? No. He may get less gold for his goods but it is worth more--he still gets market value for his production.
Now none of this has much to do with any of your examples of inflation-deflation in what you call a gold standard economy because none of those examples come from a real gold standard money system.
Those systems were all systems where the government got to fix the value of the trading paper. They were gold reserve systems--we have 200 tons of gold; we will have a 25% reserve system and print paper for 800 tons of gold value. Then the government tweaks the reserve system to permit it to create more paper--that gets you inflation.
Or the government has to fix inflation it caused so it devalues the paper gold against the real gold and presto you get deflation.
The government calls the money system a gold standard because it has to have that lable to create confidence but it then keeps the legal power to put in the fix to keep control of what the real spendable value is. Like Governor Davis of California labled his power system a free marketplace but fixed prices, all these prior "gold standards" were gold standards in lable only but not reality.
None of these historical problems happens in a real gold money system--the gold is the money--it works for everybody and everybody is better off. The fiat money system is an absolute fraud on the citizens of America which works only because the people are incapable of understanding how and why they are getting screwed.
We simply are not going to get an economy that isn't government-regulated. There were economic recessions and depressions even in ancient times, and their economies were much less regulated than ours is today.
When was the first depression in this country, by the way, and what do you think cause it?
There was a depression immediately after the Revolutionary War (around 1784 if my my memory serves me correctly) that was due to, well, the ending of the war. That is often the case, by the way, when the economy switches from producing primarily one type of good (guns) and switching to the production of other types of goods (butter). There was a depression around 1807 that was due to protectionism, another around 1819, and the infamous Panic of 1837, the cause of which has been attributed to everything from the collapse of the real estate market in the north to a clamping down on the opium trade in China to the closing of the Second Bank of the United States. Another possible cause, and certainly a contributor, was the Specie Circular of 1836, which required the payment of gold to the federal government when public lands were purchased. It certainly is not a good argument for going to a gold standard.
Reality sucks when it destroys your pet theory at one puff of fiat toilet paper. The fact is that inconvertible paper has no more to do with your clothes, computer, or house than the man in the moon. It is entirely and only a creation of central banks. Nothing more.
If as you imply, paper money = wealth/goods, then the country with the greatest money supply would be the wealthiest in the world. The money supply in the US is at all time highs--but people have less net worth than they did ten years ago.
There have been long, multi-decade periods of full currency stablity--but only when backed by gold /silver.
There has never been a long period of stability of currency without backing. Not in the US, not anywhere. Look it up.
I don't like any of the schemes, I'd rather see all notes be private and be based on actual inventory someplace, so it's impossible to inflate it's worth, and with the government using gold for it's dealings with other nations if and when the private notes were not sufficient.
I like the idea of a tangible backed currency, I just don't think it shouild be based on one "thing" like gold. I'd like to see a top 100 commodities based note, for instance. And COMPLETELY remove future-credit as a tangible asset that can be called "money" especially by government. And restrict usury to one step removed, then it has to sit., and remain until paid non-transferrable except as inheritance...
That is about as far from fact as is possible. I believe there was once interest accruing currency in this country, but the last of that sort was likely issued by the Continental Congress.
Interest is paid on debt, and currency isn't debt. It is a small fraction of the American money supply, which in its broadest measure includes Treasury Bills, Bonds, and Notes. Those are part of the National Debt, and on those we pay interest. But not on currency. Currency doesn't even get what is called a seignorage fee. Even if we did pay interest on currency, which we don't, it wouldn't add up to a fraction of what we pay on Treasury paper, which dwarfs the amount of the money supply held as cash. Currency is also dwarfed by the amount of money held as simple bank balances, bookkeeping entries.
Learning to read the Ms published weekly in Barron's and other financial journals would quickly dispel the idea that currency is a major factor in the economy. Currency is only that part of money which people want to hold for current usage- it is much smaller than what people hold as savings, which they keep as book entries- or specie if they buy bullion.
If you don't like paying interest, tell Congress to start paying down the debt. That's where interest is paid. Not on currency.
The Fed earns its money on its supply of Treasury bonds. It buys and sells them in Open Market transactions, primarily to influence the base money available to local banks for the purpose of creating loans. Any proceeds in excess of the payroll for the Fed employees reverts to the Treasury. The Fed is not "owned" by its member banks, despite all the nonsense that we see claiming this. It was created by an Act of Congress to legalize and control the Clearinghouse System that the big private banks were using to prop up the banking system during crises like the Panic of 1907. The banking system is actually less privately controlled now than it was before the Fed.
The real creators of money in the American economy are the loan officers at banks. Local banks create credit when you apply for a loan, and this credit creation is in effect new money. Banks are limited in the amount of credit they can create by their reserve balances they have with the Fed, and by whatever percentage of deposits the Fed requires for backing those loans.
Don't make me pull out the Doctor Evil pictures again. Scott.
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