Monday, December 13, 2010

A postcard from Potterville II

A follow up, of course, to this.

What would happen if we actually tied our currency to a commodity – gold – that exists in limited supply? For one thing, we’d make the producers of that commodity absurdly rich.

But it’s the consequences for the economy that are the most worrisome.

Fixing the money supply – the practical effect of adopting a gold standard – and ending fractional reserve banking would drive the cost of credit and the cost of capital through the roof. Good, if you already have capital and want to loan it out, or make an investment. But bad if you want to start or get financing for a small business or a farm, or buy a house. As the population and the economy grows, the capital starvation from a fixed money supply grows, too.

WonderfulPotter411122006_01Mr. Potter in It’s a Wonderful Life is undoubtedly foursquare in his support of the gold standard. George Bailey, on the other hand, seems to recognize the value of making credit more widely available.

According to Paul:

“The day the Fed came into being in 1913 may have been the beginning of the end, but the powers it obtained and the mischief it caused took a long time to become a serious issue and a concern for average Americans.”

On Mr. Bernanke: “There is something fishy about the head of the world’s most powerful government bureaucracy, one that is involved in a full-time counterfeiting operation to sustain monopolistic financial cartels, and the world’s most powerful central planner, who sets the price of money worldwide, proclaiming the glories of capitalism.”

Here’s my favorite gem from the linked article:

“Only the Federal Reserve can inflate the currency, creating new money and credit out of thin air, in secrecy, without oversight or supervision. Inflation facilitates deficits, needless wars and excessive welfare spending.”

And undoubtedly causes restless leg syndrome and jock itch, too! And as far as oversight and supervision are concerned, Paul is apparently unaware that there is a subcommittee in the House to do just that; I guess John Boehner just forgot to tell Paul that he’s the new chairman of it!

Read the paragraph about Bernanke again. Now, fast forward to about 2:30 in this video and compare:

That’s from the Tea Party rally this past spring at the Minnesota Capitol. You can hear the gentlemen that I interviewed rail against the cabal of bankers (and lawyers, too), just as Ron Paul does. About the only word missing from the rants of either of them is  the word “Jewish.” But not everyone is so dainty. Ron Paul is a darling of the Tea Party, and he plays to the grievance and resentment that are the organizing principles of the Baggers.

I do not mean to suggest that the Fed shouldn’t be more transparent or reformed in any way, but it is pure demagogic windbaggery to say that we can do without a central bank.

There is more to be said about Paul’s irresponsible slander of the Federal Reserve System and fiat currencies but it will have to wait for coming days.


blogspotdog said...

It won't come as a surprise to most of you that Ron Paul once owned a coin shop.

Alec Timmerman said...

If possible, Austrian economics is even more bizzare, but perfect for an anti-intellectual, anti-science crowd.

In essence, Austrian economics says:

1.)Economics is too complex to be modeled by any mathematics, statistics, or long term study.

2.) All economics is based on a few fundamental truths, and those truths are simply self evident.

It's perfect for Tea Partiers. Providing them with any facts can be dismissed because facts don't matter, and you can't argue against truths that are "self-evident" as determined by them.