http://www.visi.com/juan/congress/
This is a non gov site that makes it easy to email your congressman with just a few clicks. Click on your state, it is fairly intuitive. 
In addition to telling them not to support the bailout, tell them to support incorporating HR 2755 into any new economic recovery legislation.
HR 2755 is Ron Paul’s bill to abolish the Board of Governors of the Federal Reserve System and the Federal Reserve banks and to repeal the Federal Reserve Act. You can read it here.
IMHO, eliminating the Fed now, during a time of tight money and failing banks, would be so bat shit crazy that even Americans would not support it.
I don’t support the "buy bad debt with tax dollars " bailout. I see it as an expensive band aid, on a gangrenous limb that will have to come off soon anyway. That limb is trillions of dollars of over valued mortgage securities. Buying .7 trillion is just a way to make some sly dogs in the Bush administration really rich.
The Fed has worked really well so far. Shutting down the central bank, when it has the only people who seem to have the talent to understand, regulate, monitor, audit, shut down, and transfer depositors assets out of failed banks, and replace it with ? ?? 
Ron Paul appointees ? Who just want to burn the Fed down, and start over using gold and silver we don’t have ???
Is that to hard of a question to ask a Ron Paul supporter ? We eliminate the Fed, then what ? Isn’t that a bit like finding a bank on fire, going in, shooting all the fire fighters, spreading gasoline all around, then running off into the jungle screaming we must find more shiny objects ?
Because gold bugs haven’t a clue how modern banking works, the answer to all economic problems seems to be to destroy the Fed and go back to gold. I find it quite silly really. We are in a deflationary recession, so the answer is to embrace 19 th century gold based momentary policy, using deceptive cartoons that explain all system wide economic slow downs as caused by inflation? Yet the actual problem has nothing, nothing, absolutely nothing to do with inflation. If the smart guys thought we were going into a period of high inflation, they would buy these property backed bonds. They expect the dollar to remain strong and property values to decline. The exact opposite of what inflation would cause.
The reason for this is the common gold bug story that the Fed finances the USA gov debt by “creating electronic or printed currency”, then lending it to the USA gov at interest, is a lie. Bull shit, not how it happens. Easy to grasp and simple to explain with a cartoon, but totally false.
The USA gov debt is funded by selling bonds at auction. The need to sell bonds (to support higher spending ), draws money out of the economy (to pay the treasury to buy the bond). This raises interest rates, and has an anti inflationary effect. It is in fact the opposite of those stupid gold buggers who insist the Fed can just create money (that would bring on extreme inflation were it true), and loan it to the USA gov.
Because people with money (hint, understand the economy) don’t predict high inflation, real estate has lost it’s luster. That is what is at the root of the current credit crunch. Deflation, not inflation, Ron Paul is wrong again ! Just like I have been hearing from him since before Gilby was born.
I remember the 21 %/yr inflation we had at the end of the Carter administration. Oddly, he cut deficits, and ran a surplus in his final year. The inflation didn’t bother me much because I had a job. Deflation is much worse then inflation, as having the money that you aren’t earning go up in value doesn’t help workers. It is just much harder to find work, and they will pay you less.
If by well, you mean creating the largest two economic crisises ever, the Great Depression and the stagflation of the 70s, and the continual booms and busts that we have been going through. Or do you mean well, as in enabling the government to create lots of wars around the world, expand government and take our liberties?
Bankruptcies work quite well in other industries, why do you think it’d be different for banks?
Gold, silver… any asset really. Historically, gold and/or silver have been the index for transactions. Even Alan Greenspan says that a gold standard automatically does what the fed tries to do. It just contricted the government more than the pliticians would like.
Here is a great interview of him:
http://www.comedycentral.com/videos/index.jhtml?videoId=102970
Obviously you don’t just close down the fed and make their paper irredeemable. But you start by eliminating the sales and capital gains tax on monetary instruments and allow competition to take place. The market will end up standardizing it.
Clearly you have no clue what you’re talking about, but it’s because those who have studied Austrian economics know the problems caused by the manipulation of the money supply and all the malinvestment that results, that we recommend sound monetary policy which would use real assets instead of something manipulated and forced upon us.
With the Fed, you cannot predict what they will do or what politicians will do. In real terms, house prices will go down regardless of there being deflation or inflation of the money supply.
And you are missing the part about the treasury spending the money. The net effect being the same amount of money supply, but an increase in debt.
If the fed has a non-inflationary policy, it would increase rates, but it would not be anti-inflationary. If they kept rates low, then the Fed would end up buying more bonds via the FOMC and they would buy it by creating money. This money would go to the bank that would then leverage this new capital to create even more money.
How does the Fed buy bonds ?
By using money the Fed owns. Each member bank of the Fed, hundreds of them, are required to kick in 100 M $ more or less, depending on their size, into the Fed’s account. This entitles the bank to special “Fed shares”, that may not be sold or traded, like normal shares. By law, each member bank is paid a fixed 6 %/ yr. , on the dollar value of money it used to buy the shares.
The Fed does not create money. When it buys bonds, cash goes from the “Fed money account”, to who ever sold the bond. This has the effect of expanding the money supply for the whole economy. Conversely, falling stock prices, or the Fed selling some of it’s bonds, have the effect of reducing the overall economy’s money supply. At no part during this process does the Fed "create " money. If the expansion of the money supply by lending creates money, it also destroys it. As debts are paid off, written down, stocks go down in value etc. , trillions of dollars disappear from the economy.
Being run by bankers, the Fed has a tendency to buy low and sell high. After the member banks were paid their 6 % on their Fed share money, about 30 billion $ of profit was turned over to the USA treasury last year .
I will do a little research, see if I can find out how much money the Fed has.
In any event, the Fed only buys bonds with the finite amount of $ that is in the giant account that is created from the members "share cash ".
I guess what I am trying to say is the Fed buys bonds with capital raised from member banks capital. Were they actually able to "create " money to buy bonds, the system would be wildly inflationary. Instead, after the first "energy crisis " caused massive inflation , the country moved away from making electricity with oil, and switched to natural gas and coal.
So 30 years of rapid growth and low inflation go by , we have a second oil shock. This time, inflation may hit 10 %.
Last time, inflation hit 21 %. I was to spend the next decade or so trying to explain to people that Reaganomics didn’t beat inflation. The crash in world oil prices did.
Aside from greed, which I presume is a constant, isn’t our current problem a more or less direct result of lack of regulation on the existing financial system? Gilby’s arguments continually seem to state that the market will regulate itself. I don’t see this happening in the real world, not when there’s an incentive to make money by any means that are legal.
So what worries me about this current bailout plan, is putting it into effect without putting some regulation back on. This might include some things that are like deregulation, like possibly taking away the incentives for people to buy instead of rent. The logic for a homeowner of owning over renting will not go away, so why have financial imperatives to get people to buy? But if we just put a giant band-aid on the situation I worry we aren’t fixing anything and we’re just pushing the problems further into the future.
What caused the problem
Regulations for default credit swaps and all that stuff that was used to artificially make the assets appear more sound then they were, might help.
The root cause of 90 % of the problem is the decline in property values. The only real way to be sure borrows don’t dump their home on the bank as soon as values fall 20 %, is to make a law requiring a 25 % down payment.
A higher down payment will mean a lot fewer people will be able to bid on homes. It would do a lot to discourage speculation as well.
I can see why high down payments are politically unpopular. I bought my home in '94 with 10 % down. As long as people think prices will keep rising, they will see a 25 % down payment as unfair.
I am against the 700 B bailout, although it will almost surely pass. I don’t see it causing inflation. The recession , decline in stock prices, and write down in assets has already destroyed 2 or 3 Trillion dollars . If oil prices drop some, general inflation will be very low. Property values may drop another 20 % over the next couple years.
Interesting. You did get me thinking, though I could not confirm your claims, nor could I find evidence to contradict them (I didn’t have time to read the Federal Reserve Act as it currently is). So, my question to you is, if the fed had this money, presumably from the banks that are members, where did they initially get this money? What is a dollar anyways? If the system works where money is created from loans, but all that is remved through payment of those loans, then how is it that we have so much more money in the economy than we had decades ago? Where did all that new money come from?
What is the current system? It is a system where the government guarantees many aspects of the system. This causes those in the financial industry to do what they can to maximize profits within this system and therefore they manipulate those rules and regulations. When the government creates an entity that insures things like mortgage backed securities no matter what their actual long term viability is, you will have people take advantage of it. Further when you have a law that requires the banks to loan to those who otherwise would not be credit worthy, you will get bankers that have to make those loans, and given that these loans will be bought up and guaranteed by the government, there is no loss for the bank. So the real problem is that the environment of government backing made it profitable to be greedy.
The market will regulate itself, assuming it is actually left to the market. We did not have a market economy. Instead we had a system where the government incentivized certain activities. Obviously, that will be abused. No matter how many regulations you add onto these programs, there will be something that is overlooked… loopholes that will be abused and cause problems. So, yes, when the government is making handouts with their stolen loot, there will be a lack of regulations that prevent abuse.
Interesting. You did get me thinking, though I could not confirm your claims, nor could I find evidence to contradict them (I didn’t have time to read the Federal Reserve Act as it currently is). So, my question to you is, if the fed had this money, presumably from the banks that are members, where did they initially get this money? What is a dollar anyways? If the system works where money is created from loans, but all that is removed through payment of those loans, then how is it that we have so much more money in the economy than we had decades ago? Where did all that new money come from, if it was always there as you claim?
What is the current system? It is a system where the government guarantees many aspects of the system. This causes those in the financial industry to do what they can to maximize profits within this system and therefore they manipulate those rules and regulations. When the government creates an entity that insures things like mortgage backed securities no matter what their actual long term viability is, you will have people take advantage of it. Further, when you have a law that requires the banks to loan to those who otherwise would not be credit worthy, you will get bankers that have to make those loans, and given that these loans will be bought up and guaranteed by the government, there is no loss for the bank. So the real problem is that the environment of government backing made it very profitable to be greedy.
The market will regulate itself, assuming it is actually left to the market. We do not have a market economy. Instead we have a system where the government incentivizes certain activities. Obviously, that will be abused. No matter how many regulations you add on to these programs, there will be something that is overlooked… loopholes that will be abused and cause problems. So, yes, when the government is giving handouts with their stolen loot, there will be a lack of regulations that prevent abuse. The problem isn’t a lack of regulations, it is the fact that the government has this stolen loot to use to begin with and the ability to bail out the financial industry as it so pleases. If the government didn’t have the ability, nor the history of doing so, the banks would not have hung on so long with their bad assets. But with the known reality that the government will most likely bail them out, they hold on to these until they do get bailed out.
What would a free market system by like? Well, for banking, it’s really all about the contract you have with the bank. If your contract is that your assets are 100% there, then they should hold all that in the bank, without loaning any of that out. For that you will probably have to pay a fee. You will also have the option to have your funds in many different funds, similar to money market accounts, where they use the money you deposit and buy bonds. You’d get paid interest on that, but you assume the risk that the assets could go down in value. Basically, your deposit would be used to buy whatever funds you have your account set up to do based on the objectives you have set (long term v. short term). If you need short term security, you’ll hold it as the actual money, otherwise, you’ll likely buy other assets that accrue interest. The replacement for FDIC insurance, which is another handout from government that causes ill effects, would be private insurance. Most likely this will be a standard thing on your homeowners or renters insurance. Your insurance company would have rules as to what they will insure. In a sense, they are the ones regulating the banks, instead of government, as they will keep a check on your bank for solvency. They may choose to not insure deposits in some banks and change this according to the information they are able to get from each of the banks. In effect this will result in a natural pressure on the banks to not resort to fraudulent practices, as insurance companies will change their policies towards different banks according to the banks practices and effectively cause a “run on the bank” if the insurance company thinks a bank is not engaging in sound practices. Run on banks, and the threat of it, keep the banks honest.
There are advantages each way. As a homeowner, I can see many advantages that I miss out on that I would have if I rented instead.
Exactly. That’s what “modern banking” and our current political atmosphere causes. Instead of fixing the problem, they end up doing more of the same to make the bubble bigger. Eventually it’ll result in a problem that can’t be solved by expanding the bubble further. There won’t be money available anymore to the government without harsh consequences.
Surely there must be something that caused housing prices to decline recently? Right? Didn’t housing prices go up considerably more than usual in past years, you know, like a bubble? And now that bubble burst causing the prices to go down?
Would artificially low interest rates cause more people to buy homes with their cheap credit? Would the bankers be more willing to lend to less than credit worthy borrowers if they knew that they could then turn around and sell that mortgage to an organization that could insure it using government backing? Would that organization create programs that make it attractive to buy a home, such as having no money down, and other perks, if they were not the ones that took the hit because government backed it? Would bankers be more likely to lend to these people if they were required to by law as part of a Community Reinvestment program?
The question isn’t about having too much or too little regulation on these “programs”, but the question really should be whether government should be involved in such programs to begin with.
What the “Fed money” is
Quote:
Originally Posted by feel the light View Post
“By using money the Fed owns.”
“Interesting. You did get me thinking, though I could not confirm your claims, nor could I find evidence to contradict them (I didn’t have time to read the Federal Reserve Act as it currently is). So, my question to you is, if the fed had this money, presumably from the banks that are members, where did they initially get this money? What is a dollar anyways? If the system works where money is created from loans, but all that is removed through payment of those loans, then how is it that we have so much more money in the economy than we had decades ago? Where did all that new money come from, if it was always there as you claim?”- Gilby
Here is a quote from the link below, that explains the idea that there is a capital fund the Fed uses to buy bonds, and the special 6 % dividend Fed shares thing.
“The concept of “ownership” needs some explaining here, however. The member banks must by law invest 3 percent of their capital as stock in the Reserve Banks, and they cannot sell or trade their stock or even use that stock as collateral to borrow money. They do receive dividends of 6 percent per year from the Reserve Banks and get to elect each Reserve Bank’s board of directors.” - from this link
http://www.factcheck.org/askfactcheck/who_owns_the_federal_reserve_bank.html
That site says nothing of what you claimed. It only confirms that to become a member of the Federal Reserve that the banks buy it’s stock and get a guaranteed 6% dividend each year.
You claimed that the Fed does not create money to purchase securities, but uses only the money that the banks paid to buy the stock. That leaves the question on why there is inflation then. You failed to answer these questions:
- Where does the initial money in the system come from?
- What is a dollar?
- If the system works where money is created from loans, but all of that is removed through payment of those loans, then how is it that we have so much more money in the economy than we had decades ago?
- Where did all that new money come from, if it was always there as you claim?
“Where does the initial money in the system come from?”
At the beginning of the Fed, member banks bought shares. J P Morgon etc.
A dollar is a paper dollar, or a digit in an account on the Fed’s central server.
“If the system works where money is created from loans, but all of that is removed through repayment of those loans, then how is it that we have so much more money in the economy than we had decades ago?”
Because of growth in the GDP. People borrow new loans faster then old loans are being paid back. Thus new "money as debt ", is being created as fast as new assets are created.
“Where did all that new money come from, if it was always there as you claim?”
It wasn’t always there. Let me use an example to show how new capital is grown in the system.
Let’s say I have a construction company. I take 8 million in materials, hire 2 million dollars of labor, and build a bridge for a AAA city in a year. They issue a bond that pays 7 % on 15 million dollars and pay me . 5 million $ has been created, along with a bridge.
Now the Fed takes capital from it’s account, and injects it into the economy by buying that bond. The Fed pays member banks 6 % for the use of their share capital, while the Fed collects 7 % on the bond. They may hold it to maturity, or sell it if they want to suck some money out of the economy, as bankers must have low inflation to profit. For instance, in this case, an 8 % inflation rate would mean the Fed is losing value over time on it’s bond holdings (which are extensive).
Why is there any inflation ? Well, 5 million dollars was created in the economy, along with that bridge. Yet no one buys the bridge, they all get to cross it for free. But the money the workers earned building it, they will use to buy the same limited supply of consumer items, bidding them up in price.
Basically, when the government adds borrowed $ into the economy, 20 billion a year, as salaries to road workers, then doesn’t sell the road, it has an inflationary pressure similar to if we had paid them with counterfeit funds. We are giving them money to create something no one buys. So that money leads to inflation in the prices of things people do buy.
Where did the extra 5 million come from to pay you? The AAA city didn’t create more, and your claim is that the fed doesn’t create this money as they are using capital they already have, so where does it come from?
The extra 5 million in value came from the workers, who turned a year of their time, and 8 million dollars, into a 15 million $ bridge.
The AAA (bond rating) city cannot create money. However, they don’t need a cent in their account to issue a 15 million dollar bond. I mean, if they had 15 million dollars extra in their account, why would they borrow money ? Bonds are a way of creating value out of a promise to pay (a debt asset).
The Fed may perhaps buy this bond and hold it for a while. They do this by transferring money from the Fed account, to who ever sold them the bond. The profits the Fed earns from bond deals are turned over to the USA gov account. About 30 B $ last year.
Because banking is profitable, the member banks capital rises. Because 3 % of this ever increasing capital is invested as Fed shares, the amount of "Fed share money " that the Fed bankers can play with increases along with the size of the economy.
No is isn’t, that’s maybe the root symptom though. One part of the root cause is the assumption that property values will always go up. They don’t. Another is taking advantage of at-risk borrowers by convincing them they can afford more than they can. There’s more to it than that though, and if it’s not addressed, I think we won’t be out of the woods for a long time…
Gilby, you responded as I expected you would. True freedom to self-regulate will stop Wall Street (or anyone else) from being greedy, right? But power still corrupts…
I understand how wealth is created. That’s not synonymous with creating more dollars though. You’re claim was that the fed does not create money to buy the bonds, yet in your example, somehow we got 5 million more dollars in the system.
How the 5 million $ is created
Let’s leave the Fed out of it, they aren’t needed to create "debt money ".
A pension fund takes 15 million $ it won’t need for 20 years, and buys the bridge bond. Because it collects money for 20 years before it pays out of the pension fund, the numbers work out fine. Even though the pension money is not in their account (it is out in the economy being spent by me and my bridge builders, or put in savings accounts etc., to be lent out again etc.), it is still considered real money as far as the pension fund planner is concerned. He doesn’t say " I just blew 15 million “, but rather,” I purchased an investment."
So the process that turns solid credit into a bond, into cash in the economy does not require the Fed’s involvement at all. All it takes is time, asset creation, and trust that debts will be paid in time-money.
It is important to see the member banks as competitors, and the Fed as a non profit service bank. Only 3 % of the member bank’s capital is tied up in Fed operations. They make most of their money elsewhere, not from the 6 % interest the Fed pays them on 3 % of their capital.
There is nothing wrong with greed. Only fraudulent actions are a problem. True freedom is not without law. You cannot infringe on other people’s freedom. True freedom includes not to have your life, liberty or property taken away from you.
Freedom is where each person has their own power over them self. In other words, power is distributed the most and not centralized to a government.
Now, how would a free market work on wall street? Well, you’d have many different exchanges, and the exchanges are going to have regulations that tries to maximize the benefits for the shareholders who buy the stocks and the companies that are on that exchange. To attract capital, they will have to have regulations that benefit those buying the stocks, or the investment money will go elsewhere. Of course the more capital that can be attracted will result in the companies benefiting when they go public or seek new capital.
You won’t run into the moral hazard that is so prevalent in our system now because you do not have the government bailout option, so a company is not going to drag their feet as long when things go wrong… especially when it is a market wide problem caused by government.
In your example, there is not money creation. There is $15 million circulating in the economy at the beginning (initially in the pension fund), and $15 million circulating after they buy the bond. When the pension fund buys the bond, they don’t have $15 million, they have a bond.
So, the question is how does the fed create money. There is a heck of a lot more dollars in the system today than there was decades ago. How did that get created? It had to be created somehow. My explanation is that the Fed buys bonds with newly printed federal reserve notes, or their digital equivalent.
Please try to get over the myth that the Fed creates money. You can not provide any links to support this concept. I know, because I have been trying to find them.
In the pension example, forget that 15 million dollars is “technically” in circulation. It is not if it’s just sitting there. As pension manager, I must buy that bond (really putting that capital back in circulation), effectively creating “freed money”. I say freed rather then free, it is free for someone else to own for 20 years,free in the economy , but we believe we will be paid well for this in 20 years. Trust is everything. Through the trust-time-loan-asset creation process, new capital is created. There is no hocus pocus involved. Assets are created by work that replaces borrowed capital over time. Time is the element that makes the books balance. Think of it as money-time, that is what the bankers have to sell. A lot of value can be created in 20 years. Value is what counts, the dollar is just a unit to represent it.
It is not simple to point to the creation of the dollar. Was it the time sweating making the bridge?, or the improved profits of the citizens who don’t lose so many coins out of their pockets now that they don’t have to swim across the river ?
If I had to pin point the instance of money creation, I think it comes when I take the 15 million $ I got for building the bridge, and start spending it to build the next bridge. Maybe with a loan from a banker who is impressed with my bridge building.
So where does the “new” capital come from ? Time and work mostly. And in case you haven’t noticed, your death would “free up” your possessions and money into the general economy. The sales of estates, plus the value of " the bridge we built", is what makes the economy expand. That is capital.