Greekfire, let me know when you get to the chapter-
The Origins Of The Federal Reserve from Rothbards book “A History of Money and Banking in the United States”.
Our nations history shows that the federal government cannot behave responsibly with money.
Bretton Woods was actually an in-the-middle approach agreed upon by the victorious allies after World War 2. In this, the US dollar was used as a “reserve” currency by the foreign central banks in which they could pyramid their own currencies. And unlike the previous gold standard, only central banks can exchange paper dollars for gold. To make way for this new “gold exchange” system, FDR had Fort Knox built to store the peoples confiscated gold. For their own good no doubt. Influenced by Keynesian economics, the US proceeded to print away while countries such as West Germany, France, Italy and Switzerland began to achieve prosperity without as much printing. The dollar became overvalued in relation to gold and increasingly overvalued against other currencies. The result was chronic and continuing deficit in the American balance of payments from the early 1950s on. This drained the gold out of the country as foreign central banks continued to exchange their paper dollars for gold,
until Nixon finally “freed” the dollar from gold and broke our agreement. Gold was not the cause of the breakdown, it was the the federal governments deep desire to have the ability to spend as it wish without the irritating process of collecting taxes.
Economists say prices are determined by supply and demand in the freemarket. So then the price of borrowing money (interest rates) should be determined by the supply of loanable money, correct?
In other words, if the supply of savings are scarce,
then rates should be high to reflect the scarcity.
This is no arbitrary price(the rate) because this is
the consumers preference with regards to their money. If they want to save more and spend less this month, supply of savings would be up and rates down. The entrepreneurs follow the consumers preference and makes production plans accordingly.
The planners ignore this important price signal and routinely pump bank reserves to force the rates down.
The system gets flooded with new money and sometimes
creates unsustainable production and employment. Unsustainable because since there were no real savings in the first place, so the consumption only continue as long as the money spigot is open.
The bust arrives once the planners decide it is now time to drain bank reserves and force rates upwards.
Now that’s some economic belief system.
Everyone including
the planners blame the malaise on everything else but their own actions. Just turn the TV on and listen.
