Fiat Money

I was not surprised to hear that Ben S. Bernanke advanced to head of the Federal Reserve Board with little fanfare earlier this week. Dubbed the Prince of Paper because of his suggestion that the the US could simply print its way out of economic troubles (a frightening idea to anybody who understands money) I expect that he will continue in the footsteps of those who have lead the Fed before him. This might come as a surprise to most people out there, but this won’t be good for the country.

With the national debt now over 8 trillion dollars, 4 trillion of it being held in private hands (which means we pay interest on that portion of the debt) The question really becomes “why are we paying others to carry debt that we owe ourselves?”

I was listening to a local talk show host, Patrick Timpone, recently; and heard excellent idea from the guest. Didn’t catch who he was (don’t think I heard his name) but his argument amounted to “…if we are going to endorse the fiat money system as the way to do money in the modern age, then we need to make sure that the citizens of the US are the ones who profit from the use of our money, not the banks and individuals who own the debt.” The treasury should take back the ability to print money (this will require a constitutional amendment) and simply print the money it needs itself. Any subsequent benefit to the debt’s existence would accrue to the Americans to whom the debt is owed.

Maybe the way to make money more elastic (without engaging in inflationary money printing ventures like the Paper Prince will embark on) is to adopt a system like the Ripple or Cyclos monetary systems, allowing us to privately monetize ourselves what we currently have to go to the banks for.

Something to think about. But I’d still prefer to have the silver in my hand rather than any IOU, even if that IOU is backed by the full faith and credit of the United States.

A friend of mine dropped me a note the other day commenting on my light handed touch on the subject of the Fed, Bernanke and Bush in this article. He sent me a link to his site where the subject is discussed at much greater length as a representation of what a proper beating should read like.

Clearly, a lot more work went into his article than into mine, but I like to go for the quick jabs and then get out of there. Hanging around debating the subject just gives them more of a chance to nail you in return. It’s like boxing, but without the bruises and daim branage.

For those who don’t want to wade through the lengthy dispatch, the three paragraphs concerning Bernanke are pasted below (along with the references) Like I said, much more work:

Dubya has nominated economist Ben Bernanke to be the new chairman of the Federal Reserve System.[25] If the Senate confirms Bernanke, he’ll replace Alan Greenspan, who, sadly, is the best we can ever hope for as Fed chairman.[26] Anyone better would push to abolish the organization, which was established in 1913, ostensibly to eliminate monetary boom-bust whipsaws in the economy.[27]

Since then, the Fed’s presided over recessions or depressions in 1918-19, 1920-21,[28] 1923-24, 1926-27,[29] 1929-42,[30] 1945, 1948-49, 1953-54, 1957-58, 1960-61,[31] 1969-70,[32] 1973-75,[33] 1980,[34] 1981-82,[35] 1990-91, and 2001. Those are just the official dates from the National Bureau of Economic Research. Sometimes the malaise lingers after. In between these contractions, the Fed’s given us inflation, most notoriously from the early 1960s to the early 1980s.[36] Sometimes we get both, as in the stagflation of the 1930s [37] and the 1970s through the early ‘80s.[38] Today each basic Federal Reserve Note, a.k.a., “a dollar,” buys about 4 cents worth of goods or services.[39]

Greenspan actually knows better.[40] To be charitable, he may have been constrained as chairman from making necessary but radical changes for the better, because doing so entailed more clout than he possessed, or because he couldn’t impose changes without creating adverse effects elsewhere. Bernanke, however, is on record that fiat currency can create prosperity, and that the Fed won’t permit deflation.[41]

25 Andrews, Edmund L. et al. “At the Fed, an Unknown Became a Safe Choice.” New York Times 26 Oct. 2005: A1+.
26 Mayer, Martin. The Fed: The Inside Story of How the World’s Most Powerful Financial Institution Drives Markets. New York City: The Free Press, 2001; Woodward, Bob. Maestro: Alan Greenspan and the American Economy. New York City: Simon & Schuster, 2001.
27 Greider, William. Secrets of the Temple: How the Federal Reserve Runs the Country. New York City, 1987: 268-284; Rothbard, Murray N. A History of Money and Banking in the United States: The Colonial Era to World War II. Auburn, Ala.: Ludwig von Mises Institute, 2002: Pt. 2.
28 Greider, op. cit., 289-291; Rothbard, History of Money and Banking, op. cit., 272-273.
29 Greider, op. cit., 293.
30 Greider, idem., Ch. 10; Rothbard. America’s Great Depression, 5th ed., Auburn, Ala.: Mises Institute, 2000: Ch. 8-12.
31 Greider, op. cit., 329.
32 Ibid., 334.
33 Ibid., 344-346.
34 Greider, op. cit., 206-207; Schulman, Bruce J. The Seventies: The Great Shift in American Culture, Society, and Politics. New York City: The Free Press, 2001: 142.
35 Greider, op. cit., Ch. 12-13; Schulman, op. cit., 218-219.
36 Frum, David. How We Got Here: The 70’s – The Decade that Brought You Modern Life – For Better or Worse. New York City: Basic Books, 2000: 293-294, 296; Greider, op. cit., Ch. 1, 3, 6; Nocera, Joseph. A Piece of the Action: How the Middle Class Joined the Money Class. New York City: Simon & Schuster, 1994: 76-83, 167-190; Rothbard. What Has Government Done to Our Money? 4th ed. Auburn, Ala. The Ludwig von Mises Institute, 1990: 51, 54.
37 Rothbard. The Mystery of Banking. New York City: Richardson & Snyder, 1983: 251.
38 Nocera, op. cit., 183; Schulman, op. cit., 129-143, 210.
39 Thornton, Mark. “The Continuing Bull Market in Gold: How High Can It Go?” Speech. Mises Institute conference, Austrian Economics and Financial Markets. Las Vegas, 19 Feb. 2005.
40 Greenspan, Alan. “Gold and Economic Freedom.” 1966. Rpt. Rand, Ayn et al. Capitalism: The Unknown Ideal. New American Library, 1967: 96-101.
41 Bernanke, Ben. “Deflation: Making Sure ‘It’ Doesn’t Happen Here.” Speech. National Economists Club. Washington, D.C. 21 Nov. 2002; Bernanke. Essays on the Great Depression. Princenton, N.J.: Princeton UP, 2000: Ch. 1.

The national debt is a virtually meaningless number. It took me ages to figure that one out. The number is meaningless because we, the government, back the money system. The only way it fails is if we fail to continue to support the system into the future. Should we limit spending to things that seem reasonable? Certainly. Define reasonable in a country as large and influential as the United States is.

Author: RAnthony

I'm a freethinking, unapologetic liberal. I'm a former CAD guru with an architectural fetish. I'm a happily married father. I'm also a disabled Meniere's sufferer.

Attacks on arguments offered are appreciated and awaited. Attacks on the author will be deleted.

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