Article

2010-11-15 Economy

Ron Paul to become one of Bernanke's bosses; wants to abolish the fed and return to gold standard

Archived material is restricted to Rantburg regulars and members. If you need access email fred.pruitt=at=gmail.com with your nick to be added to the members list. There is no charge to join Rantburg as a member.

Posted by gorb 2010-11-15 00:06|| || Front Page|| [5 views ] Top

#1 "Paul argues the Fed is making a serious mistake by pumping more money into the economy to try to spur more spending and growth. He predicts it will only lead to further declines in value of the dollar, inflation and higher interest rates rather than the lower rates the Fed is shooting for."

Well, the gold standard isn't feasable but he's right on QE

Posted by European Conservative 2010-11-15 00:30|| 2010-11-15 00:30|| Front Page Top

#2 From the actual website of the Federal Reserve:
Today, the Federal Reserve's duties fall into four general areas:

[1] conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates FAIL
[2] supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers FAIL
[3] maintaining the stability of the financial system and containing systemic risk that may arise in financial markets FAIL
[4] providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

Posted by Anguper Hupomosing9418 2010-11-15 01:24|| 2010-11-15 01:24|| Front Page Top

#3 Even if the Gold Standard were feasible it would solve nothing.
All of the US financial crises through 1933 happened while the US WAS on the Gold Standard. Fat lot of good was that standard.

Posted by Anguper Hupomosing9418 2010-11-15 01:42|| 2010-11-15 01:42|| Front Page Top

Note that the Fed makes all Treasury purchases through Goldman S. with fees instead of directly from Treasury.

Posted by Water Modem 2010-11-15 01:58|| 2010-11-15 01:58|| Front Page Top

#5 of course they do. most of the fed bigwigs are GS guys.

Posted by abu do you love 2010-11-15 02:11|| 2010-11-15 02:11|| Front Page Top

#6 The gold standard is an absolutely idiotic proposal. There is a reason why it has never worked. First of all, the US is not anywhere near the primary producer of gold. If you are on the gold standard, a country that produces a lot of gold can manipulate your currency value by manipulating the price of gold through either flooding the market or withholding gold from the market.

Secondly, your economy can only expand at the rate that your gold reserves do. If your reserves don't expand, you can not expand your economy. If I put a dollar in the bank, the bank can not lend that dollar out until another dollar's worth of gold is obtained. Otherwise, there will be two dollars in circulation backed by the same $1 of gold.

Lets say I put a dollar in the bank. The bank lends it to Bill who buys a shovel from Bob. Bob puts that dollar in the bank. Now that same dollar is in two different banks. With a gold standard, that dollar I put in the bank could not be lent until another dollar's worth of gold is obtained.

US Gold reserves are currently 8965.65 tons (or 26,1498,128) ounces and is valued at $358.63 billion. M2 money supply is currently at 871,280,000,000 dollars. In order to simply back M2, the dollar would have to be fixed at over $3000 dollars/ounce. To give some "breathing room" it would have to be valued at $4000 per ounce if we wanted to allow our money supply to grow.

How do you propose that we get the world price of gold up to $4000? We could devalue the hell out of our currency and inflate the economy by nearly 400 percent or we could try to "corner the market" in gold.

The gold standard fell apart once South Africa became the world's largest gold producer and could manipulate the global price of gold. We were able to "ignore" Russian gold production because after WWII their economy was segregated from the rest of the world. That isn't true anymore. The US also had the world's largest gold reserves at that time.

The US is currently the 4th largest gold producer, behind South Africa, China and Australia. To go on the gold standard, we would have to prevent Americans from owning gold again and every ounce produced in the United States would have to go to the US treasury.

Where is the government going to get the money to buy that gold?

The US production currently is only 10% of global production.

Oops, that 8965 tons was old data. As of September 2010, the US reserves are down to 8133.5 tons, about 10% less than we had in 2008.

It is an emotionally appealing idea but idiotic in the logical sense. It can not be done.

2009 world gold production (newer data than that above)

1. China: 313.98 mt
2. Australia: 227.00 mt
3. United States: 216.00 mt
4. South Africa: 204.92 mt
5. Russia: 205.00 mt

China produces about 30% more gold than the US does. China will be able to control the dollar and there wouldn't be a damned thing we could do about it.

Posted by crosspatch 2010-11-15 03:11|| 2010-11-15 03:11|| Front Page Top

#7 Note that there was a relatively painless way the US could have prevented all of this. This started when the Fed needed to raise interest rates to protect the dollar. When that happened, variable interest rate mortgages adjusted. Sub-prime borrowers who could barely afford their mortgages as it was began to default when the loan payments adjusted upwards.

What the government COULD have done with the amount set aside for TARP was to buy those adjustable rate mortgages from the lenders, convert them to fixed rate mortgages, hold them for enough time to pay back any capital forgiveness than needed to happen to make those payments affordable, and then sell them back on the free market as fixed rate mortgages.

This would have stopped the flood of defaults, would have stopped the plunge in housing prices from the foreclosures flooding the market and stabilized the mortgage industry.

What they can do now is pretty simple. Start demolishing foreclosed properties and put the resulting property up for sale as a building lot. This will remove the excess inventory putting supply pressure on prices. The resulting sale of the building lot will not go against the median home price because a home is not being sold.

Any home over 10 years old in foreclosure should be razed. This will put a solid floor under housing prices as the supply of units on the market declines. It will stop the hemorrhaging.

Instead, what the Fed is trying to do is inflate the economy so that all those mortgages are again "above water" but because the people in them will also see all the rest of their expenses increase, they won't have any easier time making the payments than they do now.

This is the most idotic administration in history.

Posted by crosspatch 2010-11-15 03:23|| 2010-11-15 03:23|| Front Page Top

#8 The gold standard is an absolutely idiotic proposal
Well there are gold standards and gold standards and then there is the classic gold standard which was in force between 1880 and 1914.

Posted by tipper 2010-11-15 03:42|| 2010-11-15 03:42|| Front Page Top

#9 During that period of the Classic Gold Standard, the great Panics of 1893 and 1907 happened. That last Panic directly led to the creation of the Federal Reserve.

Posted by Anguper Hupomosing9418 2010-11-15 03:48|| 2010-11-15 03:48|| Front Page Top

#10 Yup, that one lasted exactly 34 year before it blew up. It doesn't work. We were a huge gold producer in global terms in 1880. The California and Klondike gold fields were in production during those times.

Posted by crosspatch 2010-11-15 03:51|| 2010-11-15 03:51|| Front Page Top

#11 The "Classic Gold Standard" applied to the British Empire. The US was a parochial side show back then.

Posted by tipper 2010-11-15 05:24|| 2010-11-15 05:24|| Front Page Top

#12 Ceosspatch,
You said, Any home over 10 years old in foreclosure should be razed.
Ummm, that will only raise home prices into the stratosphere, they're effectively unafordable now, your Plan would make home ownership Damn near impossible and cause a rift in civilization, where only a new Uber wealthy class could be home owners, and the rest of us would have to eiher rent, Squat, or live in our cars.
BAD, BAD, idea

Posted by Redneck Jim 2010-11-15 07:58|| 2010-11-15 07:58|| Front Page Top

#13 What the vid in #4 missed is that one major element in the economy is deflating. That is housing which is falling from artificially high prices created by speculation. The banks who own so much of the paper are in danger of outright insolvency. The Fed is trying to rescue those banks by inflation the economy to cover their situation. That means you, me and everyone else is being sacrificed for the bankers. The economic history of this country is rife with cyclic recessions, depressions, panics. Banks have come and gone through those years. However, this is an extraordinary act on behalf of, unfortunately, a business that has agents throughout the very mechanisms of government that are suppose to protect everyone's interests.

As for buying bonds from the Treasury, it makes no sense since the objective is to put cash in various forms into circulation. Purchasing bonds from the Treasury won't do that cause the money stays in the Treasury. However, by buying from the usual suspect, all the Fed is doing is not putting money into creating industry or productive jobs, but into the same speculative market that generated the dotcom and housing bubbles.

Posted by Procopius2k 2010-11-15 09:03|| 2010-11-15 09:03|| Front Page Top

#14 As for buying bonds from the Treasury, it makes no sense since the objective is to put cash in various forms into circulation. Purchasing bonds from the Treasury won't do that cause the money stays in the Treasury.

What is the usual suspect using to compensate the Treasury for the newly issued bonds they're flipping to the Fed? Cash goes to the Treasury every time (sort of the point of a bond issue, no?) whether the Fed buys newly minted bonds directly or whether the usual suspect gets a cut on the flip.

Posted by AzCat 2010-11-15 12:15|| 2010-11-15 12:15|| Front Page Top

#15 "Ummm, that will only raise home prices into the stratosphere"

In the places where foreclosures are hitting hardest, it would *not* drive prices into the stratosphere, it would simply stabilize prices. Also, the building lots would encourage new home construction so the inventory of houses would recover. It doesn't permanently remove anything from the market, it simply removes the oldest housing.

Have you seen home prices for places like Watsonville, California? They are still dropping.

A friend's neighbor bought their house for $600,000 three years ago. It sold in foreclosure for $230,000 last month.

What is causing all this problem is that the mortgage companies are holding a lot of mortgages where the underlying home is worth only half the mortgage or less.

Inflating the economy is going to make housing prices skyrocket.

Posted by crosspatch 2010-11-15 12:42|| 2010-11-15 12:42|| Front Page Top

#16 Inflating the economy is going to make housing prices skyrocket

Not if you look at it in present value.

Housing prices are out of balance. They demand to come down and we had better get the fuc& out of the way if we don't want to be steamrolled.

Posted by gorb 2010-11-15 12:50|| 2010-11-15 12:50|| Front Page Top

#17 The major problem is that inflating the economy is a systemic fix for what is really regional problems. For example, Kansas and Nebraska haven't seen NEARLY the problems that California, Nevada, and Arizona have.

If you simply raze the houses in the areas where there is a problem, then you fix the problem in those areas without "fixing" a problem that doesn't exist in other ares where there aren't a deluge of foreclosures and where homes are holding their value.

For example, there has been absolutely no crash in home prices in Wichita, KS. I have picked about a half-dozen homes for sale on Zillow.

Now look at a town like Watsonville, CA or Henderson, NV where housing values are currently half of their last selling price in many cases.

You raze the home, sell a building lot, the sale does not cause a reduction in the "median home price" further depressing housing values in the region. And whoever buys it builds a house employing people.

Posted by crosspatch 2010-11-15 13:48|| 2010-11-15 13:48|| Front Page Top

#18 And whoever buys it builds a house employing people.

Ah yes, the "Broken Windows" theory of economic growth in which we simply employ public sector force to destroy private sector assets thereby forcing the private sector to reconstitute said assets. Clearly if we want to generate real wealth what we need to do is employ a few million browshirts to burn out cities to the ground! Imminently sensible.

Posted by AzCat 2010-11-15 14:10|| 2010-11-15 14:10|| Front Page Top

#19 The banks who own so much of the paper are in danger of outright insolvency.
Those banks you refer to have been insolvent since about 2008. The bailouts have largely been dedicated to papering over that most inconvenient fact.
That means you, me and everyone else is being sacrificed for the bankers. The awareness of this sacrifice seems to be spreading among the electorate. I believe it is the underlying source of the anger motivating the Tea Party. The bailouts, QE 1+2, and the other gov't sponsored financial shenanigans amount to an illegal taxation of the people, who are beginning to awake to this.

Posted by Anguper Hupomosing9418 2010-11-15 15:13|| 2010-11-15 15:13|| Front Page Top

#20 How Rube Goldberg designed a typical family mortgage.

Posted by tipper 2010-11-15 17:12|| 2010-11-15 17:12|| Front Page Top

#21 >Any home over 10 years old in foreclosure should be razed.

I think people can google the parable of the broken window (it's false).

Posted by Bright Pebbles 2010-11-15 17:50|| 2010-11-15 17:50|| Front Page Top

#22 At a minimum, audit the fed and put it on a VERY short leash - make it far more transparent and accountable.

Posted by OldSpook 2010-11-15 20:02|| 2010-11-15 20:02|| Front Page Top

#23 The banks were insolvent a long time prior to 2008.

The housing ponzi scheme just looked sustainable, as do all ponzi schemes. Ask Bernie Madoff.

And as for razing houses. That would be other peoples houses, subsidized with other peoples money.

Posted by phil_b 2010-11-15 20:16|| 2010-11-15 20:16|| Front Page Top

23:20 DarthVader
23:09 Dinah Kanser
22:58 JosephMendiola
22:51 JosephMendiola
22:42 M. Murcek
22:41 gorb
22:37 gorb
22:34 JosephMendiola
22:19 M. Murcek
22:17 JosephMendiola
21:56 rammer
21:52 Vespasian Smith 8945
21:39 Pappy
21:32 Pappy
21:22 Pappy
20:33 badanov
20:30 badanov
20:16 phil_b
20:13 Frank G
20:12 Glenmore
20:02 OldSpook
20:01 OldSpook
19:53 Besoeker
19:40 Procopius2k