greyangelus
Posts: 192
Joined: 1/22/2008
Status: offline
|
I've been reading aa rather fascinating book on this very subject tonight, "Creature of Jekyll Island" by G. Edward Griffin. Its long and extremely lenghty and I'm not going to even into depth of it, but here's the short, short version.
The frist thing you must understand is that the economy of our nation is run using what is called "fractional-reserve banking". This system of banking is what every single bank in the US uses, as well as pretty much the rest of the world. "Fractional-reserve" currency (such as the US dollar) is a specific kind of money and medium of exchange, of which there are basically 5 types
-Barter ( 2 people agreeing to exchange good and services based on their perception of value for said goods)
-Commodity ( Gold and silver coinage, although lots of other things has been used, cigarettes included)
-Recipt ( Paper issued in lieu of a commodity, mainly for convience reasons, with the quantity of paper issued dependent on the amount of said commodity)
-Fiat ( currency issued by decree, the only worth of which is the full faith and belief of the issuer )
.... and "fractional-reserve". Fractional-reserve money is the transition from a receipt based money (where the quantity of paper is backed 100% by a commodity) and fiat money (where the quantity of paper is backed by 0% of anything ).
In reciept based economy, when a bank has X amount of deposits (called "assets"), it can then lend out a Y amount of money ( debt in other words, but called "liabilities" ) up to BUT NOT over X. So in essence, the X > Y ratio must be kept to ensure that 100% percent of liabilites can be covered by assets.
In a Fiat based economy, Y is the amount created from "thin air" by the issuing institution simply decreeing as such ( Fiat in Latin means "let it be done"). Since the money is created from nothing, Y can expand at an exponential rate, with no X to back it up.
Fractional-reserve money is the split difference between these two forms. In fractional-banking, bank the equation reads X/A = Y. The A is the percentage of reserves that must be kept relative to the amount of Y. In real numbers and assuming A is 10%, X is equal to 10$ and Y is equal to 100$. This percentage is hypothetical, it can go anywhere from 99% to 0.0001%, depending on who has the authority to set the percentage (In our case Congress.)
What the hell this all has to to with the economy.
This is where it gets even more complicated, even more than my supposedly short, short version, but I'll try to keep it brief. From 1913 (the year the Federal Reserve Sytem was created) until 1973 (the year the dollar was completely removed from the gold standard), the supply of dollars was increased, with no equivalent increase in the amount of commodity used to back those dollars. The supply of dollars was increased by lowering the percentage of assets banks were required to keep. Here's where it gets sticky. If you increase the amount of dollars in circulation, but there is no increase in the amount of goods to buy with those dollars, what happens to the price of said goods? Simple math says the price goes up, in other words, "Inflation". This type of inflation is "devaluation" ( which is a lowering of the purchasing power of the currency, purchasing power meaning value ). In order to prevent "hyperinflation" (where the money begins to devalue exponentilly), the money supply must be contracted.
In 1973, the dollar went completely off any commodity standard and became a fiat currency, which is what its been ever since. Since the value of fiat currency is in direct proportion to its amount in circulation (the more there is, the less it is worth), the value of the dollar continues to drop. The only wayto hold stable this value is to increase the amount of people using this dollar, which is how the dollar became the worlds reserve currency (through the transaction of oil purchases using OPEC ). The housing bubble going poof ( see Bear Stearns mortgage collapses this summer ) may jsut be the final straw. Since our government works on debt, there must be something into which to plow this debt, and we're just about tapped out on things to plow it into.
The solution to basically fixing the economy is basically simple (keeping in mind the truism "the simplest things are often the hardest ones to do. )
1. The US fed must take stock of how much gold/silver or other commodity is has in hand ( gold and silver have been used historically because time does relatively little to the amount and value of the metal )
2. Congress must pass a bill setting forth a time at which all dollars currently in circulation will be packed by gold/silver ( Fiat by reverse, as actually collecting all dollars in circulation and issuing new gold/backed money would be logistically and financially impossible). Basically, 1$ in Federal Reserve notes is now worth 1$ in new 100% gold-backed notes.
3. Dissolve the Federal Reserve Board and amend the bill of rights to close forever the door for fiat and fractional-reserve banking (fairly easy there, it merely requires saying that all legal tender accepted by the federal government must be 100% commodity backed, using the congressional power to regulate the value of money to define what and how much that commodity is).
Those are the easy parts. The next 2 parts are what the Federal Board Sytem and the banks have been preventing from happening since 1913, using fractional-reserve and fiat banking.
3. The Fed must actually balance its books. With the free fiat money gone for good, a serious re-evalution of what the Fed does with money, with some extremely far-reaching consequences, especially in the areas of foriegn policy and defense.
4. LET THE BANKS FAIL. A very HUGE amount of what has created this montrosity of economy is that with the current system is that the major banks will NEVER go bankrupt. The Fed was designed to prevent this from happening from its very inception, using a "bailout" of the involved banks using T-bonds (which is basically money you and I have to pay back at some point). Go look up the term "moral hazard" as the term applies to finance. The very existence of the Fed (and FDIC and a host of other federal organizations) is what allows the major banks to operate in "moral hazard" with impunity. The mortgage crisis is not really a crisis for the major players, as the Fed was designed to insulate the banks from any losses from exactly this sort of crisis.
|
RE: Should the U.S. claim Bankruptcy? - 
Profile
New Messages
No New Messages
Hot Topic w/ New Messages
Hot Topic w/o New Messages
Locked w/ New Messages
Locked w/o New Messages
Post New Thread