[ExI] Fwd: My Answer to the President (from Ron Paul)

Stathis Papaioannou stathisp at gmail.com
Sat Sep 27 01:01:54 UTC 2008


2008/9/27 Lee Corbin <lcorbin at rawbw.com>:

> It's politically too difficult to have recessions or slowdowns
> any time, given people's obvious experiences: when there is
> a slowdown or a recession, some people get laid off as its
> clear to their companies that profits are not being made.
> Also, people sell off suspicious looking stocks, and the
> stock market falls a little (in accordance to how much it
> really ought to go down).

The Federal Reserve is supposed to be immune to political expediency,
although I suppose that's like expecting the courts to be genuinely
independent from government.

> Why was government backing introduced? For exactly
> the same reason that permeates so many of our discussion.
> A yearning for complete security.

No, I think that's wrong. Central bank backing of commercial bank
deposits was introduced in order to facilitate business activity. The
central bank has a contract with the commercial bank: We'll guarantee
your customers' deposits if you can demonstrate that you can keep to
certain prudential standards. As a result, people will have confidence
in your institution and will leave their money with you for long
periods at low interest, helping you to make more profit and
facilitating business activity. If you fail, your shareholders' assets
will be mercilessly liquidated to pay the depositors, and we will make
up any shortfall - but we will watch you very closely to make sure you
don't fail. If you don't agree to these rules you can still function
as a financial institution, but you won't have our guarantee.



-- 
Stathis Papaioannou



More information about the extropy-chat mailing list