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

Lee Corbin lcorbin at rawbw.com
Sun Sep 28 14:06:58 UTC 2008


Stathis writes

> Lee Corbin wrote:
> 
>> 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.

Right. Should they take unpopular measures, many in
Congress would have their heads. It's a very tough
position they're in.

>> 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.

Your last statement, about the guarantee, arose from 
http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation

    The Federal Deposit Insurance Corporation (FDIC) is a United States
    government corporation created by the Glass-Steagall Act of 1933. It
    provides deposit insurance which guarantees the safety of checking and
    savings deposits in member banks, currently up to $100,000 per depositor
    per bank. The vast number of bank failures in the Great Depression spurred
    the United States Congress to create an institution to guarantee deposits
    held by commercial banks, inspired by the Commonwealth of Massachusetts and
    its Depositors Insurance Fund (DIF).

But the evils of fractional reserve banking---which do your former
function---to "facilitate business activity" was introduced long, long
before. Basically the system was set up so that the bankers and
their cronies got their hands first on new hot money and got to
do something with it, before its inflationary effects set in. In a
nutshell, the public is systematically soaked, defrauded that is,
by the unbridled introduction of new money. Now this isn't all
bad IMO, because an expanding economy needs more money,
and this function could (and should have) replaced taxation.

But the greed of governments is no different from the greed of
people. It's just that with their fiat currency and the power of
the state, the former is far worse than the latter.

> 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.

All very noble and good sounding in theory. The reality is
quite different. They don't "mercilessly liquidate" failing
institutions (consider the current situations). The root
cause of the problem is fractional reserve banking, which
artificially creates wealth not backed by anything, where
I walk down the street confident that I have $10,000
and I pass someone else under the same illusion, when
it turns out the bank has just lent my money to him.

Lee




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