Government Gone Wild! The Problem with a Central Bank

Barack Obama’s tax advisers recently posted a piece in the Wall Street Journal about their candidate’s tax plans. Their article was designed to triangulate, painting their candidate as a tax cutter and the Republican opposition as a secret tax raiser. It was well-written and well-argued — not that you can really trust anything you read about what candidates will or will not do once in office.
In any case, I was discussing the piece with a person whose politics are certainly left of center. She said to me something along the following lines:
I’m really not sure I understand all this tax talk. The government taxes us to get money to do what it wants to do. But it seems like what they do — whether going to war or funding new projects — is never discussed in terms of money they have or don’t have. I mean, Bush cut taxes, right? And the reduced revenue should have restrained him. But he spends on whatever he wants. The tax cuts didn’t seem to reduce his power at all. Why is this?
It’s a good question. Why is it that talk of tax policy doesn’t seem to have a relationship to policy generally? Whether it’s a bailout of subprime mortgage holders, large investment banks, or going to war, whether or not the resources exist to do these wonders rarely enters into the equation. Why is it that tax cuts don’t curb the government? And why do politicians not feel the need to tax us more when they spend more?
You might at first say that the answer is simple: They just go into debt by running an annual deficit. And the debt today stands at some figure that has no real meaning, because it is too high for us to even contemplate. What does it really mean that the debt is $5 trillion or $10 trillion? It might as well be an infinite amount for all we know. At least that’s how the political class acts.
Reference to the debt only begs the question. You and I have to pay our debts. We cannot run up an infinite amount of it without getting into trouble and losing our creditworthiness. In the private sector, debt instruments are valued according to the prospect that the debts will be paid. The likelihood that it will be covered is reflected in the default premium. But the debt of the U.S. government doesn’t work that way. The bonds of the U.S. Treasury are the most secure investment there is. It is valued as if it will be paid no matter what.
If not through taxes, and if not through infinite debt, how is it that the U.S. government gets the money it wants regardless of other constraints?
The answer here comes down to the monetary regime, a topic that causes eyes to glaze over but which is central to why the government seems completely out of control. It is not difficult to understand if we think of how a criminal with a counterfeiting machine might behave. Would we see fiscal restraint? Of course not. If a person could create all the money he needs or wants with a printing press, we would expect unlimited profligacy. This is precise what the Federal Reserve does. It not only acts as the guarantor of the liquidity of the banking system, but also functions as the guarantor of the entire government financial system.
Given this, it is hardly surprising that there seems to be a strange disconnect between tax policy and spending policy. The politician isn’t concerned about it any more than the counterfeiter worries about the bills coming and going. They know that the money is going to be there if they need it. This is not only bad policy in general, but it introduces an occasion of sin for the political class. It is too much to ask of anyone to be financially disciplined so long as he has the capacity to create out of thin air all the money he wants.
What is the downside of this type of regime? The bills are ultimately paid by you and me in the form of price increases for goods and services. To make the connection here, imagine the value of money is like lemonade: The more water you add to the fixed amount of lemon juice, the weaker it becomes. We tend to think of inflation as the price of things going up, but in fact inflation is nothing more than a decline of the purchasing power of money itself.
There are other consequences, too. The way the Fed creates money involves manipulation of the interest rate. But the market rate of interest serves a purpose. When it goes up, it provides a reward for saving and discouraging borrowing. When it goes down, consumption and investment spending receive a subsidy. When the Fed feeds the popular desire for low interest rates, it is injecting newly created money into the system in a way that creates investment bubbles. These bubbles can be a symptom of a larger problem, namely, the business cycle itself.
Those of a historical bent will note that today’s monetary system has features that are essentially unprecedented in American history. The dollar is not backed by anything other than the promise of the state. There is no gold or silver or anything else that the paper represents. Nor is the paper in your wallet convertible into any other monetary unit but more paper.
The system we have now is about 30 years old, and it began after Richard Nixon declined to pay foreign dollar holders in gold. That was the final end of the gold standard. With that action, he inaugurated the new age of paper money — and ever since, the rate of inflation, the wild swings of business activity, and the growth of government have been completely out of control. It was a disastrous decision, but the unsurprising culmination of a long process of monetary destruction that began after World War I when the Federal Reserve was created.
How might money work in a perfect world? We have to look back at earlier times and see that central banks are not necessary. Banking, like any business, can be a market institution and manage itself just like the shoe or coffee industry. Money need not be paper that can be infinitely reproduced. It can be gold and silver, which has a fixed supply. When the government wants to spend money, it has no choice but to persuade people to fork over the money. The citizenry, under these conditions, tends to pay closer attention to what its masters are planning.
With sound money and no central bank, the debate over our country’s future would take on new meaning. Politicians would feel the constraint — the same as all individuals. It would be a more peaceful world, surely, with far less political meddling at home and abroad. And we might actually start taking public affairs seriously again.


For more information on central banking, Jeffrey recommends:
  • What Has Government Done To Our Money, by Murray Rothbard (PDF, Printed)
  • Theory of Money and Credit, by Ludwig von Mises (HTML, Printed)
  • Causes of the Economic Crisis, by Ludwig von Mises (PDF, Printed)
  • History of Money and Banking in the United States, by Murray Rothbard (PDF, Printed)
  • Money, Bank Credit, and Economic Cycles, by Jesus Huerta de Soto (PDF, Printed)
  • Fiat Money Inflation in France, by Andrew Dickson White (PDF, Printed)
  • Crisis and Cycles, by Wilhelm Ropke (PDF, Printed)

Jeffrey Tucker

By

Jeffrey Tucker is managing editor of Sacred Music and publications editor of the Church Music Association of America. He writes a bi-weekly column on sacred music and liturgy for Crisis Magazine and also runs the Chant Cafe Blog. Jeffrey@chantcafe.com

  • Mother of two boys

    As far as I can recall these last four years of Democrats with the Majority in the House and Hillary et al with their personal goal of the White House, it has been a war to gain THE POWER of the Executive Branch at all cost……. what have they accomplished…. All of them can complain all they want but the reality is that most of them have been in the Congress and Senate forever and they have little to show for it.

    The President cannot do what the people have actually elected him to do with this continuous bickering going on. In my opinion, Obama has just become their stooge….. they don’t want him to be President, they just want a Democrat to be President.

    Taxes need to be completely overhauled and that my friends will have to be driven by the FINANCIAL EXPERTS….. The flat tax seems like THE IDEA but The IRS would change from citizen tax collection driven to sales tax collection driven. Sounds like a wonderful day in America already :).

  • jeffrey

    Mother of two boys, let’s hope that Congress retains at least some power that the Executive wants lest the Executive of the Bush-McCain crew institute their dream of a universal draft, in which case your two boys will be ordered to kill and be killed in foreign lands. Then all your hard work in raising them to do some good in this world will have been wasted.

    In any case, I don’t know what newspapers you are reading but here is some new you apparently missed. The Executive has just been through its largest expansion since the New Deal. What do you want? A universal dictatorship?

    As for tax reform, whether they collect their money through income or sales tax doesn’t matter in the slightest from a fiscal standpoint. But a national sales tax would result in a massive increase in political centralization — which seems oddly consistent with your other dream of executive dictatorship.

    By the way, this article is about monetary policy and how the printing press has fueled the growth of government. Maybe you should read it again and comment on topic.

  • Steve Skojec

    Jeffrey,

    Despite being pretty ignorant about economics, I still think that the case you make here sounds entirely sensible.

    So, the question I have is how to accomplish this reversal, and what would the consequences be? How would it change the way we transact business, buy and sell large items like homes and cars, etc. Would it impact credit in a substantial way?

    I want sound fiscal policy, but I also want to know what the cost will be of getting it back.

  • jeffrey

    There are many plans for money reform, but the problem is that the ones that go far enough to fix the problem come at substantial cost, whereas those that provide a smooth transition do not go far enough to address the core problem.

    Having thought about this for years, I’ve come around to the view that the answer is really to completely deregulate the system, and permit a completely competitive system to emerge. That is to say, we need to get rid of legal tender laws and allow anything and everything to be used as money: foreign currencies, gold, silver, commodity baskets, whatever. In time, a sound system would displace an essentially fraudulent system. This would be radical and costless from a social point of view. Also, this solution requires no overarching “plan” and represents nothing more than an application of the principle of laissez-faire.

  • RG

    Jeffrey:
    By debasing the currency, the government essentially robs us, the people, of the fruits of our labor.
    Can you please comment on the position of the Church in this matter?
    What are we to do if politicians and government act irresponsibly in fiscal matters?
    Surely,

  • Joe Marier

    I’m not sure that abolishing legal tender laws will have that much effect. Here’s why.

    First of all, when holding assets, there are no longer the barriers that there used to be. If you want to hold gold, what’s stopping you? Open a brokerage account and hold gold ETFs or ETNs. The transaction fees are tiny.

    But, when it comes to your mortgage… well? How do you feel about your bank demanding payment in gold, as they did in the twenties and thirties? After gold prices have doubled? Do you really think your boss will double your income at the same time, just because the precious metals market goes on a tear? No, I don’t think there will be much of a market for commodity indexed mortgage payments. Which means, there will always be a built-in demand for a inflating currency.

  • jeffrey

    Joe, you might cite Gresham’s Law but remember that this law only applies to state-made money in which artificially over-valued money drives out artificially under-valued money. In any case, the state is always busying itself crushing private monetary alternatives. Why not free the market for money and see what happens?

  • Joe Marier

    It’s not gonna happen, but sure, why not…

    Personally, I’d be satisfied with a Federal Reserve that stopped trying to manage the economy and stuck to keeping inflation predictable. That’s somewhat more politically likely.

  • Columcille

    Jeffery,

    Bravo to InsideCatholic for publishing your article.

    As Catholics, when we hear about structural injustice it typically is an introduction to examples of racism, sexism, and a wink and a nod to gay rights.

    We never hear about the structural injustice of the monetary regime that directly causes the “rich to get richer and the poor to get poorer.”

    You spoke about how we all have to pay through what some have called the “inflation tax” but what is most disturbing is how the poorest in our society are most burdened by this system.

    The politically connected people and organizations who get the newly printed money first, get the privilege of using that money at a pre-dilution level of value. To use your lemonade analogy, they get to drink their fill of lemonade before the dilution takes place.

    The effect over time is that value, whether in savings or assets, migrates from the poor and middle classes to the politically well connected people and organizations through this politicized monetary racket. Whoever gets to spend newly printed money first, gets more value per dollar than the guy who gets to spend that money down the road. This is because it takes time for the effects of dilution to take place.

    This is great if you are connected and in the game, but if you are a blue collar worker, then it means that what savings you have are now losing purchasing power, and the money that you have just made buys less than your connected neighbor’s money. The rules of the game are stacked against you.

  • Columcille

    RG,

    This might help regarding the Church’s view:

    From the Compendium of the Social Doctrine of the Church:

    352. The fundamental task of the State in economic matters is that of determining an appropriate juridical framework for regulating economic affairs, in order to safeguard

  • Rob H

    Columcille wrote:

    This is great if you are connected and in the game, but if you are a blue collar worker, then it means that what savings you have are now losing purchasing power, and the money that you have just made buys less than your connected neighbor’s money. The rules of the game are stacked against you.

    Well said. Unfortunately, because the political class and the well connected benefit the most from the current system, it is highly unlikely we’ll see any changes to the system any time soon. Of course, changes WILL come, but they won’t be by choice.

  • Joe Marier

    I assume all you inflation haters wouldn’t mind if your bank increased the balances on your loans by the CPI every year.

    Incidentally, do you really think you’d get a 3 percent raise if there wasn’t 3 percent inflation?

  • jeffrey

    Joe, now you are making less sense than before. Inflation represents a subsidy of sorts of debtors, which is one of many things that is wrong with it. It punishes savers to the same extent, and makes going into debt more attractive than it ought to be. As for wage increases, this is an illusion. If money is worth less by the same amount that your salary is raised, your purchasing power is unchanged.

  • Rob H

    Joe Marier wrote: I assume all you inflation haters wouldn’t mind if your bank increased the balances on your loans by the CPI every year.

    Incidentally, do you really think you’d get a 3 percent raise if there wasn’t 3 percent inflation?

    Currently, I don’t have any loans with the bank. :)

    Currently, I don’t receive pay raises based on CPI adjustments either. :)

    Prior to the federal reserve system, prices generally fell or remained constant (except in times of war). I assume all you inflation lovers have some rational objection to stable or falling prices on gas, bread, textbooks, medicine, etc.?

  • Mother of Two Sons

    For your very kind manner in telling me that I didn’t completely read your piece…. which was true….. I went back and read it and your proposal scares me more than the one that is currently being carried out……. It seems that it would be a lot less disruptive if we set out to put people in these positions with both knowledge and integrity rather than abolish the whole system. It is the accountability that is missing, right? And we as Americans just don’t engage enough to ensure the accountability.

  • And one mistake

    I have one stupid error in the article. I said that the Fed was created after World War I. That’s wrong. It was created before U.S. intervention, and was a major reason that the U.S. entered the war in the first place. If the government had to pay for this war out of taxes alone, we never would have enter that civilization-destroying calamity.

  • Joe Marier

    jeffrey wrote: Joe, now you are making less sense than before.

    Am I? AM I?

    jeffrey wrote: Inflation represents a subsidy of sorts of debtors,

    That’s me! And everyone who has a mortgage! And the US government!

    jeffrey wrote: which is one of many things that is wrong with it. It punishes savers to the same extent, and makes going into debt more attractive than it ought to be.

    I agree. There are other tax-related factors that amplify the effect. It’s hard to own your home without debt though, and if we take the Chestertonian ideal of homeownership seriously, then we should support affordable mortgages that become less costly over time. Hence, we should support lower interest rates, and inflation. I’m not saying I like it, but That’s how we got to where we are today.

    jeffrey wrote: As for wage increases, this is an illusion. If money is worth less by the same amount that your salary is raised, your purchasing power is unchanged.

    Of course it is. That was my point. However, a lot of people seem to think that they get a just raise that is unjustly nullified by inflation. If we had zero inflation, or deflation, they would be in for a rude awakening — or explicit wage cuts, or unemployment, or collapsing exports.

  • Joe Marier

    You have to understand… I think your idea is lovely. But I don’t think the dollar has done nearly as much harm as you think, and I think things would change a lot less than you think if we switched to something more “stable.”

  • jeffrey

    I doubt very seriously that Freddie Mac is part of the “Chestertonian ideal.” Whatever his confusions on some economic issues, he really hated the nation state and its imperial ambitions that are now realized mainly through monetary expansion.

  • Joe Marier

    Well, yeah. I concede that Chesterton wanted to achieve widespread homeownership by (implicitly) violent revolution, and the dissolution of the nation-state, rather than through government backing of 30-year fixed mortgages.

    I’ll leave it up to the readers as to which solution is the greater evil!

    I’m out.

  • Okay, I can’t stay away.

    Rob H wrote: [quote=Joe Marier]I assume all you inflation haters wouldn’t mind if your bank increased the balances on your loans by the CPI every year.

    Incidentally, do you really think you’d get a 3 percent raise if there wasn’t 3 percent inflation?

    Currently, I don’t have any loans with the bank. :)

    Currently, I don’t receive pay raises based on CPI adjustments either. :)

    Prior to the federal reserve system, prices generally fell or remained constant (except in times of war). I assume all you inflation lovers have some rational objection to stable or falling prices on gas, bread, textbooks, medicine, etc.?

    [/quote]
    Oh, yes I do have a rational objection: the 25% unemployment rates that accompany major deflationary spells, the last of which was in 1930-1933.

    If you recieve payraises at all, they’re partly based on CPI adjustments. Your five percent raise would be a one percent raise if not for inflation. That’s my point.

    Joe

  • a

    One of the reasons why this seems so difficult is the fact that we’ve had no national dialogue on this subject at all. What little attention was generated by Perot on the issue of the debt has never been turned into a full fledged movement.

    We are never going to see a return to the gold standard by the government or an end to the central banks. Anyone advocating for it I think is being quixotic. I wish we’d allow for competing currencies. (Which means ensuring they are legal and lifting tax burdens on the exchange of those monetary units. No advantage if I have to pay a sales tax on the purchase and a capital gains tax on the use of my chosen money unit.) Another obvious first step is to demand true transparency by the fed.

    The following ideas are no more feasible, but they are driven by the same premise. The value of the gold standard wasn’t that it was gold but that it was a constraint that wasn’t fully at the whim of any actor and had some built in security/portability/universal appeal factors. Assuming we are still a nation of laws, constitutional amendment could be a vehicle for establishing constraint. Create new procedural requirements on any votes on budgets that spend more than that years actual tax revenues, create a capped (with a high procedural burden to avoid it) budget process.

    There is no easy solution to these issues. But the one thing we need is to start talking about them. So that people no longer conceive of them as for the conspiracy theorists or economics geeks. Someone needs to translate them into real terms so people get the dangers, to see how the same bad results if they aren’t personally fiscally responsible applies to the government.

    Nothing is going to happen unless there is a groundswell of demand.

  • Rob H

    Joe:
    Man, you are all over the place. One minute I’m agreeing with you, the next minute I’m shaking my head. I would gladly take a 1 percent pay raise if it was accompanied by no inflation. That way you can get ahead (a little). As for the Great Depression, that was CAUSED by inflation not deflation. When the Fed inflated the money supply there was a boom in the 20’s followed by the necessary contraction in the 30’s. Further government intervention (inflation, price and wage controls, etc.) just prolonged the misery. What’s worse, now when we have a correction (now called recession) we’re faced with both higher unemployment AND higher prices. Please Please Please take away the central bank generated inflation and I’ll gladly accept the consequences.

  • Joe Marier

    Rob,

    Thanks for reading my comments!

    Regarding the 1% pay raise; I’d be happy with it too, but I’m kind of indifferent as to whether I get a 1% pay raise with 0% inflation or a 4% pay raise with 3% inflation. In the end, it’s the same thing!

    (I’ll spare you from an extended rehash of my opinions regarding the Great Depression. If you read “Liberal Fascism” and “The Forgotten Man”, then you’ll know them)

  • Rob H

    [quote=Joe Marier]Rob,

    Thanks for reading my comments!

    Regarding the 1% pay raise; I’d be happy with it too, but I’m kind of indifferent as to whether I get a 1% pay raise with 0% inflation or a 4% pay raise with 3% inflation. In the end, it’s the same thing!
    quote]

    What if you lose your job? What if you are on a fixed income? Would you still be indifferent to the choice between 0% and 3% rate of inflation?

  • Rob H

    Joe Marier wrote: Rob,

    Thanks for reading my comments!

    Regarding the 1% pay raise; I’d be happy with it too, but I’m kind of indifferent as to whether I get a 1% pay raise with 0% inflation or a 4% pay raise with 3% inflation. In the end, it’s the same thing!

    (I’ll spare you from an extended rehash of my opinions regarding the Great Depression. If you read “Liberal Fascism” and “The Forgotten Man”, then you’ll know them)

    What if you lose your job? What if you are on a fixed income? Would you still be indifferent to the choice between 0% and 3% rate of inflation?

  • Michael Hebert

    Really, I had to blink and blink again. Did I really read an essay, written in the 21st century, arguing for gold-based currency and no central banks?

    It would take a book to refute this argument, and I can’t claim great faculty with economics, but I’ll make a few points. First, there isn’t a capitalist nation that doesn’t have a central bank. If we banned ours we would be putting our economy on an entirely different footing than everyone else’s. One of the main goals of capitalism is international trade. If we take this step, and no one goes with us, where will we end up? The Euro isn’t based on gold either. If the dollar was, the constant fluctuations in gold prices would wreak havoc on import and export businesses.

    If you look back at history, we tried this once. President Jackson shut down the U.S. Bank, and the result was a couple of decades of financial chaos. Farmers in particular went through desperately hard times because gold prices were rising, meaning their debts increased every year.

    In mentioning the pluses of abolishing central banks, you missed the obvious minus — bank runs. Bank panics are not funny and I doubt most people would tolerate an economy where banks went under (and all deposits are lost) as often as restaurants do. Yet that would be the case. Your great grandpa kept money stashed in his mattress for a reason. He remembered the days of bank runs. We don’t.

    Abolishing the Fed would be a HUGE risk, and a crazy one to take for the goal of balancing the federal deficit. There is a much easier way — people need to vote for candidates who promise to eliminate the federal deficit. It’s a much cheaper, and more sensible way than turning the entire banking system on its head.

    I might also point out that eliminating the Fed would make it very difficult for the U.S. government to raise money quickly, for example, for a major disaster or war. I’ve never seen a modern government wage war without borrowing money. Without that ability, we’re pretty much handing our national defenses over to the terrorists.

  • Jack

    These have been very insightful comments. But what is missing is the fact that most people think he Federal Reserve is a government agency. It is not! It was formed by a group of bankers whose interests were profit not the good of society. As was pointed out it was pushed through just before WWI by the President at that time to benefit his buddies.

    Fact 1) Governments have the power to print and mint money. their cost is the cost of the printing press, etc. At one time our money was backed by gold and silver which was stored at Fort Knox in sufficient quantity to pay off the paper certificate…..a dollar bill could be exchanged for $1.00 in silver, thus was a silver certificate. Higher amounts were backed by Gold.
    Fact 2) The Government did not need to pay itself interest.
    Fact 3) When our monetary system was given over to the bankers (Federal Reserve) when the government needed money it needed to borrow it from the Federal Reserve (a private company) which of course charged interest. Now realize that no money changed hands, the Fed just jotted an I.O.U. into the journal for the amount loaned and began to collect interest on this fantasy amount of $ 100 million, or $70 Billion or whatever. The result is that most of our National Debt is interest on prior loans so we need to borrow more every year to pay the interest.
    On top of that the U.S. Government still pays the costs of printing and minting the money and building and maintaining the Federal Reserve bank buildings.

    So while this talk and debate over cost of living, and wages is very learned and interesting,I maintain we should stop paying interest to the Fed and run our own money system. We have the God given right.

  • Stanley Pinchak

    Michael Hebert,
    Please read the book by Jesus Huerta de Soto mentioned above. In it you will learn through historical analysis and economic scholarship easy for the layman to understand that the reason we have bank runs is because banks operate fraudulently. If a person deposits money in the bank expecting to be able to reclaim it “on demand” and the bank meanwhile lends out 80-90% of it to other borrowers, there is a fraudulent action taking place. How can this not be equal to the acts of a counterfeiter, except for the legal protection provided to the bank, for the benefit of the largest borrower and debtor, the state.

    In times of unease, when borrowers take out a significant portion of their account the inherent insolvency of the bank becomes apparent to all. This then feeds greater financial fear and compounds as those banks who operate in this immoral manner renege on their contracts with depositors. Any removal of the central bank must be combined with 100% reserve banking. I.e. banks must keep physical dollars on hand for every dollar in a demand account. This does not preclude people from loaning money to the bank at interest in the form of CDs or time based deposits.

    There are monetarists who would say that 100% reserve banking will “slow down the economy” or that there “won’t be enough money.” The truth is that if the number of dollars in existence were fixed, the value would fluctuate in response to the desire of the people to hold them (like any other good). Any supply of money is the correct supply. Furthermore, any restrictions that this limitation on fraud would have would be to restrain malinvestment into boom economic fields. Would we see housing prices that have spiraled out of control if these just and beneficial restrictions were in place? I wager that we would not.

    As for your dream of politicians holding their word and upholding their oath/affirmation of office, I know of very few instances of such an event. It is far easier for a camel to pass through the eye the needle than for a politician to give up purchasing votes through government largesse. It is better we would bind the state down with the shackles of sound money than to believe in the false hope of honest government. That is the true first step in reducing the size and scope of the state.

    By the way, your arguments of fear work only on those of weak mind. I think you will find that the government’s meddling abroad, financed by the central bank and the fraudulent bankers has created terrorism. Which by the way, is a handy bogeyman for the expansion of the state and its most favored special interests, the Military Industrial Complex, since communism ceased being a credible threat in the minds of the people.

  • Stanley Pinchak

    RG,
    Here is something to ponder. Caesar owns nothing but what he first has stolen from the productive. What is it that is owed? Do we give the robber back the proceeds of his thieving? I contend that this would be immoral.

    Joe Marier,
    I respect the fact that you want to see people own homes. However, do you think that houses would be so unaffordable if there wasn’t so much legally counterfeited money chasing so few scarce goods? Do you feel it is fair that the widows and indigent should bear the brunt of the profligate political class?

    a,
    There are constitutional limitations on the government’s abuse of money already. No need for another amendment. All they need to do is uphold the following: “No state shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” Did you pay your state taxes in specie last year? Furthermore, the constitution allows congress, “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;” I am pretty sure that it is congresses job to make sure that we use sound weights and measures, and the standard measure of value is the dollar. If congress subcontracts its responsibility and the subcontractor fails, who is to blame. I contend the responsible party is to whom trust has first been placed.

  • R.C.

    Wouldn’t it be an easier fix to just return to the pre-Jimmy Carter higher reserve requirement…or even something higher than that? (Say, 25%?)

    This would prevent the need for a gold standard which has always struck me as somewhat arbitrary. (And I always wonder what’d happen the day after we obtain the technology to fabricate gold at the atomic level…or gold goes entirely out-of-style…or gold becomes absolutely essential for some technology.)

    Money is a measurement of value, which is an abstract notion. The problem is not the mapping of that abstract notion to something concrete; it is the temptation to expand money in a fashion that outstrips the expansion of valued goods and services in the world.

    A higher reserve requirement is a straightforward way to reduce this problem without eliminating it entirely. And it would return us to the higher reserve requirements we had in earlier decades…which is to say, we’ve been there before.

    So: Why not?

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