I love Ron Paul for his views on liberty but his knowledge of the banking system is very flawed. He keeps on saying the Federal Reserve "creates money out of thin air", well, the system is "credit", if it's not created out of thin air where is stored?
All "credit" is created out of thin air, always has, always will. Just like love is created out of thin air.
He has also expressed a desire to go back to a gold standard, well, sounds good on paper but you ran out of gold to support the credit system back almost a century ago. If he with Peter Schiff had been elected the system would have collapse instantly.
THERE IS NO SUCH THING AS A GOLD STANDARD IF PEOPLE BORROW AND LEND WITH COMPOUNDING INTEREST ATTACHED because eventually you run out of the underlying asset, how do I know this... it happened in 1930. Actually, it happened before that but that is when stupid humans went running to the bank.
What Ron Paul is suggesting is the exact same system you have now, he just doesn't want the government involved, well it's going to rise then one day it's going to collapse into a big heap of a mess and people are going to have to be liquidated.
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1) There will always be borrowing/lending
ReplyDelete2) Interest is a function of time preference. Since people prefer goods now vs goods later, you can't "ban" interest.
Therefore, there will always be lending at interest.
However, it's really *how* lending happens that determines how much debt will be unpayable. Are you lending real capital (acquired via underconsumption) or creating credit out of thin air? Also, are you lending wisely? If you're catching fish by hand, and I lend you money to build a net, chances are you'll pay me back with interest no problem, and there'll be more wealth for all. If you don't, I take a loss, less wealth for all.
It's truly crazy to make credit money, as we have, however. This guarantees a boom-bust cycle.
With a gold-backed money and a ban on fractional-reserve lending, you would have a system which wasn't guaranteed to bust. You may still have boom-bust cycles in certain sectors of the economy as investors may foolishly overinvest, but an overall bust is impossible with a fixed money supply.
You make some very valid points. I can't say I have all the answers, I always say we have choices.
ReplyDeleteWould education be enough to convince people that using interest is a pyramid scheme? To me that might be enough, I don't know.
Also, if the final conclusion is an "impossibility" the courts do recognize "impossibilities"... to me what two people do is fine but just don't try to get enforcement of a contract that is an "impossibility". But you know, none of these are easy to figure out, all I know is if humans pick the path we are on... at the end of line someone is going to have to be liquidated.
Nice post BTW.
Education is key, no doubt. This country has kicked out two sets of central banksters before, maybe we can do it again.
ReplyDeleteI really think education and non-enforcement of "impossibilities" in contracts. Of course, I am not saying the world would just be dandy doing this, matter of fact quality of life would have to go down drastically from here but it does help level the cycles more. Choices.
ReplyDeleteTo me the real evil is securitization. It is systemic fraud. It has no redeeming value whatsoever. It is an act of war on the individual. A mortgage is supposed to be a private covenant between two parties. Why do the american fools pay their mortgage when they are participating in a shell game designed to screw them over?
ReplyDeleteTo me the big issue is NOT that the equation dictates that the game must eventually end, but how the game is being played.
The lie is that humans can exponential growth demand and supply long-term. If Truth = good, then Lie = evil.
ReplyDelete"To me the big issue is NOT that the equation dictates that the game must eventually end, but how the game is being played."
The rules are setup for you to work for the top. Rules change all the time, the top arrange the rules to where they always win or the lose the least.