Many congressional representatives object to removing the full employment mandate of Fed Reserve, as Brady’s bill requires, and want to keep that mandate along with price stability. First, just because Fed says it can generate full employment, doesn’t mean it’s true. Fed Reserve can only transfer jobs, not create them. When Fed Reserve creates dollars, it takes value from all dollars in existence. So dollars in someone’s savings account are worth less, and loans made with those dollars are worth less, leading to few jobs for businesses receiving these loans. Alice Rivlin, former Fed “governor” added that it would be a “misleading signal” to move away from full employment with so many people out of work. The only thing misleading is the idea that Federal Reserve can create new jobs without destroying other jobs.

Second, in regards to full employment, the jobs funded by Fed Reserve are not stable. There are plenty of realtors and home builders and painters out of work because of new money pumped into the housing sector that lured people into the housing bubble. The new money also forced others into the bubble because there was less money in other sectors. So Fed Reserve only transfers jobs, and these jobs are usually temporary because a central planner at Federal Reserve chose these job sectors and central planners are horrible at choosing jobs.

It’s not just Federal Reserve central planners who get it wrong. The Central Bank of Iceland created a banking sector bubble that lured people from every profession only to be laid off a few years later. Federal Reserve’s new bubble, possibly noted by David Schweikert of Arizona, might be a government bond bubble. During 2011, Federal Reserve provided 77 percent of the government’s loans. This is not sustainable because eventually the new money causes prices to rise and that could slow Federal Reserve’s loans, as it might have done to avoid gas prices going over $4 per gallon. When Federal Reserve slows lending, workers of the Federal Government or its contractors will lose their jobs. We’re in a government jobs bubble.

Third, Federal Reserve has been horrible at maintaining “full employment.” Millions are out of work or still recovering from real estate and dotcom bubbles. Federal Reserve simply creates employment bubbles and busts – full employment followed by full unemployment. John Taylor, one of the panelists and affiliated with Stanford and the Hoover Institution, mentioned that interventions in the 1970s produced high unemployment.

Fourth, the dual mandate of full employment and price stability usually are conflict with each other and leads to accomplishing neither. As noted, Federal Reserve generates jobs in one sector at the expense of another sector – total jobs remain the same. The new dollars for these jobs devalue all existing dollars (simply due to supply and demand — all other things being equal), and merchants raise “dollar-denominated” prices (since dollars are worth less). So jobs are only transferred and prices rise. Federal Reserve does not generate new jobs overall nor does it stabilize prices. Far from a dual mandate, it’s a dual failure.

If politicians want stable jobs with long-term career potential, they should stop central planners/bankers from messing up the economy. People would learn how to write computer code for stable companies or figure out logistics for a profitable company not flip worthless homes or be a PR person for a dot com with a ridiculous business model.

There was some support for the “lender of last resort” concept. It was said that Federal Reserve provides liquidity to solvent banks. Actually, these banks are not solvent, that’s why they need money or “liquidity.” If they simply had money management problems, another bank would provide a loan tied to some collateral. These failing banks don’t have collateral. When Federal Reserve lends money to these insolvent banks, Fed Reserve props up failing businesses – businesses that lose $2B in trades, have long lines, poor customer service, etc.

Theoretically, every business could benefit from a fairy-tale “lender of last resort” since a few million or billion dollars could support a failing business until some of its competitors go under (those without political connections) and the competitor’s former customers come calling. “Lender of last resort” is a euphemism for loans to politically connected companies.

Brady’s bill would also end a slush fund of possibly $100B used by Fed Reserve for whatever it wants to do. It once used this fund to prop up Mexico even though Congress declined support. Of course, the money for Mexico was really for the banks that lent money to Mexico. Like so many bailouts, it really kept interest payments flowing to the banks, as Ed Griffin pointed out in The Creature from Jekyll Island.

Barney Frank wants all Fed Reserve officials to be nominated by congress, since Fed sets interest rates. This likely will only change the fox guarding the hen house.

One smear came from Alice Rivlin, former fed “governor,” who said it was “bizarre” to not have a central bank. This brings up the idea that instead of saying “end the fed” it’s a better to say Federal Reserve would be replaced by many banks issuing currency and setting interest rates – a veritable de-regulation of the money business. This will lead to innovation since someone with a new idea could create a new bank, instead of working for the monopoly “central” bank.

Fed Reserve is only central to the economy because it has a monopoly. With de-centralization, no bank would be central. Power would be dispersed to the decision makers of many banks and really to their customers who would have the power to choose their money and bank.

When gas prices came up, our side could have said that gas prices are only rising in dollars, not real terms. Visit PriceInGold.com to see a chart showing crude oil when priced in gold grams has about the same price as did 60 years ago.

Rivlin said two percent inflation is “about right.” This means a two percent tax on everyone’s savings account and salaries.

Ron Paul ended by saying it’s hard to manage something that most people can’t define – that is money. Visit Monetary Choice for some articles and brain teasers about this topic.

I highly recommend watching the hearing.

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Hearing entitled “Improving the Federal Reserve System: Examining Legislation to Reform the Fed and Other Alternatives” 
Tuesday, May 8, 2012 10:00 AM in 2128 Rayburn HOB 
Domestic Monetary Policy and Technology 

Click here for the Archived Webcast of this hearing.

WITNESS LIST

Panel I

• Representative Kevin Brady (R-TX)
• Representative Barney Frank (D-MA) — no written statement submitted

Panel II

• Dr. Jeffrey M. Herbener, Chairman, Economics Department, Grove City College
• Dr. Peter G. Klein, Associate Professor, Applied Social Sciences and Director, McQuinn Center for Entrepreneurial Leadership, University of Missouri
• Dr. John B. Taylor, Mary and Robert Raymond Professor of Economics, Stanford University and George P. Schultz Senior Fellow in Economics, Hoover Institution
• Dr. James K. Galbraith, Lloyd M. Bentsen, Jr. Chair in Government/Business Relations, LBJ School of Public Affairs, University of Texas at Austin
• Dr. Alice Rivlin, Senior Fellow, Economic Studies, Brookings Institution, and former Vice Chair, Federal Reserve Board of Governors

Related: 

• See hearing announcement and list of panelists
• Video of hearings – one and two
• Ron Paul’s newsletter about hearing

Original

Revised

A pre-1965 dime contains 2.25 silver grams or .072 silver ounces. With a silver price of $34, one dime is worth $2.34 or about 1/2 gallon of gas, meaning two dimes can be traded for about one gallon of gas.

Today dimes are made of nickel and copper. The change from silver to common metals parallels the change from using gold to using paper. In both cases, money used to be a product with much higher value. Silver is worth more than nickel and copper, and gold is astronomically more valuable than paper. Yet, the government and the media convinced people they were worth the same.

You can still purchase pre-1965 silver dimes (from here) or buy new coins in equivalent sizes to use in case some one won’t take Fed dollars. Silver dimes are also sold as part of “junk silver” bags even though it’s far from junk. However you might have a hard time convincing people your dime is made of silver.

If people used silver as money, they would monitor the value of silver.  Most people don’t monitor the value of the Federal Reserve dollar, to their detriment. It’s worth about eight pounds of wheat, down from 12 pounds in 2010.

I presume the U.S. took in a silver dime and then passed out a nickel/copper dime. What happened to the silver? For that matter, what happened to the gold?  This is similar to kings who used to melt down and remint coins with their faces but reduce the gold content slightly in the process.

 More info: 

• Learn to calculate value of coins
• Value calculator
• Wikipedia – Dime

Proposed DC Metro fare 21% lower versus 2010, measured in three commodities

DC Metro’s proposed base fare of $1.70 is 21 percent lower in value than the $1.60 fare it instituted in 2010 when measured in three commodities, wheat, gold, and iron, according to the group Monetary Choice.

[Dave Doctor of Monetary Choice presented these findings at Metro’s public meeting about the fare increase on Monday, March 5, at Washington Lee High School Cafeteria in Arlington, VA, at 7 p.m. Listen to statement - MP3]

Metro would need to raise the fare to $2.13 to receive the same value it did in 2010 because the dollar’s value has declined about 25 percent. Compared with 2010, a fare of $1.70 in 2012 represents 45 percent fewer pounds of wheat, 24 percent fewer grams of gold, and only six percent more pounds of iron, for an average decline of 21 percent.

In hyper-inflationary economies like Weimar Germany, more recently Zimbabwe, and likely in Argentina today, the transportation companies must have eventually abandoned these hearings since the currency declined so rapidly, necessitating repeated fare increases measured in the local currency.

Dave Doctor of Monetary Choice said, “Metro could reduce community protests by pricing fares in a commodity or basket of commodities but still accepting U.S. dollars for payment. The fare could be 13 pounds of wheat, which can be bought with $1.70 today. If the dollar declines another 25 percent, the published fare would still be 13 pounds of wheat, though customers would need to shell out $2.25 for the fare.” Customers would blame the dollar, not Metro.

When measured in iron ore, Metro’s fares have declined 80 percent in the past 30 years. It used to cost 132 pounds of ore to ride metro, today it costs 26 pounds. Doctor said this shouldn’t be a surprise, “Every year, costs fall due to new technology and better production methods. And costs are falling, but the U.S. dollar is falling in value faster. If DC metro wanted to reduce fares by 10 percent, but the dollar declined 20 percent, they would need to raise fares eight percent in dollars, though in ‘real terms’ this would still be a fare decrease.”

Doctor said people should be complaining about the banks, including Federal Reserve, and the US Federal Government who have issued so many new dollars since 2008 that they have taken 25 percent of the value of each dollar. Prices denominated dollars will increase not only for metro fares, but for everything.

Silver and gold charts provided by PricedInGold.com

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Download Data in Microsoft Excel Format

Contact:

Dave Doctor

www.MonetaryChoice.org

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Prices are rising because the dollar has lost value. When the dollar falls by five percent, then merchants raise their prices just over five percent to get the **same value**. Iran, cold weather, refineries may worsen the problem, but the article does say demand has fallen.

The dollar has lost value because of deficit spending. The U.S. gov’t needs more money than it taxes. So Federal Reserve creates new money and lends it to the gov’t. That new money forces the value of your money to fall.

Eventually you are a seller of dollars and as any store owner will tell you if more people are selling what you are selling, then prices will fall. You start out selling your occupational service, such as graphic design or marketing or pottery. You sell your service or product for dollars. At that point, you are now a seller of dollars, and you don’t want there to be an increase in dollars, just as if you were selling blueberries and you don’t want there to be a glut of blueberries. You might sell dollars to get dinner. You might say the price of your ten dollars is one meal. Then a government contractor arrives, flush with new Federal Reserve money, and this contractor sells 10 dollars for 1/2 meal. So the restaurant owner can get 20 dollars for one meal from the contractor. So you must lower the price of your dollars to 20 dollars for one meal to compete. And that is how your money is devalued by the new money.

Though it gets worse. You now can buy only half as many meals. Where did the other half go? To the government. Your meals paid for the deficit spending.

Baker repeatedly compared Federal Reserve* to a fire department, that “may not be the best, but you wouldn’t disband it.” The truth is a bit different. Far from dousing financial fires, Federal Reserve starts them by creating piles of new money that ignite into low-interest loans for many unprofitable projects. Banks earn interest and fees on the new loans, and if the borrower goes bust, they force taxpayers to cover losses. Even worse, if Federal Reserve does arrive, its fire hoses spout more new money that ensure continued low interest rates and a veritable bonfires of false booms, bankruptcies, and unemployment.

Baker continued his ominous theme by reciting the many booms and busts during the 19th and early 20th centuries–about one crash every 20 years in his view–to prove central bankers must manage the economy. Tucker, his opponent, countered that the government caused those booms and busts, through subsidies for railroads and other industries and banking regulations. I would also add that since Federal Reserve’s beginning in 1913, financial problems have been more severe, including the 1929 crash and ensuing depression, the late 1930s’ recession, the Savings & Loan debacle, the dot-com crash, and the most recent housing bubble and recession.

Dean Baker

Evoking a mobster who extorts protection money, Baker reminded everyone about the 1907 crash where JP Morgan stepped in to supposedly save the financial system. Baker said, “If you don’t have the Federal Reserve, you’ll be controlled by JP Morgan and Goldman. However, the Federal Reserve Act of 1913 institutionalized bankers’ control of the financial system, giving them the power to appoint their own regulators—the Federal Reserve managers—and the power to create money. They recently used this power to bail themselves out of housing loans at taxpayer expense. At least in 1907, JP Morgan had to shell out his money to help other banks.

Jeffrey Tucker

By adjusting the interest rate, Federal Reserve has the power to start and stop business booms. It is entirely possible for people with insider Federal Reserve knowledge to profit by buying stocks or homes before the boom and selling just before the bust. Whether these people use this information or not, this power to start and stop booms should not be in the hands of any one group.

How do you make the Federal Reserve dollar look good? Baker compared it to currencies that are worse. He said the dollar rose about 40 percent compared with other currencies in the ’90s, then lost ground during the past decade. He claimed that was “pretty good,” but he’s just comparing sinking ships – all currencies are being devalued. Only real items, with a primary use in society, are the best point of comparison. Measured against commodities and real products, the Federal Reserve dollar has lost about 95 percent of its value since Federal Reserve’s inception in 1913. For example, one dollar bought six boxes of cereal in 1950, and now buys only one-third of a box, whereas gold and probably any other item can be exchanged for about the same as they could in the 1950s.

Baker smeared the gold standard as “utopian.” He overlooks the 3,000 years in which gold, silver, tobacco, and other products were used as mediums of exchange throughout the world and much of U.S. history. Every person used to have the right to choose what to use as money, just as today a person can choose retirement investments.

“You can’t eat gold,” quipped Baker when someone said the high price of gold proved rampant inflation. He didn’t mention that you can’t eat dollars either. Those who chose gold as a means to protect their earnings during the past 10 years can certainly buy more food today than those who tried to build savings with dollars.

When pressed about low interest rates harming savers, Baker said he’s worried about the “millions of unemployed.” He overlooks the elderly who aren’t working either and who live off their savings and the interest. And should a Federal Reserve czar, I mean governor, have the power to choose who suffers during this recession? Moreover, Federal Reserve caused the housing bubble, luring many into the housing industry and subsequent unemployment.

The Federal Reserve’s government-enforced monopoly of the money system is a virtue, according to Baker. He compared it to a municipal water system monopoly that prevents redundant pipes down every street and thwarts merchants from over-charging for water. Yet, food is as important as water, but no one wants to give one company or municipality a monopoly on food.

An audience member pointed out that people also defended the U.S. phone company monopoly – whose chief innovation during the 50 years before de-monopolization was an upgrade from rotary dial to push-button, all for the low price of $2 per long-distance minute. After de-regulation, “redundant” phone lines and now cellular towers introduced nearly free calls with phones so advanced that they’re no longer even phones. The freedom of people to choose with whom they do business forces merchants to continually improve products and reduce costs. Expect nothing less if money was de-monopolized.

“Someone” must manage the system, said Baker. Who should that be? An audience member said the better question is who could that be? The “knowledge problem” handicaps any single person or group of people from knowing the best or correct price to sell or rent cars, homes, or anything else. No one knows the correct interest rate, which is really the price to rent money. Millions of private transactions reveal a price, and it changes continually.

The most important point about Federal Reserve was barely covered. Baker said five percent inflation may be needed to spur the economy, all engineered by Federal Reserve creating new money and lending it to the government. This is NOT a solution, as the new money will devalue existing money in circulation, like a tax on everyone’s money. Five percent inflation is a five percent loss to everyone’s bank accounts and salaries. Prices then rise five percent since money is worth less.

Jackson battling bankers

Similar banking debates likely occurred before shutting down the other three central banks in U.S. history: the Bank of the United States in 1785, the First National Bank in 1811, the Second National Bank in 1836. Andrew Jackson called central bankers a “den of vipers.” Thomas Jefferson said “banking institutions are more dangerous to our liberties than standing armies.”

Dismantling the fourth iteration of a U.S. banking cartel and monopoly will reduce financial fires, and those that do occur will be less damaging and shorter in duration. Mistakes will be suffered by the people who made them, not forced upon taxpayers and savers for the benefit of financial mobsters and their crony firemen.

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*Note to reader: I don’t place the in front of Federal Reserve because it’s a private company like Federal Express, though with a monopoly in its field.

James Henry hosted and moderated the debate as part of his new Empire Unplugged salon series. This debate was held at Montserrat House, a party venue.

Related content:

• Jeffrey Tucker’s debate summary
• Photos
• Video of Dean Baker’s opening statement
• Tangled as Political Allegory

Related article.

Many customers lost money, but those losses weren’t passed on to taxpayers via government bail-outs and weren’t passed on to people who own dollars via a central bank rescue.

A company failed. It happens every day. This time, only the company’s clients suffered, not people who couldn’t even explain a derivative, including this author.

Related wikipedia entry.