In 2008, banks stopped lending as much money, helping drag the economy down.
They started holding it in extra reserves, instead.
This caused deflationary pressure the Federal Reserve has been “protecting” us from ever since.
We’re so lucky we have the Fed.
But why did the banks start holding excess reserves instead of lending? Were they simply scared of the economic conditions?
No, they are being PAID to do it, by the Federal Reserve.
That’s right…the Federal Reserve that is “saving” us from the banks’ refusal to lend, is paying the banks to do it.
How the Banks Work
See, banks usually take the money you deposit, and invest it. They make business loans, home loans, buy securities, and so on.
The profit they make doing that pays for the banking services they “give” you “free”.
In a sense, they are acting like a mutual fund for you…investing your money and paying you “interest” in the way of free banking.
But they don’t invest all of your money. The Federal Reserve requires them to hold back a bit “in reserve”. This is to ensure that they have money in case people want to withdraw it.
The Fed makes banks hold 10% of your checking account (and everyone else’s) in their Reserve.
The other 90%, the bank invests, driving the economy through business loans, buying securities, et cetera.
Or it did.
The Fed Wags the Dog
But in 2008, the Federal Reserve started paying banks interest for anything they held in reserve.
Immediately, banks started holding EXTRA money in reserve. This is called “excess reserves”, and it had never happened in any large amount before.
Strangely, the Fed’s response to the banks doing what it is now paying them to do has been to complain that they’re doing it, and to expand its power even more, to “save” us from the lost money.
See, our capitalist economy depends on money being used to create wealth. With hundreds of billions being stuck in “reserves”, it’s not being invested to create wealth, and the economy is suffering.
In effect, the Fed is causing what Friedrich Hayek called “hording”, and identified as something that NO economic school considers healthy.
It is agreed that hording money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation is in itself desirable.
– Friedrich Hayek’s 1932 Letter on the Great Depression
If banks respond to free market demand by increasing their reserves, that’s good.
If the government (including the Fed, acting as its agent) forces more reserves, that’s bad.
The reason the Fed has added, or says it is adding, over a trillion dollars in “Quantitative Easing” (including the recent QE2) is to fight the deflationary effects of banks “hording” in their reserves.
This “easing” is the printing of temporary money the Fed uses to buy securities. It hopes that money will get spent without going into excess reserves…but this is dangerous, because that extra money could cause inflation after the economy recovers.
The Fed hopes to sell those securities and destroy the money it gets back, but history says it will respond almost two years too late, leaving us suffering inflation.
So the Fed is risking dramatic inflation, in order to save us from the risk of deflation it is paying the banks to create in the first place.
Many thanks to Steve Horwitz for his feedback during the writing of this article.
TSA Screeners, known officially as TSOs, literally are committing a crime when they randomly scan or search you. There are several reasons why this is so:
Just Obeying Orders
I have rapidly tired of Liberals, especially Neocons, claiming we should sympathize with the Transportation Security Officers (screeners), because (yes, real quote) “they are just obeying orders“.
Has our socialized education system so failed that nobody remembers when, in the Nuremberg war crime trials, people who said “we were just obeying orders” were executed?
Anything for a Job
“They have to do it, or they will get fired!”
If you take a job as a private delivery man, and then discover that your employer is using you for drug running, the government would require that you refuse, even if you will get fired.
Doing something that is criminal is not OK just because you want your job. Not even if your employer is the government.
Porn-and-Grope is Illegal
“But it’s a law”.
No, it is NOT a law. It is a REGULATION. Regulations are not laws. To even treat them like laws is unconstitutional.
But even if it were passed by congress as a law, it would not be real:
An unconstitutional act is not law;
it confers no rights;
it imposes no duties;
affords no protection;
it creates no office;
it is in legal contemplation,
as inoperative as though it had never been passed.
-Norton vs. Shelby County, 118 US 425 p.442
Because it violates the 4th amendment, part of the Bill of Rights, any rule requiring a random search is not a real rule at all. It has no validity.
It is imposed only by threat of force, as any organized crime syndicate can do. When a government official violates the Constitution, he is nothing but a mobster, and has no more legitimate power or bearing on you than Al Capone’s hired muscle.
What’s more, it is literally illegal to randomly feel you up, in most cities with airports. Some actually are promising to arrest TSOs who try, if you call the police.
These TSOs are committing a crime each time they randomly search you. No constitutional law, or even regulation, supplies them with the power to search anyone without probable cause.
If the rule was that people behaving suspiciously, or otherwise giving cause to be suspected, had to be searched that would be legitimate. These random searches are not.
And anyone who engages in them is a criminal.
The 4th Amendment
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
Your prudism about being ogled by minimum wage goons who share pics and stories of your genitals with each other and post them on the Internet is not the biggest reason why the nude scanners and crotch gropings cannot be allowed.
It’s that they also violate your Constitutional rights. And that kind of violation, you must never tolerate.
The Fourth Amendment secures not only our external property, but especially our bodies against unreasonable search and seizure.
By “reasonable” the amendment says it means “with probable cause”, and this means government agents must suspect you, personally, of a crime or else they are not allowed to search you, no matter what.
The police are not legally allowed to search random the houses on your block, just in case they might find something illegal, and even the most law-abiding of us is glad our privacy is protected this way. And they cannot, for the same reason, search all people passing through the gates at the airport, just in case they might find something illegal.
Appeal to Cowardice
Big Brotherment tries to justify this violation of the Bill of Rights with Appeal to Cowardice:
“But aren’t you willing to put up with a little inconvenience, to be safer?”
But real Americans aren’t cowards. Even if the violation of your body were improving safety — and in real life, it does NOTHING for your safety — it would not be a tolerable reason.
The government could judge who seemed a threat, and search those people. That would be “probable cause”, valid under the Constitution.
Searching people at random, instead, violates the Bill of Rights, and helps the actually-suspicious people get through the line. If the searches could actually stop terrorists, the random nature of the searches keep that from happening.
They who would give up Essential Liberty to purchase a little Temporary Safety, deserve neither liberty nor safety.
— Ben Franklin
Nobody honest, not even on the pro-TSA side, denies that these random searches violate the fourth amendment…they just claim that you should surrender this Essential Liberty, to try to gain a little temporary safety.
But real Americans aren’t cowards. This expansion of the Police State ends, here and now.
Remember, remember, the 2nd of November, when Ron Paul took back the House, as the next step in the movement that exploded on Guy Fawkes Day, 2007.
With all the hubbub about this election, there hasn’t been enough talk about how it happened:
How Ron Paul Restored Republican Principles (and/or Power)
Remember, the Republicans were stripped of power by the very same voters, just four years ago. What changed isn’t trust in that party’s old guard leadership, but the restoration of that party’s roots by the TEA Party.
The reason they’re getting it back started three years ago today, when Ron Paul stunned the political world with the massive success of the Money Bomb his grass-roots supporters spontaneously organized.
The Money Bomb
In a single day, these TEA Party predecessors raised $4,700,000 dollars for Ron Paul…more than any other Republican candidate. They chose Guy Fawke’s Day to symbolically represent how Ron Paul was to metaphorically blow up the corrupt, establishment government…probably inspired in part by the movie V, where the hero re-enacts that historic event in his fight against a repressive, tyrannical government.
This brought the liberty movement of Ron Paul to the attention of the “mainstream”, touching off a snowball of support for his campaign that, while not getting him nominated against the will of the establishment Republicans in Name Only (RiNOs), left him with a huge “war chest” after the primaries were over. He used this money to found the Campaign for Liberty, supporting the general liberty movement he had empowered.
During his campaign, even before the Money Bomb, supporters started referring to their rallies as “Tea Parties”, some creating the backronym “Taxed Enough Already” to refer to their libertarian economic theme.
By 2009, these TEA Parties, with the support of Ron Paul-supporting groups like Young Americans for Liberty and his own Campaign for Liberty, had taken on a life of their own. As you know, that grew into the movement that people rallied around, and when that movement chose Ron Paul’s party for its candidates, the Republicans finally had an opportunity to return their party to its libertarian base.
They started as a fight against Democratic talk of raising taxes, fighting bailouts and “stimulus” spending, but got their greatest momentum fighting the socialized health care bill, which Ron Paul had opposed even back in 2003 when the Republicans were pushing socialized medicine.
Will It Stay True?
In 2010, of course, the neocons and other RiNOs saw the success of Paul’s movement, and started trying to hijack the TEA Party. They attempted to insert divisive social issues, like anti-Muslim fearmongering and hate, promotion of the drug war, et cetera…but it has not worked: This election was about the economy, smaller government, and other libertarian ideas that the Republican leadership has been forced to parrot, although their history is of doing even more harm to that cause than the Democrats.
The Tea Party movement started with Ron Paul, who is recognized even by his opponents as the most principled, honest man in Congress. It has overcome attacks by Big Government advocates on the “Right”, supposed leaders of the Republican Party and others, but has not lost its way, and almost singlehandedly won this election (except for help by the Democrats, in their own self-destruction).
Hopefully, it can continue to police the Republican party to stick to its base’s principles…or, almost everyone outside the Political Class agrees, the Republicans will have blown their last chance, and TEA will take its party elsewhere.
Among my political companions, “End the Fed” has been the hot, trendy thing for a while. This is mainly because Ron Paul correctly distrusts it, and has sponsored a bill to have it audited.
Now, I almost named this article Eff the Fed, because I, too, dislike it, and know it can never manage money properly…no government agency ever could. Instead of the a fiat dollar, we should have a free market in currency, like the Austrian economist Friedrich Hayek advocated . But when it comes to the fight to end it, there’s a problem.
The End the Fed crowd seems to think that getting rid of it is some magic bullet, that will accomplish all kinds of different things.
They believe it will:
- Bring back “sound money”, by imposing a gold standard.
- End the printing of new, extra money
- Restrain runaway government spending
- Prevent budget deficits
The problem is that ending it will accomplish none of those things.
In fact, it would probably make them worse.
Because the Fed isn’t what started those things happening, and none of them depend on the Fed’s existence.
Axe the IRS
In effect, fighting those things by attacking the Fed is like wanting to fight the income tax, and high taxes, by demanding “Ax the IRS”.
Obviously, we had taxes before the IRS, and we’d have taxes after it. In fact, the IRS was not created by the 16th amendment establishing the income tax, but five decades earlier, by Abraham Lincoln.
If we got rid of the IRS, we’d still have the income tax, and high taxes. Putting our time, energy, and money into attacking the IRS would be a waste of time, when we could have fought for actual tax reduction, reforming or ending the income tax, et cetera, directly.
What’s worse, the government would still want to oversee the taxes we failed to actually fix, and would probably end up using something worse than the IRS.
Well, all of this is true of the Fed, as well:
The Feds Don’t Need the Fed
The Fed and a Gold Standard are Compatible
Ending the Fed won’t bring back a forced gold standard, because they are two unrelated issues.
We had both at the same time for decades, anyhow.
The US had a fiat gold standard from 1873, through 1934.
The Fed, of course, was established in 1913. It existed alongside the gold standard for over two decades. It helped cause the Great Depression while the US was on a gold standard. It created floods of new money in the 1920s, and drew down the money supply by 30% (which would cause any economy, at any time, to collapse) in 1929…both of these things while we were on the gold standard.
Congress Would Just Print More Money
Not only did we have a gold standard while we had the Fed, but we also printed fiat paper money when we did not have the Fed. The reason the dollar is sometimes called the Greenback, is that this was the nickname commonly used for the paper money common in the United States in the 1860s and 1870s, printed to finance the Civil War, known for its green ink .
Right now, the Federal Reserve is a bureaucratic middleman, standing between Congress and simply printing money willy-nilly. The Fed uses what are ironically called “mechanical” means, to create its electronic, funny money for banks. In other words, it has a set of rules that cause the money to be created according to some specific set of conditions, not simply all the money the government wants.
Without it, Congress will simply mandate the printing of more money, on its own, surely in accordance to its bloated, and ever-snowballing spending. They printed floods of extra money before the Fed, and would print it after.
As with the IRS, however it replaces the Fed (and, in a sense, it will have to) will probably be with a mechanism that is even worse.
The US government issued treasury notes, and created deficits in other ways, for the majority of US history where there was no Federal Reserve Bank, and would do it again without it.
Restrain the Deficits…How?
This is the silliest one, and speaks to an ignorance of how the Fed works.
The Federal Reserve certainly responds to some deficit spending by selling more treasury notes…but as with printing money and collecting taxes, this would happen whether the Fed existed or not. It simply is the middleman, again.
You might as well blame the mailman for delivering your bills.
A Big, Fat Windmill
The problem with Don Quixote attacking windmills wasn’t just that the windmills wasn’t only that the windmills weren’t actually dragons, harming people.
It was also that he was wasting the energy and time that could have gone into fighting actual bad causes.
And that’s what the End the Fed noise is doing. This energy could be spent fighting deficit spending directly, which has run rampant under Democrat and RiNO alike…or any of dozens of other issues of government abuse.
It’s Going Nowhere
Of course the last problem with tilting at windmills was that it was never going to get rid of them, anyhow.
The Federal Reserve is in no danger of being “ended”. Ron Paul is actually only sponsoring a bill to audit the Fed, which (unfortunately) will not even permanently open its records to the public, the way they need to be. It will do even less to “end” it, since government self-investigations only ever are used to create a pretense that a few new regulations have “put the problem behind us”, and things usually just get worse, thereafter.
A majority of Americans oppose the drug war. Nearly all Americans not directly on the government teat oppose its massive spending and deficits. But the mechanisms for keeping the Fed in place, on both the private and public side, are massive. Not only would getting rid of it have no more effect than axing the IRS, but it’s no more likely to happen.
How To Actually Fix Things
What we need to do, rather than waste our time tilting at the Fed, is to directly address the problems we’re using it as a whipping boy to attack, or at least focus on their actual sources.
Balance the Budget; A balanced budget amendment would stop massive deficits, rein in government spending, and eliminate much of the incentive to print money and treasury notes, under the current system.
Line-Item Veto; Giving the President the power to veto any specific detail in any spending bill would be a step in that direction, as well. This may need to be an amendment, too, in order to override corrupt Federal courts claiming that it’s somehow unconstitutional.
Pull the Pork; Rules against pork, against Congress specifying projects in detail intended just to send money to their own cronies in their district, would be devastating not only to spending (which, unfortunately, is more centered on entitlements), but also to motives to give officials legalized bribes like campaign contributions.
Or maybe something else, entirely…but, whatever is done, it needs to be done. We need to choose surmountable obstacles that will actually matter, not waste our effort and attention on some scapegoat, however undesirable it is. The Fed is a poster child for government’s destruction of finance and economy, but what we need now is real solutions, not symbolic gestures, however satisfying this one would be.
“Freedom is all fine and good,” they say,” until someone gets hurt. Then you realize it’s time to let Big Brotherment protect us.” Of course this is what Liberals say in general. But the neocons, unlike other Liberals, are pretending to be Conservative, discrediting our movement with their cowardice.
These timorous beasties claim that we should only believe in liberty when it’s convenient. After 9-11, for example, pretty much every American principle of freedom and justice should be out the window. Don’t we have a right to privacy? “We have a right to not be killed by terrorists”, they respond. Freedom of speech? ”You can’t place freedom above safety!”
Well, as an actual American, and Conservative, I say:
They who would give up Essential Liberty to purchase a little Temporary Safety, deserve neither liberty nor safety.
Ben Franklin, classic liberal and therefore modern Conservative, had it right.
It’s ironic to watch faint-hearted neocon pundits claim that Americans should be too afraid to put terrorists on trial in New York, giving otherwise-scared-of-everything Liberal New Yorkers the chance to say “bah, I lived through 9-11, and I say bring ‘em on: Justice will be served!”
This very exchange, almost to the word, occurred on The Daily Show recently, Jon Stewart playing the part of justice-defending American, Newt Gingrich pretending to be a Conservative, yet advocating the philosophy of trembling terror.
Likewise, the neocons oppose the closing of the Guantanamo prison camp, or the opening of a prison for foreign terrorists in America…Gitmo North, they call it. Instead of supporting the principles of justice and natural rights the Founders recognized, we should be too afraid of terrorists to hold them on our soil, where those principles must legally be upheld.
These neocons fought against Reagan tooth and nail during his administration. They ran a Nixonian Republican, John Anderson, against Reagan as a vote-splitter in1980; they literally preferred that Carter win. More recently, they wasted eight years of Republican presidency violating every Conservative principle Reagan upheld, during the Bush administration. They are the opposite of anything we actually believe in. Remember, the bank bailouts, stimulus packages, and American automaker takeovers were all started by the neocons. Obama is only following their example.
It’s time we stood up and rejected their pusillanimous assault on our natural rights. Next time someone says “it’s a different world, since 9-11″, say “but the same principles of liberty and justice hold true”.
We are Conservatives, not cowards.
Obama has pretty much failed the “peace” part of his campaign/policy promises…which is really bad, because that’s the only good part of his entire platform…until now.
His Iraq policy is a mirror of what Bush was claiming to plan, anyhow. His Afghanistan policy is one of increasing warfare and expanded support of the terrorism-sponsoring Pakistani government. He isn’t actually closing Guantanamo. He is pushing to maintain the unconstitutional, police-state PATRIOT Act. His government has been more transparent than Bush’s, but that’s like having more water than the Sahara Desert; he’s still been secretive, and deceptive.
But he’s now doing one thing right.
Obama is the first Democratic president I know of to actually act on the Liberal claim of opposition to the insane drug war. At all.
In case you didn’t know, he has actually rescinded the Bush/Clinton orders to target, under unconstitutional Federal law, medical marijuana users in states where that treatment is legal.
Carter didn’t do anything good about the drug prohibition. Clinton…well, he was the first president to attack the medical marijuana users. Johnson is the guy who started the modern drug war. FDR and Truman were the ones who pushed the prohibition of marijuana in the first place.
Reagan privately opposed drug prohibition, but sold out on the “you’ve gotta pick your battles” theory of compromise with the badguys.
The 1994 Republican Revolution involved some rumblings of decriminalizing marijuana, but of course they sold out all Conservative, pro-liberty principles, within a few years. Gingrich adopted the very desirable platform of the Contract with America based on the popularity of liberty in the polls, but never believed in it.
Anyway, to get back to the topic at hand, the last two presidents violated the Constitution, especially the 9th and 10th amendments, by specifically going after medical marijuana users in those states where it had been legalized. I had no reason to expect otherwise of Obama’s Business as Usual administration, but they have announced that this practice will now end.
I commend him, on what is actually the first important pro-liberty action from a president I can recall having encountered in years. Drug prohibition is one of the most harmful and inexcusable of American domestic policies, but is generally overlooked, or made worse, by the Mainstream political sellouts.
If he kept going down that path, he’d actually deserve to have been given a Nobel prize…years from now, when he left office.