But--and this is crucial--focusing on the housing market alone was just the last in a parade of claims about the root problem. There are other sectors that have suffered, in finance, car manufacturing, services, retails, and stocks. These are all merely symptoms of a deeper problem: the Fed and its role in sustaining an unsustainable paper-money system.
I was intrigued to see that even the Treasury secretary senses that, at some level, the crisis is connected to central banking.
Bernanke closed his remarks by directly addressing Friedman: "You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
Volcker assured me he would never lower reserve requirements to that degree or buy up worthless assets; just the authority to have free rein in raising reserve requirements at will. I said that, although I didn't expect that he would use these extreme powers, who knew if in the future we might just have someone who would. The future is now here.
The fact is that not only has this come to pass with Bernanke, but a great deal more authority has been usurped by Fed, while Congress says little about it. The Fed today has ominous powers that Congress barely understands. There is essentially no oversight, no audit, and no control. And the Federal Reserve chairman has no obligations to answer questions. Trillions of dollars can be created and injected into the economy with no obligation by the Fed to reveal who benefits.
The Constitution is clear about no paper money. Only gold and silver were to be legal tender. Since the states caused themselves harm whe they issued their own paper money, the states were prohibited as well from issuing paper currency in Article I, Section 10. So there you have it, plain and simple: paper money is unconstitutional, period.
The Constitution is silent on the issue of a central bank, but the Tenth Amendment is quite clear: if a power is not "delegated to the United States," it doesn't exist. There is no mention whatsoever of a central bank being authorized. Even is a central bank were permissible, it could not legally repeal the legal tender mandate for gold and silver coins.
Because of the runaway inflation of the continental dollar in the 1780s and the Founders' disdain for paper, no paper money was officially issued by the US government until the Civil War.
As current Treasury secretary Timothy Geithner said: "I would say there were three types of broad errors of policy, and policy both here & around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful."
The host asked specifically: "It was too easy?"
Mr. Geithner went on: "It was too easy, yes. In some ways less so here in the United States, but it was true globally. Real interest rates were low for a very long period of time.
As Pres. Obama said of the economic boom that went bust: "I think it's important to understand that some of that wealth was illusory in the first place."
Exactly. But let's also understand the source of the illusion and what to do about it. Of course not everyone is instinctively against this illusion-weaving power, and many even welcome it. They just want to get back to the times when "everything was good" even though it was all just a mirage--a creation of the appearance of wealth by the Fed.
Tragically, the innocent who understand little about the complexity of the monetary system suffer the most, while those who are in the know reap great profit whether the market is going up or down.
In addition, wage and price controls were put in place, along with a 10% import tariff. Instead of the markets collapsing, the move was immediately praised by the Chamber of Commerce, and the stock market soared.
This was the third broken promise by our government regarding gold backing to our dollar. Lincoln did it in the Civil War, and FDR did it in 1933 when he confiscated gold from the American people and made it illegal for American citizens to own gold.
In 1971, the shift to a new monetary regime was an unprecedented experiment in global monetary planning, a wholesale plunge into the world of paper currency. With no backing for the dollar at all, Americans became completely reliant on the Federal Reserve to manage our money and to do so without any outside discipline
We are talking about an awesome power. It is the power to weave illusions that appear real as long as they last. That is the very core of the Fed's power.
Of course not everyone is instinctively against this illusion-weaving power, and many even welcome it. Tragically, the innocent who understand little about the complexity of the monetary system suffer the most, while those who are in the know reap great profit whether the market is going up or down.
Even with a government guarantee, the system is always vulnerable to collapse at the right moments, namely, when all depositors come asking for their money. Banking legislation can be seen as an elaborate attempt to patch th holes in this leaking boat. Thus have we created deposit insurance, established the "too big to fail" doctrine, created schemes for emergency injections, and all the rest, so as to keep afloat a system that is inherently unstable.
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