Our Central Bankers are Intellectually Bankrupt by Ron Paul

inlet13

http://www.ft.com/intl/cms/s/0/ab2ac432-92ea-11e1-b6e2-00144feab49a.html#axzz1tpfzl6y8


Our central bankers are intellectually bankrupt

By Ron Paul



The financial crisis has fully exposed the intellectual bankruptcy of the world’s central bankers.

Why? Central bankers neglect the fact that interest rates are prices. Manipulating those prices through credit expansion or contraction has real and deleterious effects on the economy. Yet while socialism and centralised economic planning have largely been rejected by free-market economists, the myth persists that central banks are a necessary component of market economies.

These economists understand that having wages or commodity prices established by government fiat would cause shortages, misallocations of capital and hardship. Yet they accept at face value the notion that central banks must determine not only the supply of one particular commodity – money – but also the cost of that commodity via the setting of interest rates.

Printing unlimited amounts of money does not lead to unlimited prosperity. This is readily apparent from observing the Fed’s monetary policy over the past two decades. It has pumped trillions of dollars into the economy, providing money to banks with the hope that this new money will spur lending and, in turn, consumption. These interventions are intended to raise stock prices, lower borrowing costs for companies and individuals, and maintain high housing prices.

But like their predecessors in the 1930s, today’s Fed governors behave as if the height of the credit bubble is the status quo to which we need to return. This confuses money with wealth, and reflects the idea that prosperity stems from high asset prices and large amounts of money and credit.

The push for easy money is not new. Central banking was supposed to have ended the types of periodic financial crises the US experienced throughout the 19th century. Yet US financial panics have only got worse since the centralisation of monetary policy via the creation of the Fed in 1913. The Depression in the 1930s; the haemorrhaging of gold reserves during the 1960s; the stagflation of the 1970s; the dotcom bubble of the early 2000s; and the current recession all have their root in the Fed’s loose monetary policy.

Each of these crises began with an inflationary monetary policy that led to bubbles, and the solution to the busts that inevitably followed has always been to reflate the bubble.

This only sows the seeds for the next crisis. Lowering interest rates in an attempt to forestall a recession in the aftermath of the dotcom bubble required massive credit creation that led to the housing bubble, the collapse of which we still have not recovered from today. Failing to learn the lesson of the bursting of both the dotcom bubble and the housing bubble, the Fed has pumped trillions of dollars into the economy and has promised to leave interest rates at zero through to at least 2014. This will only ensure that the next crisis will be even more destructive than the current one.

Not content with its failed attempts to prop up the US economy, the Fed has set its sights on bailing out Europe, too. Through currency swaps, it has committed to offering potentially hundreds of billions of US dollars to the European Central Bank and we cannot rule out the possibility of direct intervention.

The Fed’s response to the crisis suggests that it believes the current crisis is a problem of liquidity. In fact it is a problem of poorly allocated investments caused by improper pricing of money and credit, pricing which is distorted by the Fed’s inflationary actions.

The Fed has made banks and corporations dependent on cheap money. Instead of looking for opportunities to invest in real products that will serve the needs of consumers, Wall Street awaits the minutes of each Federal Open Market Committee meeting with bated breath, hoping that QE3 and QE4 are just around the corner. It is no wonder that long-term investment and business planning are stagnant.

We live in a world that seems to have abandoned the concept of savings and investment as the source of real wealth and economic growth. Financial markets clamour for more cheap money creation on the part of central banks. Hopes of further quantitative easing from the Fed, the Bank of England, or the Bank of Japan – or further longer-term refinancing operations from the ECB – buoy markets, while decisions not to intervene can cause stocks to plummet. Policy makers focus on spurring consumption, while ignoring production. The so-called capitalists have forgotten that capital cannot be created by government fiat.

Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.

The writer is a US congressman and a candidate for the Republican party’s presidential nomination

mikepegg44

inlet13 wrote:

http://www.ft.com/intl/cms/s/0/ab2ac432-92ea-11e1-b6e2-00144feab49a.html#axzz1tpfzl6y8


Our central bankers are intellectually bankrupt

By Ron Paul



The financial crisis has fully exposed the intellectual bankruptcy of the world’s central bankers.

Why? Central bankers neglect the fact that interest rates are prices. Manipulating those prices through credit expansion or contraction has real and deleterious effects on the economy. Yet while socialism and centralised economic planning have largely been rejected by free-market economists, the myth persists that central banks are a necessary component of market economies.

These economists understand that having wages or commodity prices established by government fiat would cause shortages, misallocations of capital and hardship. Yet they accept at face value the notion that central banks must determine not only the supply of one particular commodity – money – but also the cost of that commodity via the setting of interest rates.

Printing unlimited amounts of money does not lead to unlimited prosperity. This is readily apparent from observing the Fed’s monetary policy over the past two decades. It has pumped trillions of dollars into the economy, providing money to banks with the hope that this new money will spur lending and, in turn, consumption. These interventions are intended to raise stock prices, lower borrowing costs for companies and individuals, and maintain high housing prices.

But like their predecessors in the 1930s, today’s Fed governors behave as if the height of the credit bubble is the status quo to which we need to return. This confuses money with wealth, and reflects the idea that prosperity stems from high asset prices and large amounts of money and credit.

The push for easy money is not new. Central banking was supposed to have ended the types of periodic financial crises the US experienced throughout the 19th century. Yet US financial panics have only got worse since the centralisation of monetary policy via the creation of the Fed in 1913. The Depression in the 1930s; the haemorrhaging of gold reserves during the 1960s; the stagflation of the 1970s; the dotcom bubble of the early 2000s; and the current recession all have their root in the Fed’s loose monetary policy.

Each of these crises began with an inflationary monetary policy that led to bubbles, and the solution to the busts that inevitably followed has always been to reflate the bubble.

This only sows the seeds for the next crisis. Lowering interest rates in an attempt to forestall a recession in the aftermath of the dotcom bubble required massive credit creation that led to the housing bubble, the collapse of which we still have not recovered from today. Failing to learn the lesson of the bursting of both the dotcom bubble and the housing bubble, the Fed has pumped trillions of dollars into the economy and has promised to leave interest rates at zero through to at least 2014. This will only ensure that the next crisis will be even more destructive than the current one.

Not content with its failed attempts to prop up the US economy, the Fed has set its sights on bailing out Europe, too. Through currency swaps, it has committed to offering potentially hundreds of billions of US dollars to the European Central Bank and we cannot rule out the possibility of direct intervention.

The Fed’s response to the crisis suggests that it believes the current crisis is a problem of liquidity. In fact it is a problem of poorly allocated investments caused by improper pricing of money and credit, pricing which is distorted by the Fed’s inflationary actions.

The Fed has made banks and corporations dependent on cheap money. Instead of looking for opportunities to invest in real products that will serve the needs of consumers, Wall Street awaits the minutes of each Federal Open Market Committee meeting with bated breath, hoping that QE3 and QE4 are just around the corner. It is no wonder that long-term investment and business planning are stagnant.

We live in a world that seems to have abandoned the concept of savings and investment as the source of real wealth and economic growth. Financial markets clamour for more cheap money creation on the part of central banks. Hopes of further quantitative easing from the Fed, the Bank of England, or the Bank of Japan – or further longer-term refinancing operations from the ECB – buoy markets, while decisions not to intervene can cause stocks to plummet. Policy makers focus on spurring consumption, while ignoring production. The so-called capitalists have forgotten that capital cannot be created by government fiat.

Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.

The writer is a US congressman and a candidate for the Republican party’s presidential nomination

thanks I hadn't seen this.

question for you...rather than central banking, what are the options? considering all of the federal reserve notes already in circulation, what are the realistic options?

Halifax2TheMax

As someone who is trying to better understand Ron Paul's economic policies, particularly as it relates to his desire to eliminate the Fed, can someone please explain to me why he believes the Fed is printing money so that banks are awash in capital as opposed to the Fed is printing money to pay the Government's debt, particularly the costs of the unfunded wars in Iraq and Afghanistan, TARP, auto bailout, tax cuts, etc. etc. Also, "big business" is awash in cash reserves and don't need to borrow to invest. What gives?

Disclaimer: I'm really uneducated in understanding how modern economies and finance work in this 21st Century, world economy we're in. I also flunked Econ 101 in college. :fp:

You don't have to write a book but if you could point me to some links or recommendations for books for a novice, I'd appreciate it.

Peace.

Halifax2TheMax

And I forgot to ask in my previous post, how is this any different from any other "business", auto dealers or a farm that grows oranges let's say, from manipulating their prices due to supply and demand? The demand for borrowing is down=interest rates low, demand for borrowing is high=interest rates creep up or are generally higher, right?

Again, I'm really lacking in a basic understanding of economics.

Peace.

mikepegg44

Halifax2TheMax wrote:

As someone who is trying to better understand Ron Paul's economic policies, particularly as it relates to his desire to eliminate the Fed, can someone please explain to me why he believes the Fed is printing money so that banks are awash in capital as opposed to the Fed is printing money to pay the Government's debt, particularly the costs of the unfunded wars in Iraq and Afghanistan, TARP, auto bailout, tax cuts, etc. etc. Also, "big business" is awash in cash reserves and don't need to borrow to invest. What gives?

Disclaimer: I'm really uneducated in understanding how modern economies and finance work in this 21st Century, world economy we're in. I also flunked Econ 101 in college. :fp:

You don't have to write a book but if you could point me to some links or recommendations for books for a novice, I'd appreciate it.

Peace.

Ron Paul wrote a book called End the Fed. It is an interesting read I would suggest checking it out.

there are people far more well versed in economics that can answer your specific questions so I will leave it up to them

inlet13

mikepegg44 wrote:

thanks I hadn't seen this.

question for you...rather than central banking, what are the options? considering all of the federal reserve notes already in circulation, what are the realistic options?

Free-banking is an option, and as you know, movement towards a Gold Standard is another option. I agree that it's quite a mess we're in right now, so I'm not sure either are quite feasible in the short term.

As for what the Fed can do, they could be transparent... they could also advocate the complete opposite policy to which they've participated in. Be transparent and basically - look across the table from one another and admit that we're sick and although drinking the poison makes us feel good for a bit, it's still poison and will kill us in totality in the end. In other words, stop repressing rates... stop trying to inflate us out. Sleep and let our body heal. Sorry for the analogies, but that's really how I see it. We're in a depression. The sooner we realize it and stop drinking the poison to make ourselves numb and hope it goes away, the better.

My problem with the Fed is they all know and have taught about price controls. They know what's going on. I mean, seriously 0% interest rates until 2013-2014... you serious?They know they got nothing left. They know.

inlet13

Halifax2TheMax wrote:

As someone who is trying to better understand Ron Paul's economic policies, particularly as it relates to his desire to eliminate the Fed, can someone please explain to me why he believes the Fed is printing money so that banks are awash in capital as opposed to the Fed is printing money to pay the Government's debt, particularly the costs of the unfunded wars in Iraq and Afghanistan, TARP, auto bailout, tax cuts, etc. etc. Also, "big business" is awash in cash reserves and don't need to borrow to invest. What gives?

Disclaimer: I'm really uneducated in understanding how modern economies and finance work in this 21st Century, world economy we're in. I also flunked Econ 101 in college. :fp:

You don't have to write a book but if you could point me to some links or recommendations for books for a novice, I'd appreciate it.

Peace.

It's more complicated than this, but I'll try to make it simple:

1) The Fed has power over prices (inflation) because it has power over the amount of dollars in the US (money supply). The more dollars there are out there, they less one dollar in your pocket is worth. That part is supply and demand, like you said. Increase the supply of money, it's value goes down (or so it seems).
2) You could think of interest rates as the "price" here. So, if the Fed wants to lower interest rates, they have the power to do such through the money supply.
3) Why would they want lower interest rates? Well, let me ask you a question... when you go into a bank and see a 1% interest rate (which use to be a 10% interest rate a few days ago) are you more likely to save or spend the money in your pocket? Probably your answer is spend. Why only make 1%? This same idea works on other loans, like mortgages. Lower mortage rates create incentive to spend or buy. So, to get people to spend (which is roughly 2/3 of our economy - consumption) the Fed can push interest rates lower (or so they think, get to that later) and presto.... we get more spending and more economic growth (or so they think again).
4) Well if inflation goes along with this process, why would the Fed want inflation? They don't really want inflation. In fact, they are mandated to control "inflation". Inflation by the way is the "rise in prices - pretty much across the board". Like I said earlier, the more dollars out there, the less one dollar is worth, so prices tend to rise in response. The Fed's supposed to control that.
But, some morons also gave the Fed the role of trying to control the overall economic performance. So, the Fed somehow has to balance inflation with economic growth. This is tough because a lot of folks think there are times when inflation moves with economic growth. In other words inflation can cause economic growth (or seem to... read points 1 -3 again).
5) So, uhhh... if inflation's not that bad right now and interest rates are low isn't the Fed's policy a win - win? No. That's where you should go back and read Ron Paul's piece... but to summarize...

The Fed has it wrong. They are using price controls via setting interest rates. By forcing interest rates unnaturally low (well, well below where they would be if the Fed wasn't involving itself), they are creating a situation where there's excess demand, or a shortage.... or a bubble. Basically, they are tyring to "bubble" us out of the recession. But, as we saw with the housing bubble, it only will last so long. Eventually, rates will rise again... and when they do... all this "mess" they think they've saved us from will come back and be much much worse than it would have otherwise been had we dealt with it to begin with.

peacefrompaul

inlet13 wrote:

Halifax2TheMax wrote:

As someone who is trying to better understand Ron Paul's economic policies, particularly as it relates to his desire to eliminate the Fed, can someone please explain to me why he believes the Fed is printing money so that banks are awash in capital as opposed to the Fed is printing money to pay the Government's debt, particularly the costs of the unfunded wars in Iraq and Afghanistan, TARP, auto bailout, tax cuts, etc. etc. Also, "big business" is awash in cash reserves and don't need to borrow to invest. What gives?

Disclaimer: I'm really uneducated in understanding how modern economies and finance work in this 21st Century, world economy we're in. I also flunked Econ 101 in college. :fp:

You don't have to write a book but if you could point me to some links or recommendations for books for a novice, I'd appreciate it.

Peace.

It's more complicated than this, but I'll try to make it simple:

1) The Fed has power over prices (inflation) because it has power over the amount of dollars in the US (money supply). The more dollars there are out there, they less one dollar in your pocket is worth. That part is supply and demand, like you said. Increase the supply of money, it's value goes down (or so it seems).
2) You could think of interest rates as the "price" here. So, if the Fed wants to lower interest rates, they have the power to do such through the money supply.
3) Why would they want lower interest rates? Well, let me ask you a question... when you go into a bank and see a 1% interest rate (which use to be a 10% interest rate a few days ago) are you more likely to save or spend the money in your pocket? Probably your answer is spend. Why only make 1%? This same idea works on other loans, like mortgages. Lower mortage rates create incentive to spend or buy. So, to get people to spend (which is roughly 2/3 of our economy - consumption) the Fed can push interest rates lower (or so they think, get to that later) and presto.... we get more spending and more economic growth (or so they think again).
4) Well if inflation goes along with this process, why would the Fed want inflation? They don't really want inflation. In fact, they are mandated to control "inflation". Inflation by the way is the "rise in prices - pretty much across the board". Like I said earlier, the more dollars out there, the less one dollar is worth, so prices tend to rise in response. The Fed's supposed to control that.
But, some morons also gave the Fed the role of trying to control the overall economic performance. So, the Fed somehow has to balance inflation with economic growth. This is tough because a lot of folks think there are times when inflation moves with economic growth. In other words inflation can cause economic growth (or seem to... read points 1 -3 again).
5) So, uhhh... if inflation's not that bad right now and interest rates are low isn't the Fed's policy a win - win? No. That's where you should go back and read Ron Paul's piece... but to summarize...

The Fed has it wrong. They are using price controls via setting interest rates. By forcing interest rates unnaturally low (well, well below where they would be if the Fed wasn't involving itself), they are creating a situation where there's excess demand, or a shortage.... or a bubble. Basically, they are tyring to "bubble" us out of the recession. But, as we saw with the housing bubble, it only will last so long. Eventually, rates will rise again... and when they do... all this "mess" they think they've saved us from will come back and be much much worse than it would have otherwise been had we dealt with it to begin with.

Awesome summary, it's painful to see the dollar lose more and more value. In that sense the gold standard makes sense, you would use something of some real value as opposed to something that is made of cotton and linen.

Halifax2TheMax

Thanks for the explanations. I'll be honest with you though, I'm still struggling to understand it. That being said, I've been reading and re-reading your explanations and it seems each time it gets a little bit more understood by me.

Question, if the Fed is keeping interest rates artificially low and creating this bubble atmosphere that you speak of, what should the interest rate charged by the Fed be? 5%, 3%, 13%, 7%? Or should the Fed be abolished like Ron Paul is suggesting and the banks would set interest rates based on their cash reserves and what the market will bare? If so, who sets the spread between interest rates banks offer for loans and what they pay as interest for savings? The banks and consumers vote with their deposits/loans?

Don't kill yourselves trying to respond as I'm dumb as a rock when it comes to this stuff. Heck, I don't even balance my checkbook. I just stopped caring about the interest earned years ago, stopped registering it, so I know I have a cushion. It fluctuates but I've never bounced a check.

Peace.

inlet13

Halifax2TheMax wrote:

Thanks for the explanations. I'll be honest with you though, I'm still struggling to understand it. That being said, I've been reading and re-reading your explanations and it seems each time it gets a little bit more understood by me.

Question, if the Fed is keeping interest rates artificially low and creating this bubble atmosphere that you speak of, what should the interest rate charged by the Fed be? 5%, 3%, 13%, 7%? Or should the Fed be abolished like Ron Paul is suggesting and the banks would set interest rates based on their cash reserves and what the market will bare? If so, who sets the spread between interest rates banks offer for loans and what they pay as interest for savings? The banks and consumers vote with their deposits/loans?

Don't kill yourselves trying to respond as I'm dumb as a rock when it comes to this stuff. Heck, I don't even balance my checkbook. I just stopped caring about the interest earned years ago, stopped registering it, so I know I have a cushion. It fluctuates but I've never bounced a check.

Peace.

You sound more well-versed then most; so I wouldn't be so quick to diminish what you already do know. The truth is - in my personal opinion - no one, even the most genius nobel-prize winning economist really "knows"....it's impossible to predict the future and know with certainty what's going to happen... and I'll get back to why this is important to your questions in a second.

So, you're question is - what should the interest rate be? I'd respond to this by asking what should the price for a can of coke be? Should the price of a can of coke be dictated across the country by some genius nobel-prize winning economist, or even a room of 12 economists? Or would it make more sense that the store selling the coke sets the price based on supply and demand?

Let's think about this in terms of interest rates being prices... basically, it's the same deal. So, what should the interest be "right now"? My response would be whatever the market dictates. I can say with complete knowledge that the interest rate (just like the can of coke shouldn't be free or $0 or $.25) should not be 0% (or even .25%). This is kinda a "positive" answer. The interest rate is too low. I, personally, have absolutely no doubt on that. So, even if you don't buy into a Gold Standard solution or a Free Banking solution... you got to admit, when prices are too low. In fact, I know for sure Mr. Bernanke knows the interest rate (at .25%) is below where it would be if market forces set it... he's doing that on purpose. Basically, he has no cards left and he's basing his hopes, and our economy, on the thought the dust will settle before his last card falls. I can see a lot of people debating central banking, but I can't see anyone debating that interest rates are currently being pegged BELOW where the market would set them. So, this part is pretty much fact or "positive".

As far as your latter questions about what "should be"... this is more of a "normative" question, so expect a "normative" (or subjective) answer. Here it is: let the market set the rate.... not some variant of central planners (like the Fed).

I think, perhaps a smart move, would be a move towards a gold standard again. This brings up a completely new subject matter, but basically the Gold Standard provides a society with a standard "scarce" unit of account (within gold). There are variants, and it's possible to move into it in a slower manner, just like Nixon removed us completely. Free-banking, on the other hand, which is another option, I just don't see ever happening anytime soon. Too much hate for banks these days and not too much love for markets... so, it's not even worth discussing, although I think it would probably be the real final solution.

DriftingByTheStorm

where Ron Paul goes wrong is in his errant assumption in the very first paragraph:
"the myth persists that central banks are a necessary component of market economies."

I don't think the central planners\bankers have any pretense that this is "the myth".

The way that phrase would actually jive with reality, instead of essentially framing a straw-man argument for Ron Paul's sake-of-arguments-sake would be to state it thus:

* The REALITY persists that central banks ARE a necessary component of secure POLITICAL-economies *

ALL economies are political. There is no market by itself. They exist inside of political realities. We have a political-economy, and for the SECURITY OF OUR RULERS (well, of our Rulers' Rulers, lol), central banks must exist.

For several reasons
[note: this is NOT me defending the system. just pointing out WHY it exists]:

the stability of the system (the manipulation of rates and inflation) is removed from direct control of the people and given to the bankers themselves

the ability to inflate at will, to redefine the rules of the game, to declare things "too big to fail", to bail out, to restructure contracts, to regulate, etc. provides near-total security with relation to CONTROL of the assets of the owners of the system. Even though the 1% "took a hit" during the financial "collapse", they still own their banks. bankruptcy was not declared (not for the Cartel Banks - JPM, Citi, etc). ownership did not change hands. etc.

Being the owners of the banks that run the central bank (The Fed LITERALLY is "owned" by the member banks. that is the regional feds are owned by member banks of those regions), the owners of the system thus have a very sly method of control over the total money system & all the powers to control it. They are the lenders that lend to the government that lends back to them.

The Cartel-ized structure of the Fed \ FDIC system has served to allow the "too big to fail" banks to engage in increasingly riskier activities at increasingly higher profits with no worry of recourse (because they own the system that will bail them out) ... while "honest" banks, small banks, and those who know they are NOT "too big to fail" continue to go out of business because they simply can't compete with someone who is not accountable to their absurd level of risk. This strategy allows the rich to get richer while everyone else (in banking) goes bust.

---

TO GET BACK TO YOUR QUESTION

DriftingByTheStorm

PS.
The more i contemplate the mess we are in, the more i am becoming quite certain that the ONLY way "out" of "this" is something like a JUBILEE, or complete debt forgiveness. globally.

There is not other way, i don't see. not something that will be a SYSTEMIC fix.

The world is simply awash in a glut of BAD, unpayable debt, with more being created, and more becoming unpayable every day.

Unfortunately, per my above post, this won't be happening until\unless either the global-overlords give up the ghost, or until they get their never-gonna-happen global-order wherein they are free to restructure whatever the fuck they want. Sense i don't see either of these happening (them giving up, or getting what they want) ... i think we are just going to be stuck in a 20-40year shit-hole.

We REALLY do need a Jubilee, though.
Everything else is just hokus-pokus.

unsung

I can't wait to vote for Dr Paul in November.

DriftingByTheStorm

Halifax2TheMax wrote:

Thanks for the explanations. I'll be honest with you though, I'm still struggling to understand it. That being said, I've been reading and re-reading your explanations and it seems each time it gets a little bit more understood by me.

Regarding Interest Rates:
Inlet is correct. NO ONE knows what the rates "should be".
The market is supposed to figure that out.
Interference by the Fed essentially causes a complete breakdown of any real market price discovery mechanism.

If you want to understand the REASON rates are so low right now, you need only look to the US Federal Debt \ Deficit and do the math. The coupon rate on a 2 Year Treasury is .25% and on a 10 year Treasury it is 2% right now. Sound "affordable" on such a high level of NEW debt creation? Now replace .25% and 2% with, say, 3% and 10%. US Government = Broke.

THIS is why rates are ULTRA low right now, and will remain that way clear on in to Armageddon. That is, unless somehow the market "mechanism" OVERCOMES the Fed (which it MAY) and actually forces us in to Armageddon earlier than "expected". :(

DriftingByTheStorm

Halifax2TheMax wrote:

If so, who sets the spread between interest rates banks offer for loans and what they pay as interest for savings? The banks and consumers vote with their deposits/loans?

Along with Dr. Paul's book, you might also try The Creature From Jekyll Island by G. Edward Griffin, which gets in to a good bit of this stuff, without falling to some of the trappings of other Fed=Conspiracy literature.

What you are starting to hint at here is what the actual market mechanism for rates SHOULD accomplish in a free market.

Yes. The BANKS should be getting that spread, and it should be what is contributing to their bottom line.
The REASON for the rates set on DEPOSITS (you walk in, hand the bank your money) SHOULD be to INDICATE TO YOU, THE CONSUMER WHAT YOUR RISK IS AT THAT BANK. "Unfortuantely", the FDIC by guaranteeing ALL member banks' deposits has completely wrecked this mechanism as well.

What SHOULD happen is you, John Q. Public, say, "Hey i have $10,000 to deposit, to whom should i trust it?" Then you go, "Well let's take a look at rates." "Bank A. offers 3%, but bank B offers 10%. Jeez, 10% sounds attractive, but they must be pretty risky." ... "Oh, HANG ON! Let me check with BankRatingAgency.Com and read up on these guys! Jeez it says Bank A. only invests in US Treasuries and Berkshire Hathaway. It says Bank B invests in Inland Kelp Mining and Disco Record Refurbishing companies exclusively! Shit, fuck Bank B!"

Something like that.

As it stands, there IS no mechanism.
Just monopolized rates by monopolized banks operating in a cartelized structure.
:(

peacefrompaul

DriftingByTheStorm wrote:

Halifax2TheMax wrote:

If so, who sets the spread between interest rates banks offer for loans and what they pay as interest for savings? The banks and consumers vote with their deposits/loans?

Along with Dr. Paul's book, you might also try The Creature From Jekyll Island by G. Edward Griffin, which gets in to a good bit of this stuff, without falling to some of the trappings of other Fed=Conspiracy literature.

What you are starting to hint at here is what the actual market mechanism for rates SHOULD accomplish in a free market.

Yes. The BANKS should be getting that spread, and it should be what is contributing to their bottom line.
The REASON for the rates set on DEPOSITS (you walk in, hand the bank your money) SHOULD be to INDICATE TO YOU, THE CONSUMER WHAT YOUR RISK IS AT THAT BANK. "Unfortuantely", the FDIC by guaranteeing ALL member banks' deposits has completely wrecked this mechanism as well.

What SHOULD happen is you, John Q. Public, say, "Hey i have $10,000 to deposit, to whom should i trust it?" Then you go, "Well let's take a look at rates." "Bank A. offers 3%, but bank B offers 10%. Jeez, 10% sounds attractive, but they must be pretty risky." ... "Oh, HANG ON! Let me check with BankRatingAgency.Com and read up on these guys! Jeez it says Bank A. only invests in US Treasuries and Berkshire Hathaway. It says Bank B invests in Inland Kelp Mining and Disco Record Refurbishing companies exclusively! Shit, fuck Bank B!"

Something like that.

As it stands, there IS no mechanism.
Just monopolized rates by monopolized banks operating in a cartelized structure.
:(

Fascinating!

inlet13

http://www.zerohedge.com/news/santelli-propaganda-and-ostrich-economics

DriftingByTheStorm

inlet13 wrote:

http://www.zerohedge.com/news/santelli-propaganda-and-ostrich-economics

wow. lol. and omfg.
i LOVE rick santelli (for what he is)!

The white board (ooh i'm giving a fancy presentation) bit was HOO-LARIOUS.

He and Wolfman shoulda taken it to the road with their routine,
or gotten their own show.