On the Ron Paul Forum, I received a private message:
Hi, I'm a big Paul supporter, I'm trying to get a better understanding of some of his policies, so that I can use them as rebuttals.. The one issue I have had is understanding the Fed, if Paul plans to return to the gold standard or not, how he plans to implement this, and what are the positives and negatives?
If you can help me, I would appreciate it..
thanks for your time!
This is another question that deserves its own separate post.
I see you haven't read my blog yet, though. I have a nice Google Search widget that you can use.
I'll highlight the most relevant posts for you.
The Compound Interest Paradox
It all gets started with The Compound Interest Paradox. You won't appreciate how evil the Federal Reserve is until you understand the Compound Interest Paradox. If you fully understand the Compound Interest Paradox, you know more about the US monetary system than Ben Bernanke. I'm 99.9% sure that Ben Bernanke doesn't understand the Compound Interest Paradox; if he did, he wouldn't be able to testify before Congress with a straight face. (unless he's really that evil; I prefer to think of him as merely being clueless.) IMHO, if Ben Bernanke understood the Compound Interest Paradox, he would testify before Congress that the US monetary system is hopelessly screwed and needs to be reformed.
Summarizing the Compound Interest Paradox, there's a fundamental structural flaw in debt-based money. In the US monetary system, money is created only when someone takes out a loan. Only the principal is created, and not the required interest payments. If you take out a 1 year loan for $100,000 at 8%, then a year from now you need to repay $108,000. However, that $8,000 was never created or put into circulation. There's a permanent money supply shortfall of $8,000. Your bank created $100,000 when it issued the loan, but $108,000 in money is destroyed when you repay the loan. There's a permanent money supply shortfall of $8,000.
More technically, if the bank loaned to you at 8%, it probably borrowed from the Federal Reserve at 4.5%, the current Fed Funds Rate. The bank will get $3,500 for its own expenses and profits, but repays $4,500 to the Federal Reserve. It is only at this step, when the Federal Reserve creates money, that the Compound Interest Paradox operates with the full force of law. The actual money supply shortfall is $4,500.
The accounting is misleading. The bank's books balance. The Federal Reserve's books balance; the Federal Reserve books a profit of $4,500. However, if you look at the books of "society as a whole", there's a bigger and bigger accumulated money supply shortfall. Every time the Federal Reserve "monetizes the debt", it creates a bigger and bigger money supply shortfall.
Over time, society as a whole must get into a deeper and deeper debt hole. It gets exponentially worse at time passes. We currently are in the endgame of the Federal Reserve's scam. It can't last much longer. Whoever designed the current US monetary system in the 1910s knew about the power of the Compound Interest Paradox and its ability to enslave people. It's like they included a ticking time-bomb in the US monetary system, knowing that it would self-destruct after a certain period of time. We are very nearly at the point where this time-bomb explodes, and this defect is built into the rules of the monetary system. In the present, nobody who understands the Compound Interest Paradox is allowed to rise to a position of political influence.
If you don't understand the power of the Compound Interest Paradox, consider the following. The accumulated Federal budget deficit is over $9 trillion dollars. According to the Federal Reserve, the M2 money supply is only $7.4 trillion dollars. In other words, if taxes were raised to 100% and all the M2 money supply were paid as taxes, there *STILL* would be a shortfall of $1.6 trillion dollars. The above figure doesn't include private-sector debt, which is estimated to be over $50 trillion.
How can the money supply be smaller than the accumulated Federal budget deficit? How can the money supply be less than the total amount of outstanding debts? That's nonsense, isn't it? The answer is the Compound Interest Paradox.
Due to the Compound Interest Paradox, it is *MATHEMATICALLY IMPOSSIBLE* for all currently outstanding loans to be simultaneously repaid. There needs to be continuous inflation just to keep the monetary system afloat. You need negative real interest rates in order to ensure that any money is in circulation at all.
Under the Federal Reserve, real interest rates are negative. The Fed Funds Rate is currently 4.5%, and the rate of growth in M2 is over 6.5%. That's a negative real interest rate of -2%. Some people estimate that M3 is growing at 10%-15% or more. That's negative real interest rates of -5% to -10% or more! This is a massive subsidy to the financial industry and large corporations. This subsidy isn't free; it's paid by everyone else as inflation.
That's another naughty thing the Federal Reserve did. They stopped publishing M3. Ron Paul tried to get Congress to force the Federal Reserve to resume publishing M3, but none of the other members of the banking committee were interested.
Income Tax Thoughts
Gold Standard Thoughts
Federal Reserve Thoughts - How it Works
Federal Reserve Thoughts - Why it Should be Abolished
Federal Reserve Thoughts - Answers to Media Myths
Federal Reserve Thoughts - How to Fix the Financial System - This isn't necessarily Ron Paul's plan, but it is a plan that would work. Ron Paul has stated he would abolish the Federal Reserve immediately, but he hasn't mentioned his plans for a replacement system. It is possible for Ron Paul to abolish the Federal Reserve without the US economy completely collapsing, if he follows a plan similar to what I describe. The risk is that, with market-determined interest rates, the dollar could collapse in hyperdeflation as people struggle to repay their loans. Ron Paul's Treasury department would have to inject paper dollars into the monetary system to make up for the huge accumulated money supply deficit.
Ron Paul's plan for retuning to the gold standard is to remove the taxes and regulations that prevent people from using gold as money. Currently, if you buy gold for $850/ounce and later trade that gold for goods when the price of gold is $1000/ounce, you would owe taxes on a capital gain of $150 at the 28% rate used for collectibles. This tax makes it pretty impractical to use gold as money. If you attempt to use gold as money, you wind up paying more in taxes than if you use Federal Reserve Notes as money. Further, the IRS has cracked down on individuals who attempted to operate a gold-denominated bank. Anti-money-laundering laws have made businesses such as eGold harder for US citizens to use.
All Ron Paul needs to do is remove the taxes and regulations that prevent people from using gold as money. Ron Paul intends to allow gold and unbacked paper to circulate together. Then, the free market would prefer to use gold or silver as money.
For example, if I trade a $20 bill for two $10 bills, is that a taxable transaction? Of course not. Similarly, if I trade $850 for an ounce of gold, is that a taxable transaction? According to Ron Paul, that should not be a taxable transaction. Gold is money, and that transaction is merely trading one form of money for another form of money. The IRS has ruled otherwise, but since when does the IRS follow the Constitution?
I also have some other posts on the Federal Reserve and income tax.
The True Purpose of the Federal Reserve
The True Purpose of the Income Tax
The Federal Reserve and Income Tax Conspiracy Theory
The Federal Reserve and the Income Tax are inextricably linked together. If you ask "Why don't people just boycott Federal Reserve Notes?", the answer is that income taxes MUST be paid in Federal Reserve Notes, hence my term Federal Reserve Work Permission Points. Income taxes mean, literally, that you need permission from the government in order to work. Even worse, income taxes mean that you need permission from the Federal Reserve, a private corporation, to work. By controlling the money supply, the Federal Reserve controls the extent to which US citizens have permission to work. In an economic boom, there's plenty of work permission receipts in circulation. In an economic bust, there's a shortage of work permission receipts.
Income taxes also mean that you need permission from the IRS if you want to set up a private monetary system. The taxes and regulations are so high that a private on-the-books monetary system is unworkable.
Even if you wanted to boycott Federal Reserve Notes, you would need a certain supply of Federal Reserve Notes just to pay income taxes. The Federal Reserve and the income tax are two sides of the same evil. The Federal Reserve is a corrupt monetary system, and income taxes prevent people from boycotting that corrupt monetary system.
The income tax, literally, converts every US citizen into a government slave.
Ron Paul's plan is to issue a bunch of executive orders. He would abolish the Federal Reserve by executive order, on the grounds that it is unconstitutional. He would abolish the Income Tax by executive order, on the grounds that it is unconstitutional. I believe his argument is that the income tax violates other provisions of the Constitution and that the 16th amendment itself was never properly ratified.
I've already answered a bunch of Federal Reserve questions in Reader Mail #1 - the Federal Reserve Still Sucks.
My post on the Subprime Mortgage Lending Scam relates my criticism of the Federal Reserve to current events.
My post on How the State Destroys Small Businesses gives a good illustration of how the Federal Reserve and government regulations combine to hurt small businesses and favor large corporations.
Personally, I'm not holding out hope that Ron Paul gets elected. The voting system is defective. It's too late for the USA. The USA is now a communist country. I think it's time to move on to a new model for an economic and political system. The best model I've seen for a nonviolent revolution is agorism. If Ron Paul fails to get elected, I think many of his supporters might be converted to that philosophy.
Even though I don't expect Ron Paul to get elected, he still is my favorite candidate. Plus, the Internet discussion forums for Ron Paul tend to have the most interesting topics.
If you're frustrated with professional trolls on the Ron Paul Forum, you probably should start your own blog.
The only negative about Ron Paul being elected is that he might be able to postpone the inevitable collapse of the US monetary system and the US government. It would be fairer to see the current system completely collapse, rather than see it reformed.
The people who think they control the US government might be, literally, facing the choice of "Allow Ron Paul to be President." or "Allow the current worldwide economic system to completely collapse."
Leave a comment or E-Mail me if you still have questions.
1 comment:
A little clarification - Ron Paul has NOT advocated getting rid of the FED immediately. He admitted on Cavuto, I believe, that this would cause extreme financial chaos and terrible living conditions. His plan was to simply legalize competition and let the market choose between FED money and other legalized competition. He believes the long-term effect of this policy would be the near complete abandonment of the FED and their money. I agree.
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