Bailouts & The Monetary Policy of Fraud

There are many economists,
politicians, and journalists that think they have a miraculous way to make
bailouts work. Thus far, our government and Federal Reserve Bank have limited
the bailout debate to who should get what money and how much. Yet,
all this argument over how to best manipulate our economy is totally irrelevant
if we don’t recognize the fundamental problems our monetary policy creates in
the first place. You can have a house made of gold, but it will surely
sink if your foundation rests on quicksand.

To stabilize our markets, Congress should enforce strictly enforce basic
principles. With strict adherence to the principle that one should not commit fraud, our government would not
allow the Federal
Reserve
and other banking institutions to lend and print
money it doesn’t have. For example, for the Federal Reserve stimulated
the housing market by droving down the interest rate. When interest rates
fall, money becomes relatively cheap. So, people borrow more money and
more houses are bought. Now there are all kinds of economic theories that
advocate monetary expansion as a means to spur growth, and thus pose a net
benefit to society, so they are necessary for the greater good. But, can we really support the greater good using
fraudulent practices?

And how does the Federal Reserve lower
the interest rate in the first place? Where does the Federal Reserve
get the authority to print our money? It can only continue such
lending practices with the cooperation
of our congress
. It is important to also note that the Federal
Reserve is a private bank to emphasize the absurdity of its special
privileges. Some congressmen have requested an
audit
of the Federal Reserve year after year, only to be denied each
time.

To acquire new money to lend, the
Federal Reserve must either 1) borrow, or 2) print the money. Either way,
the loser is the taxpayer. In the event the Federal Reserve borrows the money,
using the American taxpayer’s labor as collateral, the interest on the debt
is paid for by raising taxes. So, some people might get a sweet loan on a
home, but everybody gets stuck with higher taxes. If the Federal Reserve
prints the money, we can expect the same natural consequences
because, whenever the money supply is increased, the value of money
people already own (such as the money in their savings account) goes
down. For example, if you own the only Babe Ruth rookie
baseball card that exists in the world, it will probably be worth a
lot. Imagine now that our government gave the Federal Reserve the special
privilege to print “authentic” Babe Ruth rookie cards, identical to yours; the
value of yours would naturally go down. This principle is no different
with money. But when the Federal Reserve does it, it results in
an indirect tax on everybody, called an inflation tax. Because
the dollar is worth less, the cost of the things you buy goes up
(just go to the grocery store to verify). Although conventional economists
would have you believe inflation is the rise in prices, inflation is traditionally considered to be the increase in the money supply, which causes higher prices. When
prices rise, real income drops, demand for goods drop, and our entire economy
suffers.

So whose fault is it when high prices
and real interest rates cause people to fail on their loans and our
booming economy to bust? The people who got loans they couldn’t
afford? The lenders? The Federal Reserve? I would say all of
them are responsible. But, the supreme responsibility is that of our
congress. Had they not allowed the Federal Reserve to lend artificially
cheap money, an act of fraud,
there would have been no bubble to blow up.

So, who do our representatives make
pay the bill? The
taxpayer
. Even the ones that were responsible and lived within their
means. Even the banking institutions that only lent to qualified lenders.
So first you pay an inflation tax blow up the housing bubble. Then,
you are asked to bailout the financial industry when they pop it! Why?
Because the rule of law is not strictly enforced. Our leaders claim that
allowing a big bank to fail will hurt you more than losing your right to keep
the fruits of your labor and be rewarded for your responsibility.
Therefore, the “right to property” is reduced to, the “right to
your property so long as banks don’t get too big and
irresponsible that their demise might cause a disruption in
the normal financial markets, even if those financial markets perpetuated
the problem.”

Yet, aside from HR 2755,
introduced to address concerns about the Federal Reserve and the inability of a
central bank to stabilize markets and protect the value of our dollar, no
answers from congress or our conventional economists deal with the fundamental
problems in our monetary policy. The central bank and bailout
advocates can try all they want, but when you have a system that is
fundamentally built on fraud, central bank or not, it will surely fail.