Friday, June 29, 2007

The Federal Reserve System - A Campaign Issue!

by Bill Haynes

Albeit in a small way, probably for the first time since the creation of the Federal Reserve System (in 1913), it has been injected into a presidential campaign.

In the first Republican presidential candidates' debate, Ron Paul, a Republican member of the House from Texas, spoke out in favor of the gold standard. Although Ron Paul's formal education is in medicine, he is qualified to discuss money and economics as he has long studied the works of the great free market economist Ludwig von Mises. Mises is famous for his writings on money and for having exposed the fallacy of a central authority controlling the money supply...

However, discussing the case for gold in a monetary system cannot be done without at least some understanding of the concept of central banking and the Federal Reserve System, which is our central bank, a fact not generally known by most Americans.

When the Fed came into existence, Americans were told that it would put an end to "economic panics," the scare term of late 19th century and early 20th century. In the 1930s, however, the Fed-caused Great Depression made "economic panics" look like rainy days, and today the great scare term is "depression."

The Federal Reserve System and its ability to create money out of thin air facilitate big government. If the Fed did not exist, the government would have to raise funds either by increasing taxes (a politically unpopular thing to do) or by borrowing in the marketplace, competing with businesses and individuals also wanting to borrow. Additional borrowing by the government, of course, increases interest rates and is detrimental to the economy.

So, to finance our welfare state, our wars, and a few good things such as highways, the federal government hands the Fed little pieces of paper called treasury bills and treasury bonds. The Fed, in turn, credits the federal government's checking account in amounts equal to the face value of the bonds, and new money is created out of thin air...

If the gold standard becomes a major issue in this presidential campaign, the American people can only benefit. Americans have little grasp of the concept of money and the deleterious effects of central banks. Americans would need to be much more knowledgeable about the Fed before it could be eliminated.

Meanwhile, with every Republican presidential candidates' debate, Congressman Ron Paul gets the opportunity to wake up a few more Americans to the dangers of fiat money and the Federal Reserve System. If the Democrats had a candidate knowledgeable about money and economics, then we could have a great increase in awareness of the unsound financial structure that underlies our economy.


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