CONGRESS, THE FEDS AND THE JOURNEY INTO THE FISCAL UNKOWN
- From: "Robert Morpheal, Morphealism, Bob Ezergailis" <morpheal@xxxxxxxxx>
- Date: Sun, 30 Nov 2008 19:37:11 -0600
CONGRESS, THE FED AND THE JOURNEY INTO THE FISCAL UNKNOWN
Thomas Jefferson (Letter to James Monroe, January 1, 1815)
“If the American People ever allow the banks to control the issuance
of their currency, first by inflation and then by deflation, the banks
and corporations that will grow up around them will deprive the people
of all property until their children wake up homeless on the continent
their
fathers occupied. The issuing power of money should be taken from the
bankers and restored to Congress and the people to whom it belongs. I
sincerely believe the banking institutions having the issuing power of
money are more dangerous to liberty than standing armies.
We are completely saddled and bridled, and the bank is so firmly
mounted on us that we must go where they ill guide. The dominion which
the banking institutions have obtained over the
minds of our citizens...must be broken, or it will break us.”
-------------------------------------
Of course many in government would say that Jefferson was well heeded,
and that the Federal Reserve being the "issuer" of money follows
Jefferson's advice. That too is a debatable point because we then
have to determine how much of government fiscal policy is really
determined, decisively and legislatively, by Congress. The Fed is in
fact largely independent of Congress, even if considered under its
oversight. (That pun might be appropriate. It does appear to be
somewhat of an oversight.) I think Jefferson would have been equally
concerned about a quasi independent “bankers’ bank” controlling money,
and for his original reasons.After all the federal reserve banks
operate somewhere in the netherworld having many of the
characteristics of private corporations.
There is another side of the problem, quite apart from the nature of
the Fed and its relation to Congress. Private currencies used to be a
concern, with banks wanting to issue script of all variant types, as
forms of legal tender, but I am not sure that just because a piece of
paper does not say "currency" and "legal tender" and does not look
like currency, avoids financial institutions (extending far beyond the
area of banking as such) "issuing" what amounts to paper that has
implied, real or unreal, value. You can create paper with value, other
than money, in infinite amounts, today. All sorts of documents quite
outside the amount of currency in the system, can be issued and in
various ways honored by financial institutions without actual money
changing hands. So, where does the equation balance out between what
the Fed prints and issues and what other paper is out there ? Does
anyone actually add the paper pile up and balance it against the
actual printed currency and say whether one heap is larger than the
other ?
We might well ask how much other paper of any potential financial
value, that is not hard currency issued by the government, is there in
the financial system ? Does anyone know ?
Not likely.
What you have to do is to add up the entire total for all instruments
that have any potential fiscal value within the whole financial
system. This is something quite different from adding up the amount of
actual hard currency within that system. It is far different from a
money supply question, that we tend to get tangled up in when
discussing economics.
Now, if all the presumed and assumed “valuable” paper, other than
actual currency were suddenly to be redeemed by the holders of that
paper, there is no telling what amount of currency might be needed for
that total redemption. Fact is that we assume that could never happen
and would never happen. Only a percentage of such “valuable” paper is
every likely to be redeemed at any given time, when it comes to
redemption as actual hard currency, or as gold. The amount of hard
currency only needs to cover that portion, not the whole total of
“valuable” paper. However, you can see how errors of judgement can
easily get into such a vague and nebulous scenario as unlimited,
essentially unknown, amounts of “valuable” paper can be introduced
into a system that does not even openly consider that question.
Furthermore, the actual value of such paper, at any given time, versus
any assumed or original value, whichever is presumed most accurate, is
at variance. There is no real and accurate way to determine this,
until the “valuable” paper is redeemed for cash at any given moment in
fiscal history. So accounting for it, in precise terms, is not even
possible. We can only make assumptions (“educated” guesses) what those
numbers are, and the probability is extremely high that any such guess
would be wrong.
No one really knows for sure. Also no one can be really certain when
something might be redeemed for hard currency. Similarly no one can be
sure how much paper, considered to have value might be redeemed at any
given time.
Clearly this very same problem because much larger, and larger to an
unknown extent, when you “globalize” radically “free market” and “free
enterprise” economics. You then introduce a much larger number of
economic players, who cannot be expected to abide by the vast number
of often unwritten, and also written and inadequately understood,
existing rules. The assumption that new players learn and follow those
same conservative rules tends to be naive and contrary to human
behavior in what is an increasingly competitive system.
Jefferson would have been aghast at that fact.
Cheers.
Robert
.
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