Friday, December 30, 2011
fyi ron paul
There's a difference between what the Federal Reserve is now doing and the traditional lending practices of local banks. The Fed waves their magic wand and declares that $7.7 trillion bucks that didn't exist yesterday now is available to banks. I read on some econ site -- Barry Ritholtz's blog or one of them -- that the US money supply has increased 3x since 2007, thanks to the Fed's magical production of fiat dollars.
This is nothing like the First National Bank of Podunk lending $10K to a local business person with the expectation that it will be paid back in "real" dollars. If the bank has done its homework, its risks are minimal, and that's how modern economies operate and actually create wealth.
For anyone to claim equivalency between this kind of standard lending practice and the Federal Reserve's voodoo production of trillions of supposed "dollars" is silly. I know there are primitives such as Ron Paul who believe all banks should be required to have precious metal holdings equal to whatever amount of money they've lent out, but by the same token there are also people who believe that Jesus is coming back any day now -- literally -- and that they will soon be with him in the garden eating cookies and drinking apple juice.
A freshman Econ 101 course will acquaint anyone, including Ron Paul, with the array of tried and true standard practices employed by sound financial institutions in modern economies. To learn abut what the Federal Reserve has been doing the last three years would require another text, possibly the Book of Ceremonial Magick by Arthur Edward Waite.
What the declining metals markets are telling us is that the Fed has gotten away with it -- for now. Inflation is seriously affecting the prices of things everybody needs (primarily rent, food, and fuel) but is still under control. However, I don't think our Federal government is out of the woods yet, and what with the big banks still shaky, we're on very thin ice.
I'm going to hang on to my physical silver, because a) I'd take a loss if I sold any of it now, and b) I didn't buy it to speculate or make money; it's insurance. I keep watching the Federal Reserve improvising, and recalling the experience of Weimar Germany in 1923, and thinking it never hurts to have insurance.