Friday, September 11, 2009

The Fed Benefits...Who?

I want to give you some highlights from chapter one of Ron Paul's End the Fed. But first, some context and biblical perspective.

The Bible has quite a lot to say about money. Much of it comes in the form of aphorisms (largely in the wisdom literature), in which we learn about diligence leading to prosperity (Prov. 10:4; 12:27; 13:4), the wisdom of diversifying investments (Ecc. 11:1-2), the Lord repaying the generous man who gives to the poor (Prov. 19:17), avoiding the dangers of debt (Prov. 22:7), saving for future needs (Prov. 21:20), calculating the cost of projects (Lk. 14:28), etc.

But there are also a number of commandments in the law, as well as instruction in the prophets, that have a direct bearing on the standard operating procedures of the Federal Reserve System. The Bible, in no uncertain terms, condemns dishonest money.

You shall do no wrong in judgment, in measures of length or weight or quantity. You shall have just balances, just weights, a just ephah, and a just hin (Lev. 19:35-36).

And the prophet Isaiah condemned the practice of debasing the currency when he said,

How the faithful city has become a whore, she who was full of justice! Righteousness lodged in her, but now murderers. Your silver has become dross... (Isa. 1:22).

They had devalued their silver by mixing it with foreign substances, but they passed it off as pure silver. They were sophisticated thieves. Instead of breaking and entering into some one's home and making off with his treasure chest, they committed their thievery by paying for what they purchased with debased silver.

In essence, this is what the Federal Reserve does when it "creates" money that is not backed by gold and silver. And the more money it "creates" (running the printing presses; reducing the fractional reserve; issuing easy credit; etc.) the less valuable each dollar becomes. Who wins? Those who are in the know and are in a position to receive the newly "created" money--those who have connections with central banks and are already wealthy. Who loses? The little people: the poor and those living on fixed incomes who don't have access to the new money. Since the creation of new money (monetary inflation) devalues the dollar and reduces its purchasing power, there is an inevitable rise in prices (price inflation). This harms the poor far more than the rich.

Some observations by Ron Paul about the Fed:


Economic booms and busts have been around for a long time. Tragically, the innocent who understand little about the complexity of the monetary system suffer the most, while those who are in the know reap great profits whether the market is going up or down. Only an understanding of how the monetary system works can correct this problem and protect the victims caught in a vicious economic downturn. (p. 3)

To understand money, one absolutely must understand what a central bank is all about. In the United States, the central bank is the Federal Reserve, the instrument by which our money and credit are constantly manipulated for the benefit of a privileged class. (pp. 3-4)

Nobel laureate F.A. Hayek...wrote of central banking; “I doubt whether it has ever done any good except to the rulers and their favorites, “and he concluded that "money is certainly too dangerous an instrument to leave to the fortuitous expediency of politicians. (p. 6)


[Thomas] Paine…who inspired the American Revolution with his pamphlet Common Sense, also said this: “As to the assumed authority of any assembly in making paper money, or paper of any kind, a legal tender, or in other language, a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom – and property no security – where this practice can be acted.” (pp. 5-6)


More to come...

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