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The Fed and Freedom

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Message Douglas C. Smyth
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Saman Mohammedi's article: "The Last World War of The Modern Age Is Upon Us," in Op-Ed News got me to thinking. He advocated a foreign and financial policy based on Ron Paul's ideas, claiming that we entered world war a hundred years ago, when the Fed was established, and we are still in one, just with a numeral III behind it. All because of the Fed: war and fiat currency, he believes, always go together.

I sort of wish Ron Paul's ideas were true; sadly they are not. If we go back to something like the gold standard--Paul's solution to abolishing the Fed--world-wide deflation would stop global growth in its tracks: if you can't expand money when there is demand for it, then production slows to a trickle. That was one of the major problems in Colonial America, and in the first century and a half of the USA: panics were common, depressions were long and brutal, because currency depended upon an uncertainly expanding supply of gold and silver. If there wasn't enough money, business crashed.

An unfortunate side effect of fiat currencies (all the currencies in the world are by fiat) is that there can be more money for wars. An informal global elite profits from the wars made possible by fiat currency, but one doesn't necessitate the other: fiat currency doesn't create wars; it makes them more possible (to finance), if elites can promote them in order to make more money.

If we abolished the Fed, we would have to have a currency based on some arbitrary value, gold, probably. The gold standard destroyed most of the indigenous civilizations in South America, because the Spanish and Portuguese adventurers were going where the gold was. And they found it, too.

Owning gold, Spain didn't have to produce anything; it could just buy everything from abroad. In Spain there was long-standing inflation (yes, the value of gold went down because there was more of it), and Spain fell behind the rest of Europe, because, while northern Europe was experiencing the mercantile and industrial revolutions, Spain produced less and less of value: it could buy everything with its gold elsewhere.

Okay, so, you know that if we went to the gold standard, the US and others would wage war over it. The US, with the largest killing machine in the world, would fight worldwide to gain control of the gold--in southern Africa, for example. We'd find reasons, just as many are trying now, to justify invading Iran (for controlling the oil in the Middle East).

Senator Liebermann, has inserted the word "capability" in the "developing nuclear weapons" phrase that's used to accuse Iran. The Obama administration insists that diplomacy and sanctions are appropriate now, and attack is not (either for the US or Israel), because, while Iran may know how to build a bomb, it hasn't yet decided whether it will do so. 'Knows how to build' is a statement you could make about almost any developed country and many major developing ones. That's not "developing nuclear weapons" that's "nuclear weapons capability," and Lieberman wants to make that "the red line," meaning, when it has been crossed, we must attack. Since Iran is already probably nuclear capable in that sense, he wants the law to say that we should invade NOW.

However, I'm afraid Paul's solution wouldn't solve the oil problem, either, and the lack of government that a gold standard would make necessary would quickly return us to the Hobbesian world, where life is "nasty, brutish and short," which, I think, is the point. Most people don't deserve to live better, apparently.

It also wouldn't solve the problem of wars; it might just change their focus: to getting control of the gold.

There is a kind of controlled experiment going on right now in the world: it's between those nations who opted for full-bore austerity after the economic collapse, to pay back their debts, and those that pumped additional money into the economy to bolster demand. Europe, in the grips of austerity, is sliding deeper and deeper into recession; Greece and Ireland are in the depths of a depression. The governments and banks of the US and Japan, on the other hand, expanded their currencies to maintain demand. In neither case did they spend enough to lead to a swift recovery, but now, growth is slowly beginning to revive, despite state and local austerity. China spent more on its stimulus--it has surpluses to spend--and its growth rate continued to clip along, until the fall off in demand for its exports began to slow its growth, but only slightly.

What needs to happen: the Fed must become more transparent and responsive to the needs of the American people, not banks, possibly by fully nationalizing it, so that it's no longer a public-private monster. Then people will be able to hold it responsible, and prevent it from endlessly financing wars. People can insist, instead that it serve their needs, to facilitate lives that are good and long, and civilized, not brutish.

After all, in the Fed's Humphrey-Hawkins mandate, passed by Congress and signed in 1978 by Carter, the Fed is supposed to manage the economy and balance TWO needs: stability of the currency, or inflation, and employment. Inflation is what it was always excessively concerned about, since it's the bankers' bank: debts repaid in inflated dollars are worth less. Humphrey-Hawkins added that the Fed must balance the need for a stable currency with a need for stable employment. Employment is what the people need, not the bankers. That it's the bankers' bank has to change: it has to become the peoples' bank, to whom a stable currency is important, but employment is more important.

As for financing wars: if it were up to the American people now, we'd be out of Afghanistan. Withdrawing troops from most of the 800 or so foreign military bases around the world would be a likely next step: why? We need jobs, and defense jobs are the most costly to produce, and they, in effect, dis-employ Americans, by facilitating corporate export of jobs to low wage countries: Pax Americana, paid for by the American people, enables large corporations to build their products everywhere else, instead, relying on the US to safeguard them around the world.

That has to change.

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I am a writer and retired college teacher. I taught college courses in Economics and Political Science (I've a Ph.D) and I've written as a free-lancer for various publications.

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