Sunday, November 22, 2009

If We Audit the Fed, What Next?

I just wrote a letter to my Congressional representatives (Representative Ruppersberger and Senators Mikulski and Cardin) I thought I'd share with you. I had just read an article by Scott Lanman over at Bloomburg.com (Lewrockwell.com linked it) about the progress of Ron Paul's "Audit the Fed" act. Reported were concerns of the bill's opponents about the impact such a bill would have on the political independence of the Federal Reserve, and that on the public's confidence in the Dollar. I thought this a good time to write a letter via Downsize DC's "End the Inflation Tax" campaign. The following is what I wrote:

In the last Congress Rep. Ron Paul introduced three bills that would conquer inflation. Please do all you can to wrap the "Honest Money Act," the "Free Competition in Currency Act," and the "Tax-Free Gold Act," into one bill, and get it introduced.

I just read an article on Bloomburg.com by Scott Lanman, "Fed Audit Shield Takes Blow After Ron Paul Proposal Advances", which reminded me of the need to indicate that should Ron Paul's "Audit the Fed" actually pass (yes, I would like to see that), neither that, nor reaction to the revelations about the Fed's role in promoting inflation on behalf of wealthy interests, should be construed as a desire for political control over the money supply. I do agree, that if there is a central bank, that central bank should be politically independent. However, I also believe that a central bank is both undesirable and unnecessary: central banking controls inflation not to eliminate it, but rather to limit it to a controlled fleecing of the public. It is a tax, but it is a highly regressive tax.

That's not to say that ending the Fed outright, as some in the community I associate myself with would have it, is the end goal here. A money issuing agency is a necessary component of a modern economy; having every store have their own assayer for gold and silver would probably be sufficiently inefficient as to drive down productivity. No, the Fed should stay... but they should also have competition. Competition could come in the form of foreign currencies held as a hedge against inflation and occasionally circulated in some places (such as border and seaboard areas), or privately issued company scrip, or privately produced circulable gold and silver coin, or anything else a group of people could find themselves using as a medium of exchange. Some of these things are already done to a limited degree, but most of these things, particularly circulation of gold and silver coin of ANY design (this is not a counterfeiting issue), are technically illegal, and therefore cannot currently serve a competitive role.

I doubt these things could knock down the Dollar's role even as international reserve currency, let alone domestic unit of account, any more than Federal Express and others were able to replace the United States Postal Service. But marginal, niche based competition provides a greater impetus for discipline than all the political oversight committees in the world. The Fed already competes with foreign currencies, gold and silver on an international stage. I think domestic competition could strengthen the dollar even more, making its role on the world stage, extremely important to the long term value of the dollar, virtually unassailable.

Laman's article stressed the role of perception in monetary strength. This is, of course, true in the short term. But all the lies in the world cannot overturn the underlying fundamentals in the long term; market discovery processes can be slowed, but not stopped. A well perceived currency with bad fundamentals will fall in the long run, betraying the trust of those who believed in the image presented. A poorly perceived currency with good fundamentals will perform well in the long run, rewarding those who were able to look past the hype and see the truth of the matter. Shall our monetary system be a duper of fools? Or shall it reward the prudent? If this is anything more than a rhetorical question for you... well, that's about what I'd expect from a politician. So surprise me.


Just thought I'd share.

2 comments:

The Arthurian said...

"A well perceived currency with bad fundamentals will fall in the long run.... A poorly perceived currency with good fundamentals will perform well in the long run...."

Most satisfying.

DASawyer said...

I particularly like the part about betrayal and rewards. I know it's my own writing... but I'm particularly proud of this one. Thanks for the comment, which caused me to revisit this entry.