After the Mexican government inflated and devalued the peso in 1995, the Mexican economy went into a tale’s debt. Alan Greenspan lobbied Congress and the Clinton administration for a 52-billion dollar bailout but it turned out the Fed’s member banks held as much as 26 billion dollars in Mexican debt. With no choice in the matter, American taxpayers and savers paid the bill. “Congressman Gonzales, from my experience is pretty naïve and they don’t understand that if you don’t have to like the Chairman of the Banking Committee is aware of this and goes along with it and they continue to perpetuate this myth that the federal reserves brings about stability and they can do good things for the economic growth even though they are the culprits. They are the ones who caused all the problems. They are the ones who caused the recession, the unemployment and the downsizing of all these business and all of that other facts that we have to witness but their PR jobs are excellent because they have convinced most congressmen that they are very necessary to maintain stability of economic growth and all these wonderful things that they claim credit for.”
It is clear that the United States cannot rely on Alan Greenspan or any other Fed chairman to fight the chronic inflation that has wrecked our savings, distorted our economy, redistributed income and wealth and brought us to devastating booms and busts. Despite the established view, Greenspan, the Fed and big commercial bankers are not the inflation fighters they pretend to be. The Fed and its allied banks are not part of the solution to inflation in the business cycle but they are the problem itself.
To limit chronic inflation and booms busts the business cycles, the currency must be backed 100% by gold. That would remove the Fed’s ability to print money which amounts to no more than legalizing counterfeiting. Instead, there would be a monetary system where gold serves to anchor the dollar rather than the fiat reserves created by the Fed. “If were to establish a real gold standard, the average American family would benefit tremendously. First of all there will be more jobs, better jobs, more secured jobs, more business opportunities, no more business cycles, no more recession and depressions, people’s savings will be secured, you wouldn’t have to worry if you put a money for your old age because its value would be stolen by the Central Bank and by the central government as they are today.”
Under a 100% gold standard, there will be no place for fractional reserve banking. For checking accounts and other demand deposits, the banks would keep reserves on hand to meet depositor’s claims. Banks would receive a fee from their customers for keeping their gold. In loan banking, investors would hand over their money for a fixed period of time to urn interests. Once the gold standard is in place, individual bank depositors would always have access to their money and investors would be kept informed of their balance sheet. And at a national level, a tight rein would be kept on government spending. “You’ll have relatively twice stability , you have a stable purchasing power for the money, you eliminate the business cycle, you have the reasonable interest rates rather than gigantic interest rate and the political manipulation of the interest rates, and the political manipulation of the money supply and this then preserves wealth and builds wealth and allows for economic growth.”
It’s as simple as this, sound money means economic prosperity and limited government. Unsound money means inflation, recessions, depressions and vague government. What sort of system do we want for our families? Don’t we want prosperity and security that we can hand on to future generations? Transition to a gold standard will not be easy but as Murray Rothbard put it the alternative is much worse.
Since 1980, the Fed has enjoyed the absolute power to do literally anything it wants. To Buy not only US government securities but any asset whatever. To buy as many assets and to inflate as much as it pleases, there are no restraints on the Federal Reserve. The Fed is master of all it controls.
For more information on the Federal Reserve, write the Ludwig von Mises Institute , Auburn, Alabama 36849-5301 or call area code (334) 844-2500. Also available from the Mises Institute is the Case Against the Fed, an insightful examination of the Federal Reserve operations by Murry Rothbard.