Posts Tagged ‘monetary policy’

A small-sized 1953 $2 note, displaying the sma...

Monetary reform activist, Kirk Mackenzie, was on Radio Liberty with Dr. Stan Monteith on August 17, 2011, and outlined a temporary transition period toward a free-market monetary system that involves the federal government issuing debt-free and interest-free currency over 10 years to make up for the intentional contraction of the money supply that would ensue by the banksters resisting true monetary reform, as history indicates with President Andrew Jackson’s war on the Second Bank of the United States.

He was asked about inflation under such a scenario, and it’s important to outline the historical experience with Greenbacks that goes almost completely unreported these days, and how he is right about it being a model where inflation shouldn’t present much of a problem, if at all.

From Sarah Emery’s 1894 book, Seven Financial Conspiracies, she points out how the first $60 million in Greenbacks, a large sum in 1861-62, traded at par with gold, and it wasn’t overprinting that resulted in their decline, but it was two banker-engineered actions in Congress that did so.

First, with the inclusion of the exception clause, which said that the Greenbacks were no longer valid for payment of duties on imports and interest on the public debt, back when duties on imports accounted for a substantial portion of government revenue, unlike today.

Then, the so-called Credit Strengthening Act was passed, which further depressed the value of the Greenbacks, in requiring payment in gold for the interest on particular long-term Treasury bonds, which created an artificial demand for gold.

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Thomas DiLorenzo

At his February 9, 2011 testimony to Congress, Professor of Economics at Loyola University Maryland, Thomas DiLorenzo, asserted:

“Monetary policy under the direction of the Federal Reserve has a history of creating and destroying jobs. The reason for this is that the Fed, like all other central banks, has always been a generator of boom-and-bust cycles in the economy.”

What he fails to point out, however, are the boom-and-bust cycles that were created in the United States without a central bank. Namely, from 1837 to 1913.

A simple Wikipedia search for “panic of” shows articles for the financial panics of 1837, 1857, 1873, 1884, 1890 and 1907.

So much for the implication, whether intended or not, that financial panics are rare without a central bank.

“It was not the Fed’s subsequent restrictive monetary policy of 1929–1932 that was the problem, as Milton Friedman and others have argued, but its previous expansion.”

DiLorenzo needs to argue for that based on his Austrian economist notion that inflation is nothing more or less than an increase in the money supply, and therefore, the cause of so many of the ills in the economy, and not other reasons, such as unpayable debts.

The question I have for him and other Austrian economists is, without an increase in the money supply, where is the money supposed to come from to pay interest on the debts issued by banks and other lenders?

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