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Am I a closet Ron Paul fan?

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March 18, 2010 – Comments (6)

Well, it depends on how you define "fan." I can't say that I agree with most of what he says, but I do love to hear him question Bernanke. Agree or not, he is one of the few folks that seems to bring a (mostly) educated view to the hearings and asks good, pointed questions.

Yesterday, he grilled Bernanke on whether the Fed held rates too low early in the decade and whether that spells trouble for policy in the wake of the current crisis. As I wrote today on Fool.com, a lot depends on clearing up disputes about how to use the Taylor Rule to guide policy decisions.

I'm of the camp that believes it's not a foregone conclusion that the Fed's policies will lead to runaway inflation / disaster / etc. However, I think they do walk a very fine line and need to be on top of their game to manage the exit properly.

I'm sure there are plenty of you that strongly disagree...

Matt

6 Comments – Post Your Own

#1) On March 18, 2010 at 8:51 PM, dbjella (< 20) wrote:

'm of the camp that believes it's not a foregone conclusion that the Fed's policies will lead to runaway inflation / disaster / etc. However, I think they do walk a very fine line and need to be on top of their game to manage the exit properly.

I think it is so sad that they (Fed) get to manage anything let alone the livelihoods of everyone.  I don't think people at the Fed are evil people, but I believe that centralized power is awfully dangerous.  To me a gold standard or something to that effect puts the power in the hands of the people and not in the hands of the central planners and their protractors, rulers and formulas.  The fact that we as a nation "accept" this control is sad. 

 

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#2) On March 19, 2010 at 12:49 AM, TMFKopp (98.93) wrote:

I think the argument for a gold standard has a lot of "the grass is always greener" going on with it. There are some pretty severe disadvantages to a gold standard.

I'm not exactly sure what you mean when you say a gold standard "puts the power in the hands of the people." Yeah, totally lost on that one.

Matt

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#3) On March 19, 2010 at 12:24 PM, shootthemoon69 (< 20) wrote:

I agree with comment #1.....in the sense that it is a Damn Shame, that "we" the people have allowed not only the Control from the Fed....but what is totally unbelievable is that LOBYIST have the power to sway the decisions that affect US.  I mean, reallly, it is a well know fact.....and openly discussed as if it was a normal thing.  I am sorry.....but we have to wake up to this nightmare.

As for the Gold Standard.....I agree with comment #2. BTW, Did you know that the US is bankrupt.  We do not have anymore Gold.  Its all gone.  They replaced it with what we have today.....the Oil Standard....  :-)

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#4) On March 19, 2010 at 8:13 PM, Daygan (< 20) wrote:

Matt, while I really am by no rights an economist, I believe what dbjella meant by the statement that a gold standard "puts the power in the hands of the people" was that the value of currency remains stable because it is based on the value of the gold that backs it, as opposed to our current standard, wherein our currency's value fluctuates (i.e. decreases) at the whim of whoever is producing more paper money (and I believe, in our case, that would be only the Federal Reserve). Under our current standard, the "power" is in "the hands of" the Federal Reserve to manipulate the value of money and the buying power of the average earner, while increasingly larger percentages of the money pool become consolidated in certain sectors/companies. That's how I understand it, at least. If I'm mastaken about any of this, please feel free to correct any inaccuracies that I may have made or add your own thoughts. I'm still learning about these concepts.

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#5) On March 19, 2010 at 8:29 PM, TMFKopp (98.93) wrote:

@Daygan

That seems like a reasonable explanation, but a few things:

- The Fed does not control the value of the currency. It holds the reigns of base-level interest rates. The value of the money is dictated by the extent to which sellers demand more or less currency for a given good. So in that sense, we could say the actual value of the money is in the people's hands. Of course that's only partly true since people are naturally going to demand more for their goods and services as the money supply expands.

- In the case of gold the power really isn't in anyone's hands (except perhaps those that mine it?). External shocks (a huge new gold find, a sudden distaste for gold jewelery, etc) could impact the value of the currency at random times.

- A subject for debate, but a great deal of economic literature suggests that a low level of inflation greases the wheels of commerce and growth. 

- While a leverage-driven panic may be less likely under a gold standard, there are far fewer levers to pull to cushion the economic blow. By pushing interest rates low during the downturn, production can be incented. If everyone decides to sit on their money under a gold standard it gets much more difficult to jump start production.

Under the current system are we trying to exert control over the uncontrollable? Perhaps. But I'm of the mind that there isn't enough evidence that the gold standard would be vastly superior (if superior at all), and the real-world impact of making such a switch would be so enormous that I'm not even sure how to wrap my head around it.

Matt

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#6) On March 29, 2010 at 8:53 PM, Daygan (< 20) wrote:

@Matt

 okay, but, what about the Fed's ability to print more money, thus increasing the money supply, which in turn decreases the demand, and devalues the currency?

 I understand your point about gold, but hasn't gold been relatively stable in buying power for the last 2,000 years? (I could be entirely mistaken about this, just asking)

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