With the financial collapse of 2008, the bursting of the housing bubble, and the irrational scare tactics used by big government proponents to create a United Stases debt greater than any in the history of the world, people are beginning to ask real questions about United States monetary policy. Citizens are now able to see that our economy is a house of cards, based on debt that can never be repaid. The United States over the past half-century has gone from the biggest creditor nation to the biggest debtor nation, and the government’s solution is worse than the problem.
Recently, many questions have been raised about the true nature of the Federal Reserve System. The following are other questions which all thinking Americans should be seeking the answers to. What is inflation? What is a fiat currency? What is fractional reserve banking? What is a free market? What was the gold standard? What is the relationship between gold and paper? Who benefits from a central bank? What is the government’s role in all this? These are a few questions I hope to answer in this report. I also hope to create a new awareness among United States citizens about these issues that is not presented to us by the mainstream media because of the media monopoly.
Inflation is defined by the average person as a rise in the prices of consumer goods. What causes the rise in prices? There are different theories about this matter. The Keynesian economic theory, which is the theory of favor in the United States and most major countries around the world, proposes that changes in the money supply do not directly affect prices. The Austrian School of economics defines inflation simply as an increase in the supply of money and credit. With the increase in the supply of money and credit the real value of each unit of currency is worth less. This means that inflation causes a loss of purchasing power.
The Keynesian solution to economic problems centers on a central bank that has the power to manipulate interest rates, encourage spending, and print money. Austrian economists believe that true wealth can only come from savings and productive capacity. Much of the mainstream talk in recent years is that the United States in changing from and industrial based economy, where real quality goods are produced and sold on the world market, to a service based economy. Well whose needs are we serving other than our own? Where is the money coming from?
A fiat currency is normally paper which government has authorized, as legal tender but is not backed by or exchangeable for precious metals. A fiat currency’s only value comes from a decree of government. When confidence in governments monetary policy becomes questionable then the currency is exposed for what it really is, just paper. When government spending gets out of control and the economy is based on credit and debt the country will experience recessions, depressions, and in the worst cases, hyperinflation. Hyperinflation occurs when a currency is debased to the point of worthlessness. It is a massive increase in the money supply that is not supported by an increase in productive capacity. Numerous countries have experienced hyperinflation including the United States, Hungary, Germany, Greece, China, and most recently Zimbabwe. When this happens the currencies are not worth the paper they are printed on.
Fractional reserve banking is another absurd practice that is accepted by the mass of people as sound. This practice allows banks to create money out of nothing in the form of lending. When a bank receives a deposit in the United States it is only legally required to hold 10% as a reserve available for withdraw. The other 90% is loaned out to borrowers at interest. When this loan is redeposited another 90% is loaned out at more interest and on and on. The result is that for every one thousand dollars deposited another nine thousand dollars can be created in the form of new loans....