Who Controls the Money Supply – Fed or We the People?
COMMENT:
Hello Mr. Armstrong,Laugh you may. How about we just exchange with each other with love and compassion?All the best,m
ANSWER: Ironically you hit it on the head. You will deal with someone you TRUST and you will not deal with someone you do not TRUST. This is the very essence of everything – CONFIDENCE. J.P. Morgan explained it best to someone else who did not understand money or banking. So don’t laugh – you are absolutely correct and in that comment lies the fate of the entire financial system.
Other emails have come in saying Bitcoin is controlled by “We the People” rather than 12 guys at the Fed. OMG! How many times do I have to explain that the Fed CANNOT CONTROL the Money Supply. The Bulk of money is created by the VELOCITY of money through lending at the banks called LEVERAGE. This is when markets crash and the dollar is rising because the two are never equal. Assets become over-valued in a Bubble and they crash because there is not enough actual money to represent those valuations. The ” REAL money supply” is often a multiple of the actual money on the books and is known as the VELOCITY. Then the bulk of the actual money created by government is NOT by the Fed, it is by Congress through debt. I have shown this chart many times. It shows that 70% of the national debt is actually accumulative interest payments. Had the Fed actually been in charge of the money supply, it would have been one-third of its current size. Changing money to gold or bitcoin or whatever, will not address the real problem
Why was there no inflation with QE1-3? Because the bond holders were not exclusively domestic. The economy is porous and the dollar is used globally. The Fed cannot control even long-term interest rates nor can they dictate to the banks. They handed the banks TARP, but they did not lend the money. Everything is indirect – not direct control and that is much of the problem.
It is these simplistic labels attached on the Fed as the greatest evil that prevents people from (1) understanding the VELOCITY of money through banking, and (2) Congress’ convenient pointing-fingers at the Fed to deflect blame from themselves. I’m sorry, but I think you need to understand economics 101. Not everything can be blamed on the Fed. The vast majority of the money is created between debt and lending the same $100 several times.
And as for this nonsense that Bitcoin is controlled by “We the People”– give me a break. The people control the money supply right now. We either hoard and save not borrowing, which reduces the VELOCITY of money and what the ECB is going negative to try to force people to spend, or we spend and leverage the whole system up. We are our own masters and do not even understand who is driving this car.
Politicians spend more to buy votes from whom? The People. Anyone on Capitol Hill will tell you even the CONSERVATIVE Republicans during the 2007-2009 Crash lobbied on the Hill saying Congress had to reduce spending, just not theirs. The money supply is controlled by “We the People” and if you think creating some independent board will eliminate corruption, you might be interested in buying the Brooklyn Bridge while your at it for your retirement. Communism failed because human nature took over. It does not matter who is in control, once control is given, they will put their hand in the cookie jar.
There is a lot more to all this nonsense than one-dimensional ideas that try to pin-blame on just one entity for then all solutions will only create chaos as Andrew Jackson unleashed.
Bitcoin Can Go to 2,100.000,000,000,000?
Now others say that number is wrong and bitcoin can go to 2,100.000,000,000,000. If that is true, then my first statement is correct. If everyone swapped all money for bitcoins then what is the difference? This is not a question of supply. Money is just a medium of exchange not a sort of constant value and that seems to be the whole problem. Then the argument seems to turn back in on who is in charge. Isn’t that what I have been saying? It is not WHAT money might be, but government that has been the problem.
Some people want to create an alternative to the dollar that magically holds its value. That part is simply impossible for people will swing back and forth between wanting money in an economic decline and then wanting to spend it to buy assets. This is a perpetual cycle that runs through all systems and governments. I do not know how to stop that. Marx gave it a good shot and killed millions in the process. It seems we should just understand there is a cycle like the seasons and go with it.
Bitcoin will be Capped at 21 million?
I am told that I will be wrong because Bitcoin has an arbitrary cap at 21 million so it cannot end up as the dollar. Sorry, if you cap it at 21 million and there are over 300 million Americans alone, just how is Bitcoin going to ever replace anything? That is the attempt of austerity and that cap would prevent it from ever being really accepted among any reasonable portion of society. Since bitcoin fluctuates in value, then why not just hold gold coins which are more acceptable worldwide. That is the value of gold above wheat and oil. It is the same quality on a global scale. That is gold’s strength compared to real estate, which is not a movable asset. Gold is the ultimate international asset for it is the same everywhere.
You can’t have it both ways. If bitcoin removes the cap to make it more acceptable, then you are back to the problem of the dollar – elastic money supply. Think through this whole problem seriously. You first have to understand the function of money and what it is and that does not include any store of wealth.
Why did banks issue paper receipts that eventually became paper money? Because coins were clipped and debased no less counterfeited. You deposited them in a bank and they certified you had good money. Nobody wanted coins for they had to inspect each one every time. That is why they invented milled coins with reeded edges to deter clipping. Look at a quarter in your pocket. That reeding is still there today. Money naturally became paper for convenience.
One of the first paper money issues by a government bank was in 1659 for this was representative money that was just too bulky to carry around. They did not use gold but copper in the form of plates weighing 14.5 kilos. Obviously, paper was much more convenient to transport than these slabs of copper.
Austerity in USA & Republican Approach to the Budget
QUESTION: Do you really think austerity can come to the USA?
ANSWER: No. However, that is the issue which is likely to split the Republican Party for 2016. That is why the Solution cannot be simply cutting taxes or raising taxes. Obama raised taxes so far by more than $2 trillion and he is asking for another round of more than $2 trillion. He will destroy the US economy and convert it into Europe. At the same time, trying to reduce spending is like hoping Santa Claus is real. Any Solution that will get past the first step into Congress has to be something that offers a completely new approach to a system that is unsustainable yet allows them to still spend money. As far as political reform and term limits, well that’s another problem.
We will present this at the Solution Conference and introduce a bill on the Hill. That will at least start a constructive debate. We have to come up with something soon for when the crash and burn comes, they will grab whatever is on the table. The way things are going, the bankers will preach SOUND MONEY just as FDR’s Brain Trust disagreed with the New Deal. So we will have the bankers lining their pockets to get their ears and that will be more austerity if they get their way. But that will be authoritarian – not liberty.
This is not a time for gee, think this might be a good idea. This is a time to consult history and take the best from numerous events and look at what worked. We all have opinions just like assholes and they say most opinions come from the latter rather than the brain steeped in self-interest. This is something that can be implemented if the time is right.