<p>Ok, I am a ron paul fan and as such I have been shocked at the federal reserve system even though I really didn’t know much about it. Anyway, in my economics class we are just starting to talk about the federal reserve. After wondering what the federal reserve is, I came to this conclusion: </p>
<p>Inflation can only occur when there money is given for free and no cost is incurred. Therefore, the inflation that is in our country is caused by the government or someone else getting free money.</p>
<p>Does this make any sense? any input would be appreciated.</p>
<p>Ok, well here is my thought: My economics teacher tells me that the main way the Fed increases and decreases the money supply is by the buying and selling of gov. bonds. Ok, so I go through what would happen if the Fed bought gov. bonds. I would think that money supply would be increased innitially by the purchase. However, at some point the government has to pay the principal plus interest of the bond. Right. So wouldn’t the net effect be deflation if the government paid the bond back? Since we obviously havn’t seen any deflation for like 70 years or so my guess is that the government or someone is getting away with printing money and not paying the cost for that. </p>
<p>I dunno, but I do know that the federal reserve is not a govt. entity but is owned by private bankers. So the manipulation is not done by ‘the Fed’ but by private entities.</p>
<p>Inflation = depreciated dollar = drop in the purchasing power of the dollar abroad (and at home, but the effects of monetary depreciation are best felt in the FX market) = the people who suffer the consequence of an increase in M are holders of dollars. </p>
<p>Terribly simplified, and I probably screwed up some economic principle or another… eh.</p>
<p>By the way, what gave you that idea, lealdragon? Given the fact that the Fed is at least answerable to certain governmental bodies (e.g. White House, Congress), that makes it at the very least – quasi-private. And since the Fed is responsible for national monetary policy… You make it sound as if the Corporation runs it.</p>
<p>jclay2: You need much, much more economics exposure before you’re really qualified to make that kind of judgment. You need to stop putting the horse before the cart, and fully learn the economic theory behind central banking, the federal reserve, and inflation before you put your faith in Ron Paul.</p>
<p>leal: Give me a break. The whole “The Fed is a conspiracy created to aid the rich bankers” crap is the most tired and stupid thing the whole amalgamated conspiracy nuts consortium has ever produced. The fact is, the thing all of those videos have in common are an almost total lack of facts and a ridiculous lack of economic knowledge.</p>
<p>The independence of the Federal Reserve from the government, much decried by all of you, is vital. Macroeconomic management is one of the most complex tasks that a country must do. It is also a task that very easily gets corrupted and screwed up by political maneuvering. Allowing politicians with short-term interests the ability to screw with macroeconomic policy like that is not a good idea. It’s just not.</p>
<p>Finally, inflation is not just a tax on the people, nor is it a tax on the taxpayers. It’s a concept that isn’t ideal, but its costs and benefits are significantly more complex than most Paul-ites would have you believe, and while it’s true that inflation’s main issue is how it re-allocates resources in ways that can be unexpected, those ways are just not as simple as “poor->rich”.</p>
<p>jclay2: Again, stop listening to Paul before you understand the economic theory behind this stuff. I really don’t think anyone without at least an introductory college course in economics (or the equivalent AP experience) has even close to the tools necessary to comprehend how the system works. And when the issue gets clouded with all these absurd pronouncements about conspiracy and other ridiculous assertions, it just gets worse.</p>
<p>10f42 i never said i was positive or sure, its just my current thoughts and opinions. Also, can you explain to me in your opinion if the cost outway the benefits.</p>
<p>Well, it’s not just me who’s saying this - it’s me and everyone else who knows the macroeconomic theory, who cares to examine the evidence, and who isn’t inclined to put their faith in the fact that there’s always a conspiracy out to screw them.</p>
<p>But hey, you could listen to the legitimate economic theory, and actually examine the facts and evidence, or you could watch online videos with ominous music and an equally ominous lack of facts. Your choice.</p>
<p>But, based on previous conversations with you, the impression I’ve gotten from you is that you tend to dismiss anything that’s not accepted by the mainstream, thus oftentime prematurely deciding that it is without fact.</p>
<p>Radical ideas may be whacko, or they may be pioneering. Hard to tell sometimes in the early stages. Radical ideas should be examined with an open mind; else you may be missing out on evolutionary and/or visionary ideas.</p>
<p>Are Ron Paul’s ideas on economics sound? I have never had an economics class, so I admit that I’m not qualified to say. (I support Ron Paul primarily for his views on the war, foreign policy, return to the Constitution and civil liberties.) I posted those links as valid info to be considered, along with other valid info having opposing viewpoints.</p>
<p>I wonder whether you bothered to watch those videos, or did you dismiss them on account of the music or your initial impression?</p>
<p>Hey 1of42, why don’t you give me some facts. I am an average joe who doesn’t have a phd in economics. After looking at how the FED works on the most simple level I came to a conclusion. This is my conclusion:</p>
<p>Inflation can only occur when there money is given for free and no cost is incurred. Therefore, the inflation that is in our country is caused by the government or someone else getting free money.</p>
<p>Give me some facts as to why or why not this is true. Right now, I am convinced the FED is seriously screwy. Oh and why you are at it answer this. How come I can’t get the discount Rate like the Banks do. Isn’t that a little unfair.</p>
<p>I hold many views that are not at all mainstream, especially my views on drugs, my more libertarian views, some of my views on bioethics matters, my very frank atheism, and so forth. Characterizing my views as mainstream is incorrect. The way I come to my views on issues is by examining evidence, and evidentiary claims. If you look at my views, they are based on what can and cannot be reasonably proven.</p>
<p>So in this case, I am with the “mainstream”, as I’ve already explained. This is because the preponderance of economic theory, evidence and research have all supported a fiat currency system.</p>
<p>There’s an asymmetry between the sides in this debate. One fights with statistical evidence, peer-reviewed and accepted economic theory, and proven positive results (combined with rigorous explanations of the negative results). The other fights with Internet videos, unsupported claims of conspiracy, and grand proclamations.</p>
<p>Until the anti-Fed side debates with tactics that I consider legitimate (i.e. by providing evidence to support claims and so forth), as opposed to debating with populist tactics, flashy slogans and so forth, there is no question in my mind as to who is correct.</p>
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<p>See, they’re not really particularly valid information. They don’t provide evidential support for their claims, and attempt to compensate with lots of interviews, and ominous music as well as proclamations that are unsupported.</p>
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<p>I watched each of the videos you linked. I did not watch the rest of the parts of each video, since I don’t have the time at the moment, but unless the parts I watched were the isolated “say stuff with no proof and expect people to take us seriously” parts, and the rest of the videos are full of claims supported by evidence, I see no reason to think that I missed anything.</p>
<p>Inflation CAN occur when additional money is produced, triggering a depreciation relative to other currencies. This reduces the dollar’s purchasing power (exports are cheaper, so exports rise while imports fall due to rising costs…) There is no such thing as “free money”; when dollars are printed, the currency depreciates, and the average American consumer suffers.</p>
<p>You toss around terms such as “discount rate” as if you have a clue as to what exactly that is… the discount rate is there to provide short-term stability for private institutions. The discount rate is usually a point higher than the federal funds rate, which is the rate at which banks lend money to each other. (The federal funds rate is more relevant.)</p>
<p>By the way, as an ever-damning piece of evidence in the war on Paul-ism, let’s take a look at the WaPo’s analysis of the Congressman’s proposed budget plans:</p>
<p>One of the most accepted models is the Triangle model, which is composed of demand-pull, supply shock and built-in inflation. There are a number of other theories, however. Since I don’t really have the time to do a better job than that Wiki article in a single post, just give it a read.</p>
<p>Your idea that inflation is caused by people getting “free money” is simplistic. The idea of “too much money chasing too few goods” is about as simple as inflation can be defined, but the theory behind inflation has become very complicated, so that kind of simple definition is inaccurate.</p>
<p>And you can’t get the discount rate because the discount rate is a tool to influence the quantity of money in the economy and stabilize private institutions.</p>