So im on this "conservative" website and i see an old article bashing Ron Paul, austrian economics, and any idea of a gold standard. They main point they make is that liquidity goes away in times of economic crisis and that no one would possibly lend money to any one or any business that had any chance of going bankrupt. So, according to them without a federal lender of last resort business expansion and economic growth would come to a screeching halt. Any thoughts?
well a business going bankrupt means that they are somehow being unproductive and inefficient. So how is a bank lending money to that business going to cure that? it doesn't. let the business go bankrupt and let new investors into the market, that is more productive to the economy. The market is honest, it says, "You better be efficient, productive and meet the demands, or else you are going to get canned." Having a central bank to lend money to failing business does not help the economy. Especially when it is up to the bank to determine which business it should lend money to. They are the ones that pick the winners and the losers under this system. instead of having the honest market decide, you have the bank saying ," you are inefficient, unproductive, and are not meeting up with demands, but we like you, so we are lending you money and letting your competitor die in the market." and when the bank does this, it decreases investment that should have taken place if the failing business was to fail.
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dbill27: So im on this "conservative" website and i see an old article bashing Ron Paul, austrian economics, and any idea of a gold standard. They main point they make is that liquidity goes away in times of economic crisis and that no one would possibly lend money to any one or any business that had any chance of going bankrupt. So, according to them without a federal lender of last resort business expansion and economic growth would come to a screeching halt. Any thoughts?
Oh, they are absolutely right. Would you lend money to someone who is very likely to go bankrupt?
The thing is, a company that is about to go bankrupt is obviously, almost by definition, incompetent. So what these Ron Paul bashers are saying is that the hard working US taxpayer should have his money taken from him by threat of violence to give to someone who has ruined his company and will never set it right.
How does this make economic sense? How is this just or moral?
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I understand all of the above, i think what they are saying though is that in a recession or a depression there is uncertainty about everything and every business no matter how well run. and yes i know that obviously artificial credit expansion caused any economic downturn in the first place. They think though, that there would be panics all the time without a lender of last resort and that business growth would be crippled
can they provide historical evidence of this claim about a gold standard decreasing growth instead of assumptions?
No, not really. They have all these points that they think they are making that disprove gold standard absolutely but its mostly just bad economic reasoning. Ive been blocked from the site but its redstate.com if you search gold standard once on that website you can probably find it pretty easy. Its an old article but if you go on there and comment about anything relevant or libertarian youll be harassed, but its fun
So if proffesional bankers are not willing to risk their money, the taxpayer should have his taken away? How does this follow?
If there is a recession or depression, the taxpayer should have his money taken away? How does this follow?
If there is no lender of last resort, businesses will be a thousand times more cautious before starting hairbrained schemes, and not go bankrupt in the first place.
Great answer, i couldnt agree more
dbill27: Great answer, i couldnt agree more
Thank you.
This whole liquidity issue is a result of what is perceived as a contraction in the supply of loanable funds. In commodity-money systems, this contraction is only a perception because the actual supply does not appreciably change over time. What causes the appearance of a contraction is the use of fractional-reserve banking. On the other hand, in fiat-money systems, the contraction is caused by rising interest rates and is therefore real.
Either way, however, the cry for liquidity in times of crisis is due to businesses threatening to go bankrupt. In other words, the cry for liquidity is really a cry for bail-outs. As followers of Austrian Economics, we must ask, why should they be bailed out?
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