I have read and rearead Human Action and Rothbard's Mystery of Basnking and understand that back in the day when economies were still based on some type of commodity money the governments and banks joined forces in a scheme to create money out of thin air. The goverments got the financing they needed for projects or to fight wars without raising taxes and the banks got the big interest payments and the ability to greatly expand their fractional reserve racket. In thoes days if government just created paper money people were smart enough not to trust the state to not run wild with inflation. The central bank thing fooled them into thinking it was a more trusworthy system.
But now that all money is all basically fiat money, what is the purpose of keeping up these central banks. The conspiracy theory advocats see it as part ot the plot of international bankers to control the world economy. It seems to me if governments are allowing the central bank to create money out of thin air to buy government bonds, it should be more cost effective for the government to just print and circulate the money it needs, like Lincoln's greenbacks during the War Between the States.
Am I missing something? Why do we continue to use a central bank? It certainly does not seem to control inflation. Obviously some type of commidity money is ideal but at least if the government just issued its own money it would be clear to citizens who to blame for inflation. Also it would eliminate all the interest payments made on money created by loans.
Is there something I am not understanding here or is the whole central bank thing just a smoke screen to cover up who is responsable for inflation and to make international bankers richer?
But now that all money is all basically fiat money, what is the purpose of keeping up these central banks.
if the government just issued its own money it would be clear to citizens who to blame for inflation.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Ron:It seems to me if governments are allowing the central bank to create money out of thin air to buy government bonds, it should be more cost effective for the government to just print and circulate the money it needs, like Lincoln's greenbacks during the War Between the States.
The Federal Reserve is no less a part of the government than the treasury department is.
Peace
Hi Juan
Thanks for responding. Your response is bassiclly what I thought was true. Except for the part about the dollar. The big problem for me seems to be that US currency is created by the Fed using its notes to purchase government securities. Instead of borrowing money from the Fed and creating more debt, wouldn't it me more efficent to just issue and use US Government paper money. I think it was Thomas Edison that said if the government can issue a bond it can also issue a note. Both are promises to pay but the government dosent have to pay interest on its notes (paper money). Woudn't this sove a lot of the nations debt problems?
I am not an economist so I just wanted to see if there is a problem with my way of thinking about this problem.
Hi Jon,
Thanks for responding. If the Fed is part of the government why is it owned and controlled by major private financial instutions and why does the Fed purchase government securities. It makes no sense to me for the government to borrow from itself money created out of thin air when it has the power to create money the same way without becoming indebted.
Ron:Is there something I am not understanding here or is the whole central bank thing just a smoke screen to cover up who is responsable for inflation and to make international bankers richer?
The central bank organizes the national banking cartel, to make sure that losses, loans and inflation are all socialized. The institution keeps potentially insurgent full reserve banks or warehouses from creeping up. It prevents banks from offering non-fiat monetary instruments, and severly limits their ability to set their own rates and standards of exchange.
The current system is much more subtle. The point of expanding credit is that the government does not want its activities to be noticed - it could just tax if efficiency were the issue.
-Jon
Freedom of markets is positively correlated with the degree of evolution in any society...
Ron:Why do we continue to use a central bank? It certainly does not seem to control inflation.
A Central Bank's only role is to raise funds for governments or kings.
Federal Reserve Banking is a conspiracy between the judiciary which permits the distortion of the concepts of a deposit and a loan; the Central Bank which can raise funds unseen; and the banks which can take part in an unbelievably profitable government backed scheem to enrich themselves.
You are right, Central Banks do not control inflation: they are the cause of it.
Instead of borrowing money from the Fed and creating more debt, wouldn't it me more efficent to just issue and use US Government paper money.
I think it was Thomas Edison that said if the government can issue a bond it can also issue a note. Both are promises to pay...
...but the government dosent have to pay interest on its notes (paper money).
Woudn't this sove a lot of the nations debt problems?
Central banks perform a number of functions; basically they act as the government's own bank, holding the government checking accounts and collecting tax receipts, facilitating the issuance of bonds, etc. They are also frequently given regulatory functions, such as the enforcement of fractional reserves, as is done in the U.S. But central banks also exist in countries that don't use a fractional reserve system, such as Britain. Central banks act as an interface between the government and the country's banking system. They also serve as lender of last resort to banks with liquidity problems.
What is the significance of the fact that the American Federal Reserve banks are privately owned? In my view, very little. If you look back historically, when Hamilton first organized the national government's financial system, he supported the creation of a privately owned central bank, because that is the way England did it. When J.P. Morgan acted to control the Panic of 1907, he was acting in effect as a private central bank. The creation of the Federal Reserve system in 1912 was an attempt to maintain the private character of the central bank while ensuring government control.
Would the government save money by not paying interest on the bonds held by the Federal Reserve? Since 1964 the government has levied a 100% tax on the profits of the Federal Reserve system, so the money goes right back into the Treasury anyhow.
Except as DiLorenzo has recently pointed out, the FED is incredibly wasteful and prone to abuse.
http://www.lewrockwell.com/dilorenzo/dilorenzo147.html
I think the issue of the FED being private is a huge deal. It's another layer of obfuscation.
PhCrawford:But central banks also exist in countries that don't use a fractional reserve system, such as Britain.
Indeed Juan, I can't believe I missed that. Afaik, there are no full reserve central banks left in the world.
Thanks for your response.
My confusion comes from reading some of the conspiracy theory books such as The Creature from Jekyll Island and viewing the Money Master Video. I don't know if you have been exposed to these works. They give strong arguments that control of central banks by private investors enable a small elite to have a powerful influence and are moving the world toward a one world government controlled by them. Based on the old Amshel Rothschild quote: "Permit me to issue and control the money of a nations, and I care not who makes the laws."
So you feel that there is no truth to these conspiracy theories. That there is no one profitting from the central banking ststem.
I had never knew that there was a 100% banking system in Britain. I always thought the Bank of England was the mother of debt money creation. Are you sure that the creation of the Fed wasn't really an attempt to create the illusion of government control over a banking cartel created for the benefit of private banking concerns.
Let me be sure I understand. You are saying that the purpose of the central bank is to prevent a free banking system from opperating? So who benefits from this? certainly not the people who would benefit from a sound money system controlled by the free market.