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The Difference Between Economic Policy and Monetary Policy
Posted By admin On June 22, 2010 @ 5:30 pm In Economic Crisis | Comments Disabled
June 22, 2010
Every day, we watch the news and see the talking heads go on and on about the same stuff: Obama is spending too much; Bush spent too much—we’ll stop spending over here, and use the money from over there to fund this project over here.” It’s the same argument, and unfortunately, it’s a huge distraction. Yes, Bush spent like a drunken sailor—Obama is continuing the spending. But to truly understand where we are economically, and where we’re headed and how to actually achieve economic prosperity again, we must first understand money, where it comes from, how the United States money works, and above all, we must define clearly the difference between Monetary Policy and Economic Policy.
First, Economic Policy. This is the easier and the less important to define, and unfortunately for this very reason, this is the policy that politicians and the talking heads on corporate news networks and state-run media outlets like to bicker about. Simply put, Economic Policy refers to the actions that a government takes in the field of money. How are they spending the money? How much goes to our ‘national security’? How much goes to this war as opposed to that war? How much will we ‘invest’ in green jobs? How much can we afford to ‘give back’ to the taxpaying (and non-taxpaying) citizens? These are the kinds of questions that deal with Economic Policy, and these are the only kinds of questions that we’re hearing people in the news ask.
Broadening the definition, we can typically say that there are two sides of Economic Policies: Liberal and Conservative. Using the current definitions of the day, ‘liberal’ would refer to a government spending more, and ‘conservative’ would refer to a government spending less.
It’s all a hoax.
The argument over ‘conservative and liberal’ economic policies is a hoax played on the American people by the Political Elite, who are in bed the the bankers, who are in bed with the unions, who are, in turn, in bed politicians.
To really understand this and to be able to sufficiently define “Monetary Policy”, it is important to define the 4 kinds of money: Commodity money (money back by gold in most cases), receipt money (money that can be redeemed on demand in full value in terms of gold or silver by the receipt-holder), fiat money (money not backed by gold or silver and is deemed legal tender by decree) and fractional money (which is how we function today along with fiat, and will be addressed later).
The real and more important (and more complicated) question is: ‘What is the Monetary Policy of the United States?’ This question refers to how we as a nation define money and how we create money. Simply put, there are basically 2 different ways to answer the question of how money is created and regulated: 1)a government body; 2)a central bank. Our Constitution clearly states that one of our Congress’ obligations is “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” Further, many of our Founding Fathers were strong supporters of a currency that was backed by gold and silver, and not a paper money, mainly because they saw the horrors what artificially inflating or deflating the currency can do to a nation.
The Founding Fathers understood fiat money and inflation because they lived through it themselves. Inflation destroyed the the Massachusetts Bay colony in the 1730s, when the state devalued their fiat currency by 66%; they offered 1 new ‘dollar’ for every 3 old ‘dollars.’ They promised that the money would be redeemed in gold after 5 years, but they broke it, which resulted in poverty.
This happened throughout America too; by the 1750s, Connecticut inflated their prices by 800%, the Carolinas by 900%, Massachusetts 1000%, and Rhode Island by 2300%! Whey they finally deflated their fiat money, depression became widespread. When Massachusetts returned to a commodity-backed system while Rhode Island stayed on its fiat money, Newport lost its trade to Boston.
The Revolutionary War was paid with inflation as well. At the beginning of the war (1775), the total money supply (the Continentals) was $12 million—by 1779, the money supply rose 5000%! The Continentals went from being redeemed for 1 dollar in gold in 1775, to 25 cents in gold in 1777, to less than a penny in 1779. Incidentally, this is where the term “not worth a Continental” originated.
George Washington wrote that, “A wagon load of money will scarcely purchase a wagon load of provisions.” This is the same thing that happened in the Weimar Republic—wheelbarrows full of money to buy a loaf of bread. This destroyed the middle class, caused massive economic and social instability, and led the way for a sociopath taking over the country and starting a world war.
This leads us to the obvious lesson that fiat money is the direct cause of inflation, and the amount that we lose in the purchasing power of our dollar is the same amount that was taken from us and transferred to the government without us even realizing it! Inflation is therefore, a hidden tax, and it hurts the middle class and the poor class the most.
The solution proposed by Socialists and Keynesian economists is simple: “Print More Money and disburse it to the underprivileged!” This leads to even higher inflation, and worse depressions, which leads to printing new money as the so-called ‘solution.’ The beauty of money backed by a commodity like gold and silver is that it can’t be counterfeited, and therefore can’t be artificially inflated to pay for the economic wet dreams of the politicians.
This is the reason that Keynes wrote (in his book The Economic Consequences of Peace, 1919):
“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily and while the process impoverishes many, it actually enriches some…as the inflation proceeds and the real value of the currency fluctuates wildly and from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth getting degenerates into a gamble and a lottery. Lenin was right. There is no subtler, no surer means of overturning the existing basis of a society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose,” (emphasis added).
This is the exact reason that our Founders gave the responsibility to Congress to COIN money, not to print fraudulent paper money. Here’s what some of theme had to say at the Constitutional Convention concerning fiat money:
George Washington: “They may pass a law to issue paper money, but 20 laws will not make the people receive it. Paper money is founded upon fraud and knavery.”
James Wilson (PA): It will have the most salutary influence on the credit of the United States to remove the possibility of paper money.”
John Langdon (NH) warned that he would reject the entire plan of a federation if the government had the right to issue fiat money.’
George Mason (VA): Said he had a ‘moral hatred’ against paper money.
Thomas Paine (not a delegate) wrote that fiat money was a counterfeit to the state, and that he hated legal tender laws, which FORCE people to accept the counterfeit. He said, speaking of legislators, “The punishment of a member who should move for such a law [legal tender laws] ought to be death.”
The result was a Constitution that gave the power to the Congress to COIN money, and prohibit specifically the states from issuing bills of credit (fiat money). Sound money backed by precious metal reigned free, and the results were economic prosperity. The Pennsylvania Gazette stated that since the Constitution removed the possibility of paper money, their trade increased 50%. The US exports jumped from $19 million to $93 from 1791 to 1801. By 1802 THE DEFICIT VANISHED, and the country experienced a surplus almost as large as the Government’s spending!
George Washington wrote in 1789, “We may one day become a great commercial and flourishing nation. But if in the pursuit of the means we should unfortunately stumble again on unfunded paper money or similar species of fraud, we shall assuredly give a fatal stab to our national credit in its infancy (emphasis added).
It is clear that this country’s Founders wanted a sound monetary policy, one backed by gold, to be the only kind of monetary policy for the country, because they, themselves lived through the horrors of inflation. Unfortunately, greed has a way of corrupting even the best men, and this is what led to depressions, wars, and our current economic situation.
One of the arguments against a Monetary System backed by Gold is the charge that there isn’t enough gold in the world to be used as money, but that’s nonsense. The very nature of money is NOT wealth in itself, rather, it is the MEASUREMENT of wealth. The best kind of money is a money that has intrinsic value, is versatile, and is somewhat scarce, because that fits into the notion of Supply and Demand. Gold fits this criteria, and isn’t that scarce—there is still lots of gold to mine; it has been estimated that only 45% of the gold mined in the world since the discovery of the United States is in government/bank stockpiles—the rest is in private hoards and in jewelry/ornaments. Furthermore, Gold can not be counterfeited, like paper money, and gold currencies, historically speaking, has been the only currency that did not bankrupt its own nation until the Governments started debasing the coins with substitutes to gold, which is why virtually ALL of the Founding Fathers were for a gold currency against a fiat money printed by a Central Bank.
If the supply of gold in relation to supply of goods is so small that 1 full ounce of gold would be too valuable to measure, then we would use 1/10 ounce coins instead. The amount of gold doesn’t hurt its ability to be used as money, it just affects the quantity that you would use to measure how much something is worth.
The Constitution denies the Congress the bower to print money, but it does allow them to borrow money—if only there were some kind of Private Centralized Bank in America, then the government could borrow from them and get around the Constitution! This is exactly what happened with the 1st Central Bank of America [the Bank of North America] (1781-83), the 2nd Central Bank of America [the First Bank of the United States] (1791-1811), and lastly, the 3rd and Current Central Bank of America, known as the Federal Reserve [est. 1913].
As an aside, it is important to note that the Central banks did usher in inflation at time to time, but they were much different than the Central Bank of today, in that the 2nd bank was still required to have some amount of gold in their vaults, meaning that there was only so far that the bank was able to artificially expand the money supply.
The main idea behind the current Central Bank, the Federal Reserve, is the 4th kind of money mentioned earlier: Fractional Money. The idea is that people deposit their money into banks, and the banks take that money and lend it to others. The theory behind banking is that not everyone will want their money at the same time, and so lending person A’s money to person B is fine, because person A can have person C’s money when he wants his money back. But the main flaw in this idea is that the deposits are not available for lending. Period. We’re all told that our money is in the bank, and we can get it at any time we want, but we’re not getting our money, we’re getting someone else’s money—they just lent ours out to someone else!
This leads to Fractional Reserve Banking. Banks only kept about 15% of what was deposited—the rest was lent out to others. Depositors were given receipts for their deposits, but the bank issued out loans with 85% of the deposits, and the new borrowers of that money were given new receipts for the same money! This resulted in the existence of twice as many receipts as there was money! The Bank, out of Fractional Reserve Magic, was able to create brand new money. This can only go on for so long, because eventually, when people wake up and realize that their money that they deposited isn’t really safe, they all run to the bank and demand their money, which as we know from It’s A Wonderful Life, ends in mass depression and poverty.
As John Keynes said, “A sound banker…is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can readily blame him. It is necessarily part of the business of a banker to maintain appearances, and to confess a conventional respectability, which is more than human. Life-long practices of this kind make them the most romantic and the least realistic of men.”
This leads us to our second question from earlier. What is the Monetary Policy of the United States currently? The answer is that we are a nation that funds its money on bonds, which is essentially debt. Our money comes from our own debt. We are a nation with fiat money and the Federal Reserve is practicing Fractional Reserve Banking. But to truly understand the idiocy that is American Monetary Policy, we must learn exactly how the magic is done.
Before we do that, it is important to remember that the Federal Reserve System is not Federal. It is a private banking cartel that the US Government is restricted from conducting a full audit. There are videos online showing Fed Chairman Ben Bernanke refusing to answer questions regarding bail out money at Congressional Testimony and he has every right to do so because the US Government is restricted from knowing the what happened to the bailout money, and other kinds of transactions, including transactions WITH FOREGIN GOVERNMENTS.
It is also important to realize that the Federal Reserve is an Unconstitutional institution. The Congress and the Congress alone has the authority to coin money. The Constitution does not say that the Congress could create a bank through the legislative process and divert the money-making process to them, and therefore, through the 10th Amendment, the Congress is not allowed to do so…but that didn’t stop them. Thanks to President Wilson (and the bankers who met at Jeckyll Island almost 100 years ago this year and planned the system), we are now stuck with a monetary system backed by nothing but US government debt.
One thing to bear in mind is that the way money is made is ridiculously complicated, as it is reclassified as new terms, and newly printed money is printed—That’s the plan: it’s supposed to be confusing because that way people will give up and continue to go about their lives not really caring to know how their money is being sucked dry from their bank accounts. I have labeled this with ‘steps’ to make things as easy to understand as possible.
First, the Government has no money. They can obtain it two different ways: tax the people, or print up bonds or treasury notes to sell to the people. The Government has other debt too, but the bonds make up most of it. Either way, the Government has no money. So,
1. The Government gives the Federal Reserve the bonds and treasury notes that people don’t buy, and in exchange, the Fed gives the government a Federal Reserve Check. Meanwhile, the bond and treasury notes are re-classified in the Fed as a “Securities Asset” because it’s assumed that the government will make good on the promise to pay the Fed back the money it just borrowed from them.
2. The Government now has a Federal Reserve Check. This is money used to pay government expenses. They endorse it and send the money to Federal Reserve Banks, where the check now is classified as a Government Deposit.
3. As a Government Deposit, the money is used to pay many expenses, and so it is re-classified as Government Checks.
4. Government Checks are given to Government employees, who deposit these checks in their own Commercial Banks (Citizens, Bank of America, etc.)
5. This is where it gets fraudulent (more than it already is, anyway). The deposited checks are liabilities to the bank because they are liable to pay it back to the depositors. But, as long as they remain in the bank, they’re considered assets, and so the books ‘balance out.’ (It’s important to know that if you or I did this in our private business or tax filings, we’d be thrown in prison for the rest of our lives).
6. The so-called assets (which are nothing more than deposits which are really liabilities), are now re-classified as Bank Reserves. The banks are permitted by the Fed to only hold on to 10% of these reserves, and they’re allowed to lend out the other 90% (which are named “Excess Reserves”) as new bank loans. Think about that for a minute: This is a double claim on the same money that was originally deposited as Government Checks. So, to prevent a double-claim on this money, they just print new money out of thin air for the exact purpose of off-setting the double claim. And better yet, the banks are allowed to collect interest on this new money from their customers, and considering it cost them diddly-squat to make the money, that isn’t bad (unless you have a moral conscience).
7. When the second wave of fiat money moves into the economy, it goes right back to the banks. The previous process (steps 5-6) are repeated, but this time with a twist. The loans of last week are now deposits this week, which are reclassified as ‘reserves’, and again, 90% of that is defined as Excess Reserves, and that means that the bank, in order to prevent a double-claim against the same money, prints NEW money out of thin air. Thus, 90% of the original 90% is brand-new money, and this happens again…and again…and again…approximately 28 times for the same money to become deposits, loans, then deposits again, etc.
8. All of this adds up to: Bank Fiat Money is about 9X the National Debt that started the entire process when they asked the Fed for some money. Adding the Original Debt, that makes the Total Fiat Money equivalent to 10X the National Debt…this is where the term “ghost dollars” comes from—for every 1 dollar that exists, 9 ‘ghost dollars’ exist.
9. This means that Inflation is about 9-10X the National Debt, meaning OUR TAXES ARE 9-10 TIMES THE NATIONAL DEBT. Without realizing it, through inflation, our taxes are through the roof due to inflation. This becomes especially scary when you realize that because our monetary system is based on debt, the money supply goes up the deeper into debt we become. When we pay off our debt, then the money supply goes down, and prices collapse (in reality, they ‘reset’ to what the Free Market and the laws of Supply and Demand want). This is cause of boom and bust cycles. In essence, if we didn’t have debt, then we wouldn’t have money.
This system is unsustainable, as we can see from other countries and their economic situations. Countries in Europe are experiencing the same economic hardships due to their fiat money, and countries like India, Iran, and China are actually starting to hoard tons and tons of gold and at the same time, they’re not buying as much of our debt as they used to, while they dump billions in euros and dollars. The argument that China needs us as badly as we need them is nonsense if they have tons and tons of gold in their vaults.
This is America’s Monetary System in a nutshell. Going to back to the original question about the difference between Monetary Policy and Economic Policy, you can see how Monetary Policy is much more important to our survival as a Republic than Economic Policy. The Government can be ‘fiscally conservative’ or ‘fiscally liberal’ in its spending in both a Commodity-Backed Monetary System and in a Fiat-Fractional Reserve System. It’s the Monetary Policy that makes all of the difference. With a Fiat Currency, the Government can literally spend money on anything it wants, which is what America is doing: troops in over 100 countries, constant wars, welfare spending like crazy, jobs for literally digging ditches, phony ‘stimulus packages’ that don’t do anything but worsen the situation, bank bailout after bank bailout. And they do this by printing new money and the taxpayer never sees it—they don’t even realize that they’re getting taxed 10 times our National Debt.
With a Commodity-Backed Currency, however, politicians are forced to be fiscally sane. You can’t have your troops in over 100 countries ‘spreading democracy’ without paying for it, and you can’t pass fake spending programs without paying for it—and the only way to pay for it with a Commodity-Backed Currency is by directly taxing the people. And if the people saw how much this cost, they would throw every last one those elected officials out on the street.
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