Tuesday, May 05, 2009

Ron Paul zealots prove they're idiots -- again.

Their latest blogswarm: They want to audit the Federal Reserve.

Okay, now, first problem: The Federal Reserve possesses this marvelous technology called the PRINTING PRESS. And they have the power granted unto them by Congress to print as much money with this printing press as they wish. So why does that matter? Well, it matters because the core principle of financial auditing is that money can NOT be printed upon demand. If there's money in an account, it wasn't printed. It came from somewhere else. Auditing tracks those money flows within an enterprise and makes sure that each debit has a credit somewhere.

But that whole paradigm breaks down when the entity in question has been granted, by law, the right to print all the money it feels like printing. So yeah, you can audit that $X went out, and assets valued at $X by the Federal Reserve came back in return. But what use is that? And even if $X+Y went out and it can be proven that the asset was *really* worth only $X, overpaying for an asset isn't a crime unless there's deliberate fraud involved. Otherwise everybody who overpays for a used car is a criminal. GAH! The stupid, it burns, it burns!

So what's the point? Well, it's all about all those ridiculous conspiracy theories that the gold bugs, Austrian "economists", and fellow travellers have built up around the Federal Reserve. Apparently their whole intent is to prove that the Federal Reserve is actually a conspiracy by Jewish bankers to impoverish America or something like that, despite the fact that the greatest economic expansion and greatest improvement in wealth of the average American in U.S. history -- the 1946-1973 expansion -- happened under the Federal Reserve. In short, they're just plain nuts. And more on the Federal Reserve in my next posting, where I discuss *why* we need the Federal Reserve if we're going to have fractional reserve banking, not to mention why we want fractional reserve banking in the first place, and why the Federal Reserve's current governance is not a conspiracy, it is necessary to keep the U.S. dollar credible as a currency. Please wait for that posting to discuss those particular topics. Thanks!

-- Badtux the Economics Penguin


  1. Wrong...another non-intellectual, emotional reaction to the truth. Capitalism caused the real economic expansion in the period you speak of. The Fed does not create jobs...only fiat money.
    Any organization, govt. or private, should be subject to audits!! That's common sense. And since the Fed is really a govt. created private corporation controlled and owned by other banks, that should make it even more compelling for an audit. OR DO YOU JUST TRUST ALL BANKS!! I hope your not THAT naive.

  2. Wow. Paranoid conspiracy theories. Your tin foil hat slipping today? BTW, who appointed Ben Bernanke as head of the Federal Reserve? Martians?

    BTW, I did *NOT* say that the Federal Reserve caused the economic expansion in question, there were a number of factors that did that. The Federal Reserve *did* insure a stable but expanding money supply during that time period however, which was important for maintaining that growth because money is the lubricant of commerce -- if you devolve to a barter society, it's hard to do commerce. I still have vivid memories of my grandmother telling me about how economic activity crawled to a halt in her area of the country during the Great Depression because there simply was no money -- it had all disappeared under mattresses in the wealthier parts of the country, which is what deflation does to money. So they were reduced to barter, which is very inefficient and incapable of sustaining a modern economy (unless you've somehow managed to figure out how to arrange the 50,000 or so barters needed to assemble this computer that I'm typing this on).

    So anyhow, wait for the next installment, which is where I explain to you why the Fed is governed the way it's governed and why we need it in the first place. Unless you want to prattle on with paranoid conspiracy theories on this thread, which I will happily delete -- the penguin is the only one allowed to be an ass here, and I *told* you to wait for the next thread to rattle on about your conspiracy theories.

    - Badtux the Economics Penguin

  3. Oh, BTW -- audits work only because organizations that are being audited can't just print money to replace any money that's missing. The Federal Reserve, on the other hand, possesses a PRINTING PRESS. Duh. How would you detect missing money if the Fed just prints more money to replace the money that went missing?!

    - Badtux the Snarky Penguin

  4. Fact: Since 1978, the General Accounting Office has audited the Federal Reserve over 100 times. So what are the Ron Paul zealots nattering about with their bizarre conspiracy theories?


Ground rules: Comments that consist solely of insults, fact-free talking points, are off-topic, or simply spam the same argument over and over will be deleted. The penguin is the only one allowed to be an ass here. All viewpoints, however, are welcomed, even if I disagree vehemently with you.

WARNING: You are entitled to create your own arguments, but you are NOT entitled to create your own facts. If you spew scientific denialism, or insist that the sky is purple, or otherwise insist that your made-up universe of pink unicorns and cotton candy trees is "real", well -- expect the banhammer.

Note: Only a member of this blog may post a comment.