Archive for May, 2007

May 7, 2007

Why a gold Standard over Current System

Thomas G. Brown |

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation” These words state with absolute clarity why Central Banks and further the Federal Reserve are nothing more that a way for governments to continue deficit spending. By the way the quote was not from some nut from Iowa who lives on a compound. These words come from 1966 article written by young economist by the name of Alan Greenspan. Yes, the same fellow who years later would turn his back on this idea when he took over the Federal Reserve under Ronald Regan.

The monetary system of today is nothing compared to the gold standard days pre-1913. When our currency an for that matter the currency of other nations was backed by gold governments as well as private industry had to be fiscally conservative when it came to spend. A government could not just produce money out of thin air to pay for its various welfare and warfare programs. A government could only spend as much as it had in reserves in terms of gold. If they wished to spend more the government had to tax its citizens who would most likely take notice and demand more fiscal responsibility.

Governments are reluctant to convert back to such standards as this would strip them of the power they have come to expect. How would they get their pork barrel projects paid for if they where confined to a set amount of money? Yes, an actual budget they would have to follow. Currently the U.S. through the Federal Reserve can monetize their debt in effect creating funny money out of thin air.

That is issue Treasury Bonds in which they sell to the public, companies, and

foreign governments thus creating money by doing nothing more then selling paper with a government guarantee to pay a set interest. This works ok in the very short term but as more and more bonds are sold our liability to our borrow grows. As this happens our ability to pay decreases and we are forced to create more money. This cycle creates compounding in the negative an grows or debt and reduces with each passing day to repay these loans.

Normally a country would only get away with this for a short amount of time before its creditors pulled the plug. The U.S. is in a unique situation in that the dollar is the reserve currency of the world. Being such we can get away with reckless monetary policy for an longer period of time.

In addition a growing amount of our debt is being carried by foreign governments and at this point it is advantageous for them to continue this scheme. Take China for instance, they sell us products we used to manufacture and then turn around an purchase our debt. As long as they can sell goods to the U.S. this is a good situation for them and other countries who are participating in this operation. But in the near future the dollar is going to fall below the other currencies and it will become more and more expensive for the U.S. consumer to purchase imported products and goods. As the purchasing power of the dollar continues to fall so to will the standard of living in America which is already showing signs of decline.

The money created by the Federal Reserve system is the equivalent of unrepresentative taxation . As has been stated by many great economic minds, the middle class is being squeezed to the brink of extinction by this current fiscal system. We have groups who work to save endangered snails, and lizards but no one to protect us from the welfare state and its money policies which I only hope is done out of ignorance and not malice.

May 6, 2007

What cause price increases at the pump?

Thomas G. Brown |

As many have noticed gasoline prices hit or exceeded the $3.00 a gallon mark this week. According to the website http://www.gaspricewatch.com The average price in the U.S. is currentlty $3.05. The highest is in where else, California at $4.09. I’m sure come monday morning the talk shows will be clamoring for action against the oil companies and their evil ways. I can just hear some of the talking heads now. “The is disgusting how big oil gauges the average consumer and their needs to be action by Congress to prevent this from happening in the future. Yea that will solve all are problems the collective brain trust in Washington coming up with a plan to save us from the “Oil Terrorist.”

Sadly their is already a bill that the fine Senator Pat Casey D-PA will introduce on Tuesday of this week to tax profits made by oil companies over $50. I’m not sure if Patty Boy realizes this will not solve the problem but instead push oil firms to distribute their product in other countries that will not put what amounts to a price ceiling on the price. If they want to look at what the real catalyst is in gasoline prices they would first have to realize that production of transport fuels has not kept pace with demand. There has not been an oil refinery built in this country since I was born back in 1977. As a result the older refineries have had to run at max capacity over the past several years. With demand domestic and foreign increasing and the breakdowns and disasters that plague our refining infrastructure things will only get worse. The reason for this does not fall at the feet of the oil companies. If they could they would build more refineries as the law of supply and demand dictates. With high prices it would be advantagous to build more capacity with which to capitalize. But, they have had to deal with environmentalist and more importantly local governments who do not wish to have a refinery in their back yards for cosmetic or safety concerns.
So, folks could either drive less, shut up about gas prices or maybe make it easier for refineries to come on line to help reduce the back up in supply. It’s up to local government and the citizens to solve this problem rationally and not the clown college that’s run on the hill