Monday, July 30, 2012

Ron Paul's End the Fed 1

I started Ron Paul's End the Fed, which is about the Federal Reserve.  According to Ron Paul, a big reason that a national bank and (later) the Federal Reserve were established was so that money could be pumped into the economy, through printing money and also loans.  Without a national bank, banks are taking a risk when they loan money for people to start businesses, for there is a chance that the businesses would not be able to pay the banks back, and where would banks be then?  Consequently, the Federal Reserve exists to save banks were this to happen.  That encourages the banks to loan money for businesses, which supposedly helps the economy.

But Ron Paul does not care for the Federal Reserve.  He argues that its printing of more money devalues the dollar (whereas Paul contends that the purchasing power of gold has been high).  But what about banks that might go under when businesses are unable to pay them back?  Ron Paul says that banks should be more careful about who receives a loan in the first place!  Paul also says that the money that the Federal Reserve puts into the economy creates an illusory prosperity.  For Paul, it's better for people to save money and then to buy things and invest, and he states that this can bring down interest rates.  When the Federal Reserve lowers interests rates "on a whim" and thus encourages banks to make loans, when people have not been saving, then the result is that "goods that come to production can't be purchased[, b]usinesses fail, homes are foreclosed upon, and people bail out of stocks or whatever is the fashionable investment of the day" (page 30).

I'll stop here.  I was initially reluctant to read this book because I feared that it would be Ron Paul repeating over and over that printing more money creates inflation.  But it's more than that, because Paul seeks to explain the rationale for the Federal Reserve, and then to rebut that rationale.

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