House passes Audit the Fed bill.

[Jbrase]

WASHINGTON -- In a rare moment of bipartisanship, the House overwhelmingly passed a bill by Rep. Ron Paul (R-Texas) to audit the Federal Reserve.

The bill, which has 270 co-sponsors, passed 327 to 98. All but one Republican -- Rep. Bob Turner of New York -- voted for it, along with 89 Democrats.

But Rep. Dennis Kucinich (D-Ohio) pointed out that the House vote on the bill comes on the same day that the Washington Post reported that the New York Fed "did not communicate in key meetings with top regulators that British bank Barclays had admitted to Fed staffers that it was rigging LIBOR,” the index which sets interest rates worldwide.

"The Fed creates trillions of dollars out of nothing and gives it to banks. Congress is in the dark. The Fed sets the stage for the subprime meltdown. Congress is in the dark. The Fed takes a dive on LIBOR. Congress is in the dark. The Fed doesn’t tell regulators what is going on. Congress is in the dark," Kucinich shouted on the House floor, just before the vote.

http://www.huffingtonpost.com/2012/07/25/federal-reserve-audit-bill_n_1702879.html?utm_hp_ref=mostpopular

Now off to be killed by a coalition of the worst GOP and Dem Senators

[Torie]

Just what is supposed to be "audited?" Is some money missing?  Rigging LIBOR?  Defeating the market in setting LIBOR interest rates? Really?  Even God does not have that much power. Normally when government entities do battle with the market in trying to adjust currency exchange rates or whatever, they get fleeced via something close to arbitrage as their hat is handed to them, and folks enrich themselves off institutional stupidity. It is the ultimate aphrodisiac for arbitrageurs.

[Inks.LWC Supports Chuck Hagel]

It's interesting - this dynamic of the House passing it, but it's sure to fail in the Senate is something you usually only see in state legislatures.  Usually at the federal level, it falls to partisan lines... this one's an odd little thing.

[ChairmanSanchez]

This has been an immaculate day for the Liberty Movement

[Lief]

Could Ron Paul finally get a bill passed after all these decades?!

[Inks.LWC Supports Chuck Hagel]

Could Ron Paul finally get a bill passed after all these decades?!

He already has.

[Bacon King]

[oakvale]

Uhuh, well good for Ron Paul.

At least this populist silliness won't get anywhere in the Senate (is that a good feature of the Senate's stodginess?), but it's annoying to see so many people actually voting for it. I mean, I get it makes rather good politics to trash the evil Fed and, like, banks and stuff, but Jesus, guys, stop and think for a second. If this bill is such a no-brainer, why on earth would some members of Congress bother opposing it? You can't argue that it's bad political optics, certainly - blathering a little about "transparency" is always going to be a winner in that regard.

We've seen how awfully boneheaded Congress has been throughout the Depression we're suffering through - do you really want the central bank, too, to be subject to short-term political pressures by opportunistic morons concerned solely about getting re-elected next time around?

Jeopardizing the independence of a country's central bank because of bullsh!t notions of "transparency" and "the people!!!!!1" to score political points would be such an awful idea that I'm actually kind of surprised more of Congress didn't vote for it.

The Fed obviously hasn't performed perfectly, ever, but I'm far more comfortable keeping it independent and run by economists who actually know what they're doing instead of being subject to the political whims of impatient voters every two to six years.

Think about this logically - this is Ron Paul's bill. The man's spent a large portion of his political career vowing to abolish the Federal Reserve - the point of this idiotic bill is to destroy the Fed's credibility by irrevocably politicising it and, thus, making it much easier to abolish. If you think that's a noble goal, fine - though I disagree - but please, please don't pretend this about high moral concepts of open government. It's a little much.

[TJ in Wisco]

If the Fed really is secretly monetizing debt, why would we be better off knowing? Wouldn't that just cause inflation?

[Zarn]

If the Fed really is secretly monetizing debt, why would we be better off knowing? Wouldn't that just cause inflation?

So you would rather remain ignorant and have everything blow up in our faces much, much harder?

[TJ in Wisco]

If the Fed really is secretly monetizing debt, why would we be better off knowing? Wouldn't that just cause inflation?

So you would rather remain ignorant and have everything blow up in our faces much, much harder?

I would rather remain ignorant in the hope that it doesn't blow up at all. And why should it blow up? It's not like we have an inflation problem at the moment--and in this case the long run doesn't matter because the Fed can just change its policy if this changes--so why mess with it? If the Fed is, we're just getting a free stimulus. I know this sounds backwards and wrong to a lot of people, but neither money nor gold have an objective value; both are worth whatever people think they're worth. If the Fed's printing too much money and pumping it into the economy, as long as no one knows, who cares? But if we all find out, then the everyone will start devaluing our currency much more. And maybe the Fed really is just adding 2% each year like they're supposed it. But if they're not I for one don't want us to know it.

This isn't an ideological view. I'm just worried we're going to create an inflationary economic mess for no reason.

[oakvale]

If the Fed really is secretly monetizing debt, why would we be better off knowing? Wouldn't that just cause inflation?

So you would rather remain ignorant and have everything blow up in our faces much, much harder?

I would rather remain ignorant in the hope that it doesn't blow up at all. And why should it blow up? It's not like we have an inflation problem at the moment--and in this case the long run doesn't matter because the Fed can just change its policy if this changes--so why mess with it? If the Fed is, we're just getting a free stimulus. I know this sounds backwards and wrong to a lot of people, but neither money nor gold have an objective value; both are worth whatever people think they're worth. If the Fed's printing too much money and pumping it into the economy, as long as no one knows, who cares? But if we all find out, then the everyone will start devaluing our currency much more. And maybe the Fed really is just adding 2% each year like they're supposed it. But if they're not I for one don't want us to know it.

This isn't an ideological view. I'm just worried we're going to create an inflationary economic mess for no reason.

Some libertarians believe there's, uh, magical secret hyperinflation going on, we just haven't noticed yet.

[ChairmanSanchez]

If the Fed really is secretly monetizing debt, why would we be better off knowing? Wouldn't that just cause inflation?

So you would rather remain ignorant and have everything blow up in our faces much, much harder?

I would rather remain ignorant in the hope that it doesn't blow up at all. And why should it blow up? It's not like we have an inflation problem at the moment--and in this case the long run doesn't matter because the Fed can just change its policy if this changes--so why mess with it? If the Fed is, we're just getting a free stimulus. I know this sounds backwards and wrong to a lot of people, but neither money nor gold have an objective value; both are worth whatever people think they're worth. If the Fed's printing too much money and pumping it into the economy, as long as no one knows, who cares? But if we all find out, then the everyone will start devaluing our currency much more. And maybe the Fed really is just adding 2% each year like they're supposed it. But if they're not I for one don't want us to know it.

This isn't an ideological view. I'm just worried we're going to create an inflationary economic mess for no reason.

Some libertarians believe there's, uh, magical secret hyperinflation going on, we just haven't noticed yet.

It's not that it is happening-it's that it has happened, and could happen.

[TJ in Wisco]

If the Fed really is secretly monetizing debt, why would we be better off knowing? Wouldn't that just cause inflation?

So you would rather remain ignorant and have everything blow up in our faces much, much harder?

I would rather remain ignorant in the hope that it doesn't blow up at all. And why should it blow up? It's not like we have an inflation problem at the moment--and in this case the long run doesn't matter because the Fed can just change its policy if this changes--so why mess with it? If the Fed is, we're just getting a free stimulus. I know this sounds backwards and wrong to a lot of people, but neither money nor gold have an objective value; both are worth whatever people think they're worth. If the Fed's printing too much money and pumping it into the economy, as long as no one knows, who cares? But if we all find out, then the everyone will start devaluing our currency much more. And maybe the Fed really is just adding 2% each year like they're supposed it. But if they're not I for one don't want us to know it.

This isn't an ideological view. I'm just worried we're going to create an inflationary economic mess for no reason.

Some libertarians believe there's, uh, magical secret hyperinflation going on, we just haven't noticed yet.

It's not that it is happening-it's that it has happened, and could happen.

How is it even possible to have hyperinflation, or inflation at all, happen without anyone knowing? Inflation is by definition a general rise in price levels of goods and services, which are known publically. It's not like inflation is caused only by the amount of currency the market; it's also possible that additional currency will result in greater investment in productive goods and services in the economy. That is the entire point of lowering interest rates: to get more people to borrow money and invest it in the economy.

The economy doesn't work like conservative forces or non-nuclear mass calculations; it's not a zero-sum game.

[Korwinist]

If the Fed really is secretly monetizing debt, why would we be better off knowing? Wouldn't that just cause inflation?

So you would rather remain ignorant and have everything blow up in our faces much, much harder?

I would rather remain ignorant in the hope that it doesn't blow up at all. And why should it blow up? It's not like we have an inflation problem at the moment--and in this case the long run doesn't matter because the Fed can just change its policy if this changes--so why mess with it? If the Fed is, we're just getting a free stimulus. I know this sounds backwards and wrong to a lot of people, but neither money nor gold have an objective value; both are worth whatever people think they're worth. If the Fed's printing too much money and pumping it into the economy, as long as no one knows, who cares? But if we all find out, then the everyone will start devaluing our currency much more. And maybe the Fed really is just adding 2% each year like they're supposed it. But if they're not I for one don't want us to know it.

This isn't an ideological view. I'm just worried we're going to create an inflationary economic mess for no reason.

Some libertarians believe there's, uh, magical secret hyperinflation going on, we just haven't noticed yet.

It's not that it is happening-it's that it has happened, and could happen.

How is it even possible to have hyperinflation, or inflation at all, happen without anyone knowing? Inflation is by definition a general rise in price levels of goods and services, which are known publically. It's not like inflation is caused only by the amount of currency the market; it's also possible that additional currency will result in greater investment in productive goods and services in the economy. That is the entire point of lowering interest rates: to get more people to borrow money and invest it in the economy.

The economy doesn't work like conservative forces or non-nuclear mass calculations; it's not a zero-sum game.

But money is a placeholder for value, and creating more of it, by definition, doesn't create wealth at all, simply the illusion of wealth.

Each US Dollar is not a magic token that turns into capital, it's a representation of a certain amount of wealth in the country. If the government simply printed a pile of cash and distributed it equally to the citizens, they'd probably spend it. However, the amount of wealth that the cash represents would NOT be present, and producers/sellers would jack up prices to compensate (or else the store shelves would all be empty, or at least that much more empty). Thus, direct money printing leads to almost immediate inflation, which is what happened in Germany: the German government printed money to pay striking workers in the French controlled areas, who went out and bought stuff, resulting in skyrocketing prices quite quickly.

Obviously that isn't a good idea. So what happens now is that the Fed (or central bank of your choice, really) prints up the money and buys bonds or assets from banks with the implicit agreement that the banks will take the effectively free money and loan it out, meaning there will be inflation, but it will be relatively slow inflation as the money doesn't circulate.

However, what's happening right now is that the banks have their money, but they're scared that the economy will tank again even with all the spending. So they're sitting on massive reserves and lending cautiously, which means that inflation isn't kicking in but recovery isn't either. Right now, the US and Europe are tending towards going the way Japan is, with stagnation and not much growth, but not much inflation either because of high savings. However, if a recovery appeared to be on the horizon, the money would start to circulate again, which would lead to a huge growth period followed by a massive depression and possibly heavy inflation. Alternatively, if there was a run on currencies, the banks could panic trying to dump their soon-to-be worthless money, which would make those currencies toilet paper in the process.

Now, to get to your specific points,

It's not like inflation is caused only by the amount of currency the market;

Oh yes it is. The only two things that can cause inflation are related to monetary manipulation or a decrease in the supply of all goods for whatever reason. I challenge you to point out a counterexample.

it's also possible that additional currency will result in greater investment in productive goods and services in the economy.

The additional currency will create greater investment in the economy but it's unsustainable growth that will inevitably result in a market correction. Again, WEALTH is the driver of growth in a healthy economy, not demand or a great supply of money! People will start building factories, etc because they think the economy has an excess of savings to sustain such long term projects, but when buying will soon discover a lack of resources necessary as while the amount of money increased, the amount of skilled labour, bricks, equipment, steel etc has not. Many would be forced to cancel partially completed projects, creating massive waste and resulting in a recession.

It's a bit like an architect trying to build a house without knowing the correct number of bricks. He thinks he has far more than he actually has, so he designs a magnificent mansion rather than a modest home and gets to work building it. Naturally most people would prefer a mansion to a regular house, but the resources to make it aren't present, and the later he discovers his mistake, the more effort has to be put into demolishing the beginnings of the mansion and the less resources he has to put towards building a house that can actually be made with the resources he has. If he takes too long, he might not even be able to make anything and will have simply wasted everything.

The economy doesn't work like conservative forces or non-nuclear mass calculations; it's not a zero-sum game.

It normally isn't, but it is when it comes to inflation.

Another thing about inflation is that, because of the way the money is distributed, the rich bankers are the ones who get all the benefits; they effectively get free money and are hit with none of the disadvantages of inflation early on since the market hasn't recognized it yet. Meanwhile, the working man who receives his wage finds that he is able to buy substantially less with what he earns than he could previously, and his wage adjusts to inflation much slower than the stores do.

[realisticidealist]

TJ's correct here, of course.

It's not like inflation is caused only by the amount of currency the market;

Oh yes it is. The only two things that can cause inflation are related to monetary manipulation or a decrease in the supply of all goods for whatever reason. I challenge you to point out a counterexample.

Uh...demand-pull inflation happens all the time. It's the main cause of rising gas prices over the past decade, for example.

[Korwinist]

TJ's correct here, of course.

It's not like inflation is caused only by the amount of currency the market;

Oh yes it is. The only two things that can cause inflation are related to monetary manipulation or a decrease in the supply of all goods for whatever reason. I challenge you to point out a counterexample.

Uh...demand-pull inflation happens all the time. It's the main cause of rising gas prices over the past decade, for example.

Would you say that, were the monetary supply not expanding, gas prices would still rise without similar declines in prices in other sectors?

[Simfan34]

This is nothing more than a move by partisan hacks to assault the independence of our central bank because it does not conform to their... partisan hackery. I mean I saw Bernanke in committee, and some of the questions were so inane... What we have here is an attempt by gold standardists and those seeking populist points to discredit the Fed.

[realisticidealist]

TJ's correct here, of course.

It's not like inflation is caused only by the amount of currency the market;

Oh yes it is. The only two things that can cause inflation are related to monetary manipulation or a decrease in the supply of all goods for whatever reason. I challenge you to point out a counterexample.

Uh...demand-pull inflation happens all the time. It's the main cause of rising gas prices over the past decade, for example.

Would you say that, were the monetary supply not expanding, gas prices would still rise without similar declines in prices in other sectors?

Yes, as the price increases are mostly due to international demand not directly related to the American money supply. Even if the US money supply were held constant, countries like China, India, Nigeria, etc. would still be demanding more and more oil, driving up the cost of gasoline everywhere due to the "bidding up" effect in a globalized market.

[Korwinist]

TJ's correct here, of course.

It's not like inflation is caused only by the amount of currency the market;

Oh yes it is. The only two things that can cause inflation are related to monetary manipulation or a decrease in the supply of all goods for whatever reason. I challenge you to point out a counterexample.

Uh...demand-pull inflation happens all the time. It's the main cause of rising gas prices over the past decade, for example.

Would you say that, were the monetary supply not expanding, gas prices would still rise without similar declines in prices in other sectors?

Yes, as the price increases are mostly due to international demand not directly related to the American money supply. Even if the US money supply were held constant, countries like China, India, Nigeria, etc. would still be demanding more and more oil, driving up the cost of gasoline everywhere due to the "bidding up" effect in a globalized market.

But that doesn't address the second part of the question.

Assuming people are spending more on gasoline, then they have less money overall. If they have less money overall, then logically they can't be spending money they don't have on other things. Therefore, prices in other goods go down unless there is more money created at the same time.

This is, of course, all ignoring the main problem with inflation in that it creates a misallocation of resources in the economy (of which price increases are just a symptom)

[oakvale]

If you're going to subscribe to the Austrian cult, MBD, you could at least recognize that it's a minority position rather than stating all your dogma as if it's indisputable fact.

I don't want to get too deeply engaged, but one thing in particular bugged me - ""money is a placeholder for value". That's a meaningless sentence, as I'm sure you're well aware. Value's a subjective thing, why is gold (lol) or whatever any more valuable than, say, a lump of plastic? You don't understand what money is.

[Korwinist]

If you're going to subscribe to the Austrian cult, MBD, you could at least recognize that it's a minority position rather than stating all your dogma as if it's indisputable fact. Smiley

Basic logic knows no economic school.

"If you're going to subscribe to the Heliocentric cult, Copernicus, you could at least recognize that it's a minority position rather than stating all your dogma as if it's indisputable fact. Smiley

Value's a subjective thing, why is gold (lol) or whatever any more valuable than, say, a lump of plastic?

Because people think it is, for a variety of reasons (Portability, ease of division, etc etc etc). If people didn't think it was valuable, they would use something else to back up their currency. It could be plastic poop for all it matters.

However, people in the past tended to gravitate towards backing their currencies with gold, and people who backed their currencies with nothing at all generally didn't do too well.

Why is money more valuable than a lump of plastic? Well, mostly because legal tender laws mean you either use it or you go to jail. It's pretty obvious which system works better

I don't want to get too deeply engaged, but one thing in particular bugged me - ""money is a placeholder for value". That's a meaningless sentence, as I'm sure you're well aware.

Hardly. Money, in of itself, is worth nothing. It only becomes worth something when its exchanged for something else, hence "placeholder for value". You can't really do anything else with it besides toilet paper and maybe making kites.

[oakvale]

You're misunderstanding. My point is that "value" is whatever society decides it is. A piece of paper used as legal tender is just as valuable as the gold you want to "back [it] up" with because people decide that it should be so. That's all.

"In and of itself, worth nothing" doesn't mean anything. "Worth" is not an objective quality.

[Likely Voter]

Yes the world financial market really needs a good dose of partisan politics to make it better....well done!

[Big Wiggly Style]

My opinion regarding the OP: