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Exclusive Interview
Sunday, July 26, 2009 – with
Scott Smith
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Posted by Trevor Dupuy on 7/26/2009 11:34:25 AM
Unfortunately, Peter didn't expound on how the Fed might be reformed. On a separate note, as a board member of a local area grassroots organization (Local Tea Party), I would love to see a series of Economics 101 primer articles, in layman terms, that describe: How the Fed works; Why & how it distorts the free market; How to realistically replace (or reform) the Fed; How the central govt could raise revenue w/o the IRS (Fair Tax?); etc. These are issues that are not addressed by the current protest movements (Tea Parties, etc) and should be. If these ideas reach the general public in brief, understandable terms, the platform is currently available to promote them effectively. Remember, "A crisis is a terrible thing to waste".
Reply from the Daily Bell:
The tea parties are partially supported by Conservative and Republican elements - neither of which has shown much ongoing interest in reforming the current monetary system.
Posted by Tawny on 7/26/2009 3:35:30 PM
Thanks for another interview with another fine (and not for sale to highest bidder) mind. I am a great admirer both of Peter Schiff and of his father. On one point I would differ with Peter Schiff and that is the subject of fractional reserve banking. Murray Rothbard in THE MYSTERY OF BANKING has an excellent discussion - history and analysis - of fractional reserve banking. He points out that it is inflationary (thus distorting markets and leading to boom/bust). It is also dishonest, and tempts bankers to 'go too far'. Most of the inflation, tumult, and 'panics' in banking in the 19th Century in the USA was due to fractional reserve banking, which inevitably was pushed too far, resulting all to often not in allowing the imprudently over-extended banks to fail, but in legislation or officially condoned practice of allowing banks NOT to honor their contracts/agreements with depositors.
Banks practicing fractional reserve banking are essentially perpetually bankrupt, as they could not satisfy all of their demands for payment (of monies on deposit) if too many of said demands come in at once.
People warehouse their money in banks. So money on deposit is a bailment, not a debt, and legally any warehouse that cannot produce on demand the item warehoused with them for convenience or safekeeping has committed fraud, and a crime, and should go to jail.
Rothbard details the interesting legal history of f.r. banking in Chaprer VII of the above mentioned book, and points out how, so very curiously, the English courts persisted in regarding demand deposits as debts rather than bailments, thus effectively protecting bankers and fractional reserve banking. Rothbard neglects to mention that money and favors probably changed hands in order to assure an outcome so favorable to the banking industry and so detrimental to the rest of us.
These legal decisions set the policy/case law which has continued unquestioned - in the halls of power - to this day.
To level the playing field we need not only honest money - that is, money of substance - but also honest banking. If bankers want to lend out depositors' money, fine, but let them do it with the depositors' knowledge and agreement. And let the depositors get some of the interest on their loaned monies. And let none of the 'money' loaned out be created out of nothing as worthless paper 'notes'(sic) or electronic bookkeeping entries.
Reply from the Daily Bell:
If private banks declare they are involved in fractional reserve banking and people are still willing to place their funds in those banks - perhaps for bigger inducements - then who is to call it a crime? It becomes a voluntary matter. The Austrian critique of private fractional reserve banking is an impediment to its acceptance in the mainstream.
Posted by Trevor Dupuy on 7/26/2009 5:01:58 PM
Earlier I requested econ 101 level articles regarding the Fed and taxes for the uninformed lay person to understand. Your response that Tea Parties are conservative therefore wouldn't want such info is both incorrect and elitist.
Our group (Highland Lakes Tea Party Coalition, in rural Texas)has close to 1000 members, is fastidiously non partisan, has no paid staff and receives no funds or support from any state, national or any other level organization to include the Republican Party.
We organize our own activities in house, with unpaid volunteers and sell tee shirts, etc to raise funds for poster making materials. To the best of my knowledge that's how most, if not all, the Tea Parties operate. We're still in an organizational mode and are just trying to maintain the momentum we generated Aril 15th and are looking for ways to become better informed on the issues.
Now, my whole point is that Tea Party groups are truly grass roots and, in our case, focus on limited government and individual liberty as spelled out in our Declaration, Constitution and Bill of Rights (especially the 10th Amendment). Our focus dovetails nicely with your free market focus and thus it might make sense for you to use us as a vehicle to get out your message with easy to understand articles that we could post on our web site and send as op eds to our local newspapers, etc.
That's it - pretty simple really - no hidden agendas, just folks fed up with too much government screwing things up and reducing our liberties at the same time. Do you have any suggestions?
Reply from the Daily Bell:
Sorry. You and others are doing fine work. At this point the free-market movement is nearly unstoppable. It is sweeping the world, we believe, courtesy of the Internet which is a modern Gutenberg Press - and the efforts of people like yourself. Did not mean to sound elitist.
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Here is a history of free-market economics 101 which includes an explanation of the Federal Reserve.
"A Brief History of Free-Market Economics and Thinkers"
The link is here:
Click to View Link
Hope this helps. Mises.org has volumes of information. You could look in Wikipedia under Federal Reserve, etc. Or simply do a search for "central bank problems." Best of luck.
-------------------------------------------------
Here is the critical information as developed by Mises and Hayek:
Ludwig von Mises, and later his students F.A. Hayek and Murray Rothbard, developed or expanded upon the concepts of human action and the business cycle - and today their work is continued to be supported by organizations such as the Mises Institute. The business cycle, as defined in the modern day, is a primarily central bank-driven phenomenon. The central bank prints more money and injects more credit into the economy than is necessary. The volume of money leads to inflation which, in turn, stimulates a "boom." As the economy overheats, products and services that are an unnecessary outcome of the artificial boom become commonplace, leading to glut and, inevitably, to a collapse.
During the boom, the central bank may artificially increase interest rates while also raising the amount of money available via credit and its printing plants. This gradually eases the economy (best case) into a "soft landing" - after which the cycle begins again. In a free market, the business cycle would be radically reduced because gold and silver, either hoarded or dug out of the ground, would respond to market forces. First, hoarders would release precious metals. But it is likely, too, that mining would respond to price fluctuation as well. Too much gold or silver in the economy and prices would go down, closing mines. Too little gold and silver and the prices would go up, stimulating mining production. If the government and the monetary elite would agree to allow gold and silver coins to circulate next to fiat money of all kinds, the world would soon be back on the only kind of money standard that truthfully can be called "honest" - the free-market standard of gold and silver.
Posted by Acudoc on 7/26/2009 6:35:05 PM
Awesome and insightful interview with Peter Schiff. Thank you.
I fully support a free banking alternative but fail to see how anything but a full 100% reserve requirement is the way to go.
Fractional-reserve banking is inherently fraudulent, so I can't see how it can be defended. Either the money is there for withdrawal on demand or it isn't!
Aside from my objection based on ethics, in a healthy and sound economy, deflation would be the norm, and fractional-reserve banking has a built-in inflationary bias.
Reply from the Daily Bell:
You are free, within a free-market banking system, to patronize a fully-backed bank or a fractional reserve one so long as they present their strategies fully. If this is the case - admittedly an if -- then why not let the market decide?
Posted by Tom on 7/27/2009 8:59:30 AM
Great interview. Thanks to both parties for generating such great material. Would the daily bell ever consider posting an interview schedule and allow readers to submit potential questions? I think this level of interaction would strenghten an already strong readership.
Reply from the Daily Bell:
Good idea. Thanks.
Posted by Bill Ross on 7/27/2009 12:15:54 PM
It is not a matter of individually rebutting a never ending sequence of plausible lies in support of and rationalizing central control and the parasites who profit from it. It is more a matter of recognizing that any "policy" which steals from the productive for the benefit of the unproductive ultimately collapses comerce, economies and civilization.
Easily Proven (Mathematics of Rule):
Click to View Link
I am an electronics Design Engineer
Reply from the Daily Bell:
Well put.
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