@Darwyn and Gobbledydook: "Even if we used a gold-standard we would still have more and more money as we keep mining gold"

no actually. There is only a finite amount of gold. However, there is increasing amount of value in the world. So, for a second, lets assume that we have mined all the gold and we are using the gold standard. There would come a point were there was simply not enough gold to make transactions feasible. Gold would be too valuable because of the financial system and the banks wouldn't be able to hold it. Since gold has other uses, those uses would be impaired and prices would be effected just because we use gold as a medium of exchange. That's one reason why we use paper fiat money. There is a good amount of resources for paper and we don't even need to use paper. We can use whatever is cheapest to act as a value place holder.

That's all money really is in the end anyway: a value place holder. It shows you who has exchanged and for what values. Its just a medium of exchange. It shouldn't have an inherent value because then it is effecting the economy (the set of all trades)

Ok, but the problem still seems to exist with a gold standard... If the issuer of money still loans it out at interest, than there still does not exist enough money to pay them back, according to this line of thought anyway...

But can you expect the issuer of money to loan the money out at no interest? They have costs. They have to pay wages, printing costs, anti-counterfeiting measures, etc. These costs result in money being given back to the market in exchange for the related goods and services.

Whenever a bank loans out money at an interest rate, (and assuming they are paid back) they are creating money. The Fed is not the only source of money. Even under a gold standard, this would happen (or the economic system would stagnate/become unweildy as Zarathustra pointed out), but the system would be somewhat less dynamic. This has been going on every since people started using banks. I'll try to perhaps write up a bit better explanation than this later (though others have said most of what I would in a longer post, and I'm sure there are others who are more qualified than I to explain all of this), but for now that's my 2 cents.

"But can you expect the issuer of money to loan the money out at no interest?"

I think this is precisely what the Constitution lays out in Article I, Section 8. "The Congress shall have Power To coin Money, regulate the Value thereof..."

I don't believe Congress, as an extension of the people of the United States, has the right or power to charge interest for this, unlike the private bank that is the Federal Reserve.

In fact, Executive Order 11110 was a plan to reverse all that and to give the power to coin and regulate money back to Congress as the Constitution mandates. But it was never implemented.

Without looking it up, I'll give you one guess as to which President introduced this EO...

"If the issuer of money still loans it out at interest, than there still does not exist enough money to pay them back, according to this line of thought anyway"

This may help (yes, I'm citing this again)...

http://whatreallyhappened.com/WRHARTICLES/ARTICLE2/doodoo.html?q=ARTICLE2/doodoo.html

When you, as a citizen, hold a silver dollar or a gold dollar in your hand, you hold that actual worth of metal. Nothing the government can do can change the worth of the money in your control.

Take the Roman Silver Denarius...The Roman Empire is long gone, but the money that Rome issued still has worth because the coins themselves had inherent worth. Long after the collapse of the empire, Roman silver coins were still used as money, because the silver in the coin itself did not depend on the issuing government for its worth.

Of course, carrying around too much coin can be bothersome, so many nations, including our own, issued paper notes as a convenience. But that paper currency of the nation was just a convenience. The gold and silver certificates were merely "claim checks" for the equivalent weight of gold or silver held in the treasury, and which would be produced on demand when the certificate was presented. But in the end, the lawful dollar of the United States was 371.25 grains of silver, or 24.75 grains of gold.

The problem with this system from the point of view of the government or the banks is that it limits the amount of money they can work with. When the bank runs out of silver or gold (or the equivalent certificates) it can no longer lend any more money with which to earn interest. When the government runs out of gold or silver (or the equivalent certificates) it can no longer spend money (just like the rest of us).

The immediate effect of ending the gold standard was that with the paper dollar no longer legally dependent on 371.25 grains of silver or 24.75 grains of gold, more paper dollars (now called "Federal Reserve Notes") could be printed, their actual worth no longer under the control of the citizens but under the control of the issuing central bank, based on the total number of dollars printed (or created as credit lines) divided by the estimated worth of the nation's assets. The more dollars which are created out of thin air, the less each one is worth.

The gold standard only protects us from potential abuse of monetary policy. As long as we don't abuse it, it has no advantage whatsoever. We don't abuse monetary policy anymore as its not the 30s. Technically we could, but then again, technically Sicarius' revolution could happen. But I live with a decent grasp on reality.. so I'm not worried.

By the way Darwyn, read that apple example back to yourself and see if it makes sense at all.

"The gold standard only protects us from potential abuse of monetary policy"

Only? It only protects us from abuse? You say that as if it's not important.

"We don't abuse monetary policy anymore as its not the 30s"

Let me get this straight...It's not the 30's, therefore we don't abuse monetary policy. Is that right? Cuz if so, I'd urge you to rethink your position and what is happening around you.

As to the apple example...it's probably not worded quite as well as it could be, but make no indication where you got lost. I'm no economist as I said before. But I think the point is still pretty clear. Would you rather I used oranges? Whereabouts did I lose you in the orchard?

The bottom line remains...if apples are money and I own the only apple tree, yer screwed.

correction: "it's probably not worded quite as well as it could be, but (you) made no indication of where you got lost"

The current financial crisis has nothing to do with monetary policy abuse. It has alot to do with faulty credit markets.

In your apple example, you are clearly talking about money so why bother talking about apples? But its not important.

But surely there have been some big mistakes with monetary policy in recent years: namely, the Reserve Bank set interests rates to low leading to the housing bubble.

Oh, but I think it does! It goes back to perpetual debt. The Federal Reserve itself IS abuse. There is no benefit to having a central bank loan the US money at interest, when it's perfectly capable of handling it without it.

And as to apples, I figured an example that disconnected the reader from actual money, would help make the point better. Maybe not though.

Darwyn I checked out that link about whatreallyhappened.com. They're conspiracy theorists about a range of subjects including 9/11. Do you subscribe to those views too? It's all too fringe for my tastes.
That said, there are real economists who are critical of fractional-reserve banking including proponents of the Austrian School of Economics; Milton Friedman also was critical. However I don't hear them use the term "perpetual debt", which strikes me something of a sound bite designed to appeal to people emotions. Perpetual debt *sounds much worse than fractional-reserve banking. It conjures up some pretty negative images. The truth is that we are not all in perpetual debt. Indeed most people have assets and a lot of people enjoy a high standard of living.
So when I read your post (which does seem to make sense) I have to contrast that with reality. True we are experiencing a downturn now, but it won't last forever, and not all countries will be hit that hard. America has been producing to little and consuming too much for too long - what we are experiencing now is a necessary correction.

the problem with perpetual debt, you say, is that the federal reserve gets more and more power.

firstly the supply of money allows the exchange of goods and services so everyone can be productive, if those people are less productive than their debts, then they can't pay back what they owe, but the fed wants to keep money in circulation, and also wants to limit the moeny in circulation to limit inflation.(which should be kept at a helath low, preferably lower than the growth rate)

now the US dollar has for years been able to avoid inflation by being considered reliable by other nations, those who did not fear the US government was unstable and could therefore back their own currency with US dollars. So US citizens could buy with dollars foreign goods/services, and the foreign countries would exchange the dollars for their own currency.(especially lots of oil) This has increased the demand for the US dollar. (because the US has been considered the most stable and powerful nation on earth for a few decades, although the EU is fast catching up, and China will soon also be considered a super-power.)

Perpetual debt means that the is perpetually money in circulation, and that the fed is constantly making real profits for all the money the banks are paying it.(money which they likely just lend back out to other institutions if there is demand as there always has been)

but if people are producing more goods and services(being more productive) in your apples example, growing more food and producing more goods of all kinds (wool, milk, eggs, meat, leather, beer, and whatever else you can make from agriculture, maybe methane fuel) then they are all better off, irrelivant of how many apples they owe this one farm.

This requires the population to produce more than they owe in interest. Those who are not will lose out, and fall into poverty.

The Ludwig von Mises Institute has a really wonderful website you should visit for more detailed info than just a summary.

http://mises.org/articles.aspx

Darwyn, we should probably clear up a misconception that some people (conspiracy theorists) have about the Reserve Bank: it is not a privately owned bank that pays dividends to private individuals (which you referred to as thirteen banker families).
Here is a quote from the Federal Reserve FAQ
http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5
"The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.

As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."

I have mentioned it earlier, but in case you have missed it, any profits from the Reserve Bank are turned over to the Treasury.

spyman, I'm learning as I go here so bear with me...BUT

1) The Fed is PRIVATE. 100% of it's shareholders are private banks. Ostensibly, it works within the government and serves public and private use as you say, but nothing about it is Federal...it is 100% private. Period, end of story. Sorry, there is no debate here.

Think about it...if the FED was a government agency, it could issue money directly and interest free.

2) Profits DO go to the bank families! Here's how it works...

- The US government will spend money...so when it needs money to spend, they issue Treasury bonds, which the Fed buys with money they printed out of thin air for pennies on the dollar.

- The Fed just paid $.03 for something that's worth $1...and expects the Treasury to pay back in full with interest and, get this...TAX FREE! That's profit by any loose definition of the word.

- The US government then uses tax money (your taxes) to pay back the interest on those bonds. If you look at the back of any check made payable to the IRS you will see that it has been endorsed as "Pay Any F.R.B. Branch or Gen. Depository for Credit U.S. Treas. This is in Payment of U.S. Oblig."

- There is no governmental agency (not the IRS, not Congress) that has the power to audit the Fed. Are you naive enough to think that without the power to audit, that ALL the profits get returned to the Treasury when their "operational expenses" exceed their "profits" by a ratio of 5:1? Of course you aren't.

The bank families therefore, profit...and handsomely.

"Perpetual debt *sounds much worse than fractional-reserve banking. It conjures up some pretty negative images."

Now you know what euphemisms are and why they are used! :)

"America has been producing to little and consuming too much for too long - what we are experiencing now is a necessary correction."

Agreed.

"America has been producing too little and consuming too much for too long - what we are experiencing now is a necessary correction."

Wait, why hasn't anyone said that before? It seems to obvious to be surprising - and has someone actually contradicted it?

@Darwyn - Sources for your info on the Federal Reserve? Not saying you're wrong about all of it, I just want to check it out myself so I an fully understand.

I'm honestly perfectly willing to agree that there are probably some real problems with the way the Federal Reserve is set up at the moment, and some more accountability and transparency would certainly be a good thing. But what I don't think I agree with is the idea that the whole system and concept needs to be completely replaced with something like the Gold Standard.

I think the general idea of the current system is a good one, and one that has in general worked quite well, and will likely continue to work fairly well into the future, it just may need some reform, to make it more accountable/transparent.

Really, I just did a google search for Federal Reserve, Treasury and profit.

Darwyn, if you read the FAQ of the Federal Reserve it answer your claims. This is publicly checkable information.
With regards to audits please read the following:
http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#9
Where is the evidence that the Federal Reserve bank is private owned (which it isn't)?
Why is there no outcry from the wider public, some of whom are very well educated on such topics (for example University Professors)? Where is the outcry from credible economists, some of whom actually do oppose Fractional-Reserve banking. Why wouldn't they use your claims to change this system. The answer is they don't because it is a myth. It is a popular myth because it is more interesting than the truth. This is the case with most conspiracy theories. People like them because they are exciting.
The only proponent of you notion are a bunch of crackpots who keep rehashing the same old discredited theories.

As to auditing, I'm fairly sure that the Fed is audited annually by the board of governors, which is appointed by the president and senate, and is in turn audited by the General Accounting Office of the Congress.

I've found this site very useful.

http://wfhummel.cnchost.com/index.html#5

Many of the articles pertain to the topic at hand, and are much less critical of the Federal Reserve. To be fair, the owner of the site doesn't have formal education in economics in his background, though he's cited as an expert on monetary policy.

That looks like a very interesting site, Chrispminis. I am interested in economics, but I am pretty much wikipedia educated. Looks like it covers a good range of topics.

Darwyn

You like to take a small amount of knowledge and spread it very thinly. We have had such a discussion before

I prefer to stick to things I know about....You are clearly totally ignorant about the banking system. The comment that gives this away is :

"The US government will spend money...so when it needs money to spend, they issue Treasury bonds, which the Fed buys with money they printed out of thin air for pennies on the dollar."

This statement is complete fabrication. The rest of your argument relies on this and is therefore invalid

The Fed implements the Treasury Dept's monetary policy strategy. One of the elements of this strategy is "balancing the budget" which means borrowing money to cover the deficit between Govt spending and Govt recepits (mainly tax income).....they borrow money by ISSUING bonds to people like you and me (mainly to pension funds, life insurance companies etc)

And by the way, saying that the Fed is privately owned is (although partially factually correct) at the very least irrelevant to your argument. To obtain a banking licence in the US you are effectively obliged to own non-voting stock in the regional subsidiaries of the Fed.....it is a stabilising structure for the US banking system. Every bank in the US owns non-voting stock in the Fed. It has no real value to them. The Fed is effectively a Government agency (like the Bank of England, although it pretends it is independent).

You are weaving a conspiracy theory from a tiny thread of knowledge about how the financial world actually operates....be my guest (I dont care). Im just pointing out your lack of reliance on facts to support your spurious theories...

Withnail, if the Fed is privately owned, who owns it? In what sense is it privately owned? Early in the thread I quoted the Federal Reserves own FAQ which stated "The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution."

The Federal Reserve Act requires private banks to buy some restricted stock in one or more of the 12 regional fed subdidiaries. It is therefore partially privately owned (legally). However, this is not a financial investment by the banks it is a legal requirement to get a state banking licence
The Fed is not owned by anyone; it a quasi Governmental organisation established by the FRA for the purposes of implementing the monetary policy of the US Treasury and regulating the banking industry

There is an element of truth in Darwyn's words (as usual) but to accept what he says would be totally misleading (as usual)

Withnail160, you are probably right in that I've overstepped my bounds here on some points. I fully admitted to not being an economist and learning as I go.

I shall bow out of this conversation now, but before I do...there is a point that I'd like to hammer home.

The Federal Reserve Act is CLEARLY UnConstitutional and serves the purpose of issuing money by creating debt by charging interest when the Congress has the power to do so itself WITHOUT interest.

What additional value or purpose does the the Fed serve that Congress cannot do itself?

Sorry, one more thing...

"The rest of your argument relies on this and is therefore invalid"

No, it's not. The Fed in fact DOES print money out of thin air for pennies on the dollar and expects repayment in full with interest.

That's perpetual debt.