Both Fiscal and Monetary Policy

In Washington, D.C., the saga of the Federal debt ceiling, resulting from ever growing budget deficits, continues. Unfortunately, the story that fiscal policy alone is not enough to solve this problem remains largely untold.

On March 16, 2006, freshman Senator Obama pointed out, “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.” And, as Democratic Senate leader Reid said just a short while before Obama spoke that same day, “President Thomas Jefferson said: I place economy among the first and most important government virtues, and public debt as the greatest of the dangers to be feared.”

As we near yet another vote on increasing the debt ceiling, we should keep in mind 2 facts: (1) not increasing the ceiling does not equate to a default, and (2) it is a myth that the Federal government has never defaulted in the past.

On the fiscal policy front, a number of serious proposals have been made to address the budget and debt problems, such as Dr. Ron Paul’s Plan to Restore America and Dr. Rand Paul’s bill S.162 introduced in 2011. (There are a number of other proposals, e.g., the Paul/DeMint/Lee budget, the Tea Party Debt Commission budget, the Cato Institute budget, and the proposals published by the Heritage Foundation mentioned in my earlier article.) Also see Congressman Broun’s bill H.R. 2409 from 2011 to lower the debt ceiling.

But that of course leaves out the monetary policy. Previously, I have pointed out that we cannot honestly address the debt problem unless we follow the 3 part solution offered by Warren T. Brookes in the 1986 Heritage Foundation symposium on cutting the budget:

  • returning to the gold standard (as Bill Clinton has pointed out, going off the gold standard has had a number of deleterious effects),
  • allowing for competing currencies, and
  • abolishing the Federal Reserve.

Congressman Paul Broun has introduced legislative proposals in the House that would address these issues by following most of the solutions proposed by Brookes.

An additional measure would be the passage of a modified version of Dr. Paul’s bill from 2011, H.R. 2768 -- the Debt Crisis Resolution Act, which would “cancel public debt held by the Federal Reserve System and ... lower the public debt limit by an equal amount.” I would modify the original bill to make sure that the second part of its stated purpose is carried out. My addition to the original bill would be a new section:


(a) Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection; and inserting in lieu thereof an amount equal to the difference between the stricken out dollar limitation, and the amount equal to the amount of obligations described in Section 2(a) of this Act.

(b) The amendment made by Section 3(a) of this Act shall take effect immediately upon the execution of Section 2 of this Act.

While many “deficit hawks” focus on “entitlements,” the untold story continues to be monetary policy, including the potential $1 trillion per year interest payment debt bomb.

We will soon see who the true “deficit hawks” are.

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The Most Important Thing Holding Up the US Dollar

by Ron Paul

Today’s economic conditions reflect a fiat monetary system held together by many tricks and luck over the past 40 years. The world has been awash in paper money since removal of the last vestige of the gold standard by Richard Nixon when he buried the Bretton Woods agreement — the gold exchange standard — on August 15, 1971.

Since then we’ve been on a worldwide paper dollar standard. Quite possibly we are seeing the beginning of the end of that system. If so, tough times are ahead for the United States and the world economy.

Piketty’s Gold?

April 21, 2014

In terms of public policy, though, we favor honest money. It works out better for more people. And there is a moral dimension to the question of honest money. This was a matter that was understood — and keenly felt — by the Founders of America, who almost to a man (Benjamin Franklin, a printer of paper notes, was a holdout), cringed with humiliation at the thought of fiat paper money. They’d tried it in the revolution, and it had been the one embarrassment of the struggle. They eventually gave us a Constitution that they hoped would bar us from ever making the same mistake.

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The Rueffian SynthesisJohn D. Mueller

Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.

By John D. Mueller

Rueff Restates the Quantity Theory of Money

... Rueff argued that the real problem with the monetarists is not that they focus too much, but rather too little on the supply of money; namely, they assign too little importance to the concrete mechanisms by which money is actually created. Most monetarists adopt the convention that the government can control the nominal supply of money, while demanders of money control its value. Rueff pointed out that under a properly functioning monetary system, even the nominal supply of money is determined by people’s demand for it.

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Excerpts From:

by Lewis E. Lehrman

"The economist defines money as a medium of exchange. It is the token we supply in order to effect payments for the goods we demand. Money is especially a standard like a yardstick – a unit of measure by which we value and price economic goods. Money units express prices which are the vital information necessary for efficient exchange. Money is surely a store of value."

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Europeans: Unemployed and Un-united

Kathleen Packard  |  Apr 25, 2014
Europe is still stagnant. The New York Times’ Liz Alderman wrote: “Even as signs of an economic recovery emerge in the euro zone, the human cost of the five-year downturn continues to rise. For tens of millions of Europeans, the comeback from nearly five years of economic privation and Depression-scale...

Laksmi, The Goddess of Prosperity

Ralph J. Benko  |  Apr 24, 2014
Indian culture long has held a high appreciation for gold.  The Vedic faith records four historical ages, the highest being the Satya Yuga.  Per Wikipedia, "when humanity is governed by gods, and every manifestation or work is close to the purest ideal and humanity will allow intrinsic goodness to rule supreme.
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Stock and bond traders spent most of last year in a state of high anxiety over what would happen when...
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Recent Arguments Against the Gold Standard

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In Memoriam
Professor Jacques Rueff

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