Tuesday, January 27, 2009

Ron Paul on "Morning Joe" - 1/27/09

Ron Paul seems to have been on TV quite a bit lately, but this particular clip jumped out at me because he got to mention not only "sound money," but also "fractional reserve banking" - a major enabler of all the ridiculous bank leveraging that grew, collapsed and got a bailout.

Ron Paul was on Morning Joe this morning for ten minutes:

But why should America care about sound money?

Here Alan Greenspan explains the problem with America's fiat money, the opposite of sound money:

Some mechanism has got to be in place that restricts the amount of money which is produced - either a gold standard or currency board or something of that nature - because unless you do that all of history suggests that inflation will take hold with very deleterious effects on economic activity.

Sound money is the "mechanism" of which Greenspan speaks. Without it, money grows on Bushes and Obama Trees.

And Wikipedia offers this explanation on fractional reserve banking:

Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all deposits immediately upon demand.

I hadn't ever heard of fractional-reserve banking until RP ran for POTUS. And I didn't bother understanding it until the bailout... I just figured it sounded too complicated. But now that I've taken the time to understand it... it's really quite concerning to me. I don't know that it's inherently bad. But I'm convinced it's running wild... and is, in a sense, money growing on trees. And we all know money doesn't grow on trees. So it's got to be brought under control.

Without returning to sound money (in some form) and controlling fractional-reserve banking, our economic woes will continue... even if they slow down for a time... they will return with a vengeance.

Tim White

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