One of the most vocal and important critics of the Federal Reserve is Congressma
ID: 1213880 • Letter: O
Question
One of the most vocal and important critics of the Federal Reserve is Congressman Dr. Ron Paul, who wrote a book in 2009 titled End The Fed. The second chapter of the book is available on the website of the Ludwig von Mises Institute at http://mises.org/daily/3687
1. The Comptroller of the Currency in 1914 said that with Federal Reserve System, “financial and commercial crises, or ‘panics,’ as this country experienced in 1873, in 1873, and again in 1907, with the attendant misfortunes and prostrations, seem to be mathematically impossible.” How does Dr. Paul respond to this mathematically Impossibility?
2. Where does Dr. Paul believe that the business cycle starts: in the bust, or in the boom?
Explanation / Answer
1) The comptroller promised an impossible trinity where money in circulation was considered as safe.He said the failure of banks and their supply decision is never possible and each bank follows proper laws and regulations keepin a close eye on the competitor banks .These facts reduced prossibility of bank failures , but the reality is differnet with fall in dollar value and domestic goods became expensive .And the money supply worsened inflationary pressure in the country. The impossible was the treatment given to banks upon failure , about their guranatees because of this investors lose interest and start taking money out from the financial system.Hence if the government fails to fucntion well to look after the money supply , failure of banks remain unjustifiable.
2) The business cycle functions in its bust phase ,because he assumes at the time when the credit supply contracts in the economy . Fed responds by printing more currency during this phase and covers bank deposits.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.