Ban the Federal Reserve!
Please read the disclaimer. I am definitely not a libertarian anymore. The essay below no longer reflects my opinions. Written in 1997.Or: the Hidden Tax
Apparently it is not enough for the US government to raise hefty taxes against its citizens. The bloated budget of our government has made it necessary for politicians to look to other alternatives for making money. This alternative they have found in an age-old mystery known as inflation.
It may sound like a paranoid conspiracy theory, but the US government, in cooperation with banks, is using controlled inflation to increase its money supply.
Banks, by lending out more money then they actually have, artificially increase the money supply. Although highly unlikely, if everyone were to demand the money they've deposited in banks, banks would go bankrupt rather quickly. Banks survive only because most people believe their money to be safe in the bank. Little do they realize their money isn't really there. The instant they deposit more money into a bank, the bank is in turn lending it out again. But that is not enough. Most banks, for every dollar that is deposited, lend out as much as ten dollars. This is Fractional Reserve Banking, one of the primary causes of inflation.
Politicians have come to understand the workings of fractional reserve banking, and have instituted (under the guise of making the bank system more stable) a central banking system, through which they can control and take advantage of inflation. This is the purpose of the Federal Reserve. It is meant to be a sort of insurance, to prevent massive bank failures as happened during the depression in the 1930's.
The hidden purpose of the Federal Reserve, however, is to allow the Government to increase the money supply at will. The currency is not backed by anything other than the paper it is printed on. Without something concrete to back the currency, the government can print more money whenever it wishes.
However, because there is no increase in "value" in the country, the value of the dollar decreases. The government and the banks are not affected by this, they've gained money, because although the dollar is worth less, they've gained enough additional dollars (because they printed them) to cancel out the depreciation of the value of the dollar.
In the upper middle classes, inflation does not hit too hard either, because these people will also get more dollars (though worth less) and the effect will cancel out.
The people who pay for this are the lower and lower middle classes. These people will not see an increase in the number of dollars they have, but instead just a decrease in the value of the dollars they already have.
People have been led to believe that inflation is an unavoidable evil and that only government interference can keep it to an acceptable minimum. This is a fallacy. The Government, if anything, can only increase inflation. With a gold-backed currency (or better yet, a currency controlled by private banks) and with a ban an fractional reserve banking, inflation could become a thing of the past.
The new deal with which FDR saved our country from the depression is a great example of government intervention. If anything, FDR's government programs merely prolonged the depression, by hiding some of the symptoms. If the economy had been allowed to heal itself, the depression may have been uglier for a short while, but the country would have healed itself, and would not have needed a war to boost industry.
In Weimar Germany, when people began running at the banks, inflation went out of control. Money was becoming worthless faster than it could be printed in the huge denominations of 100 trillion marks. The problem was not that the economy was failing, but that the government was trying to intervene. German politicians did not understand the forces of inflation, and when people demanded more money, politicians thought that the best thing to do would be to print more money. Give the people what they want. This, of course, dropped the value of the mark even more, causing again more demand for money. If the government had simply not printed any more money, the economy would have eventually righted itself. Instead, collapse.
US President Bill Clinton may be surrounded by scandal, but he has done one thing right while in office. He has left the economy relatively untouched. The US economy continues to boom, and economists are having a hard time explaining why. "The government isn't doing anything... the economy can't be increasing!" This is precisely why the economy is doing well. The government is keeping its hands off. It will be interesting to see how long this trend can continue before greed or stupidity causes intervention.
In the meantime, to improve things even more:
Ban The Federal Reserve! And reinstitute the Gold Standard.