Jun

23

 There is a proposal before congress (H.R. 2755) to abolish the Board of Governors of the Federal Reserve System and the Federal Reserve.

Jeff Sasmor adds:

This is the second time, it seems. The first time was in 2003.

Scott Brooks remarks: 

I'm starting to become a Ron Paul fan. But I'm worried about what I've referred to as the Russia effect, meaning that Russia melted down into chaos after they went straight from socialism to capitalism resulting in anything but a capitalist society.

As much as I want to abolish the IRS and 99.99% off all government agencies, what thoughts are there on us melting down into chaos if that were to occur, i.e., abolishing the fed?

Stefan Jovanovich writes:

"Russia melted down into chaos after they went straight from socialism to capitalism" is not a very good description of what happened after the U.S.S.R. formally dissolved.

Runaway drunkenness, near demographic suicide by abortion, absenteeism rates that made Lordstown look like a Toyota factory, extortion so much a part of ordinary life that someone's not demanding a bribe was cause for paranoia, had all been part of Russia life even before the defeatism and self-doubt that came after Afghanistan. Scott's post assumes that Soviet governmental authority had some moral force in 1988. It had none.

None of us can predict the future, but I would argue that the odds for Russia's future are as good as those were for what used to be known as West Germany in the 1950s. Then there were no local German politicians who could pass muster as anti-Nazis, and the new republic's democracy was a very brittle artifact. If Russia's current leadership seems tainted by associations with the old tyranny, that situation is little different from what was happening under Adenauer.

Ironically, Scott is far more likely to see Ron Paul's monetary regime created in Russia than in the U.S. I leave it to those who really know about currencies to correct my usual amateur errors, but it seems to me that the ruble is the one world currency that can currently be seen as being entirely backed by a gold/petroleum standard. 

Alex Forshaw writes:

Hmmm…with regards to Russia, the so-called "free/ democratic institutions" that "evolved" were anything but. It's one thing to have measured, organic evolution of a free press and robust markets as the US did. But in Russia, the robber baron tycoons immediately built up media machines to massage their public images.

Putin destroyed Russian "free media" because it was Boris Berezovsky's tool, and Berezovsky probably achieved greater control of the Russian economy than the Politburo did (with lots of help from Chechen gangsters, car bombs for his competitors, Russian government force, and other ridiculously coercive methods).

Stefan Jovanovich adds:

The admiration that the official American press (Time, WP, NYT - the usual suspects) showed for the "free/democratic institutions" that Professor Sachs helped "create" (sic) has its historical match in the obtusely wrong-headed enthusiasm that the Jeffersonian press showed for the progressive insanities of the French Revolution. 

Scott Brooks responds: 

Both Stefan and Alex are doing a better job of making the point I was trying to make. These countries were run by demagogues, despots, and gangsters who simply changed their styles, but ultimately remained in charge. They changed from being in charge in the form of a government to being in charge in the form of being the most powerful gangster. The gangsters, of course, whether under the guise of a legitimate government or as just plain gangsters, were able to manipulate powerless people because the gangsters had made them dependent on them.

In the US we don't have gangsters in charge per se, but we do have a system where a large group of people like welfare recipients (no offense intended) who are dependent on the government. So I ask if a country can go from a "dependent system" to one of independence overnight? If not, then how does one move away from that system? 

Alex Forshaw replies: 

If by "welfare recipients" you mean agribusiness, the tort bar (and to a lesser extent other unnecessary functionaries which use "the law" as an excuse to siphon money from businessmen who would otherwise have no need for them) then you're getting somewhere

Just in personal experience, I'm 21, I trade about 150k total in political futures (snobbier people would call it "gambling," I laugh at the pseudo-distinction). To get even the most rudimentary legal structure (a "pooling of interest") to facilitate moving the money offshore, (because it's simply stupid and/or prohibitively expensive to risk regulatory harassment over high-risk, novel securities trading in the United States, without the economy of scale of a tens of millions of dollars of a capital pool), I had to utilize the services of two accountants and a securities lawyer.

Fortunately I had friends of the family to do it for me, but what about someone who isn't as privileged as I am? Legal overcomplexity is an incredibly high fixed cost/ barrier to entry in this country.

And I don't even have day to day interactions with other people, unlike the Korean immigrants in DC who got sued for $100 million because they refused to give a lawyercrat a $1000 new suit, or the cerebral palsy doctor ruined by John Edwards.

Stefan Jovanovich writes:

I will let Alex speak for himself, but that is not the point I was making, Scott. No ordinary Russian thinks that the changes over the past 20 years have been merely a change of styles by "demagogues, despots and gangsters".

For one thing, there is now actual freedom of conscience. (Yes, I know the Russians are giving their own national faith preference and have been less than open to proselytizing by Westerners; but that is a world of difference from the situation that had Jews, Seventh Day Adventists, and devout Orthodox regularly jailed simply for what they believed.) It is also now possible for people to have savings that are not controlled by the government and private land ownership.

These are real changes for the better that have affected millions of people, and they are occurring. But at the same time the conditions of actual life continue to be dreadful. As for the question of dependency, that seems to me a near universal. I have never known a libertarian who actually turned down the offer of a good government job. As the first Mayor Daley once said, "Everyone wants a little honest graft."

No society has ever reached that peak of pure individualism that Ms. Rand dreamed about, but we can hope for a world with enough contending interests to limit the amount of loot that any one group can haul away. 

Gordon Haave remarks: 

Russia went chaotic, yes. But most of Eastern Europe did not. Why? The rule of law. Besides, there is no reason why abolishing the Fed would create a chaotic situation.

George Zachar writes: 

Russia went from a closed-economy kleptocracy to an open-economy kleptocracy. The commanding heights of Russian industry never saw capitalism. The looting, aggregation, and export of its wealth are well-chronicled. Using the word "capitalism" in the context of Russia is to deliberately smear the term as gangsterism. 

Peter Earle comments:

The Federal Reserve, when set up, was ostensibly created to maintain a stable value for the dollar. Looking at the 90%+ drop in the value of the dollar since the creation of the Fed, I'd say there's reason to doubt their somewhat self-serving perspective. A look at Panama, where there is only nominally a central bank, may be instructive as well. 

Stefan Jovanovich continues:

When Queen Elizabeth I came to visit the United States after WW II, my grandfather, who was born in Old Serbia, wrote about the news to my dad, who was born in the coal camp near Ludlow, Colorado that has now physically disappeared. In his letter Tata wrote to his American-born son that "your queen" is coming for a visit. What he meant was that Americans, regardless of their origins, end up having an Anglo-centric view of the world - at least as far as Eastern Europe is concerned.

The Hungarians, who were fervent Nazis and are more completely thorough anti-Semites than anyone to the east, got a better press in London and New York in 1946 than our allies, those awful Russians. They still do. The economic successes in Eastern Europe - Croatia, Slovenia, Poland, Hungary and the Baltic states - have far more to do with their proximity to Germany, Austria, and Scandinavia than with any special qualities of jurisprudence in "eastern" Europe.

For their citizens and for the average Rumanian, Serb, Bulgar, and Ukrainian, the rule of law is no better than it is for the average Russian. What is better for all of them is that now the police are merely corrupt; they are no longer true Marxist believers dedicated to liquidating all class enemies. 

Gordon Haave adds: 

Russia went chaotic, yes. But most of Eastern Europe did not. Why? The rule of law. 

J T Holley asks:

Can't we simply start with the IRS first as a warm-up? 

Gabriel Ivan writes:

Having spent the first 20+ years of my life in Eastern Europe (Romania) and being exposed to the first 13 years of transition from communism to capitalism, I can second Scott's comment about the melting into chaos in all Eastern Europe, not just Russia. The looting was mind-blowing and cannot be explained if you didn't live it.

With rampant inflation, no social net whatsoever for maybe 80% of the population and opaque legislation, I'm surprised things didn't get more explosive in all these years. I personally witnessed two national distribution companies with strong brand names and infrastructure vanishing in two weeks due to central bank's policies on the exchange rates. And this was '99 - '00 after 10 years of "free market economy".

Unfortunately, fundamentals haven't improved much despite the real estate boom and commodity prices run-up masking an economic growth that is not healthy. High profile businessmen - bank presidents - still get shot in daylight in Bulgaria, (the country is a member of EU for six months now… what a joke) due to their affiliation to organized crime (there is no other way to run a business). Imagine Sandy Weill getting whacked in a drive-by shooting to understand the strength of their banking system.

I expect the majority of "emerging markets" money managers to be separated from their wealth in the foreseeable future due to their lack of due diligence and reliance on official statistics.


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