Freedom From the FED

Thursday, October 27, 2011
By Paul Martin

by Michael S. Rozeff
LewRockwell.com

Central banks exist for a single reason – to inflate the supply of paper currency. They are a currency-creating and currency-inflating institution. This serves two interest groups in the main. One is the fractional-reserve banks that they regulate. The other is the government that created them.

For the banks, the alternative to a central bank is to be subject to the forces of market competition. This is something they are striving to avoid. Without a central bank to issue paper currency to them at critical times when they become overextended, the fractional-reserve banks would compete for the safety of funds deposited with them. Gold would be an important currency. Banks that overexpanded into unsafe lending would face customer withdrawals that they could not meet. Competition would restrain bank lending. The central bank relaxes the constraints placed upon banks by competition. It organizes the banks into a banking cartel.

For the government, the alternatives are two. Either it must compete for funds in the market along side all other borrowers, or else it can directly (via its treasury department) inflate the supply of paper currency itself. The government does not want to compete in the market. It wants as much power and freedom of action as it can get. So the first alternative is anathema to it. The second alternative has been tried and found wanting many times historically. The problem with it is that most governments cannot control their own currency issues when they have direct control. They inflate too much. Usually, they destroy their currencies altogether.

The Rest…HERE

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