What are the specific benefits and negative side effects to Ron Paul's plan of removing the Fed?

Question

We mostly hear about generalities, and I am wondering if Ron Paul supporters can actually explain the details.

For those that support Paul, explaining in great detail might actually help the cause since his views are so misunderstood.

Answer 1

I gave you a star for asking a great Ron Paul question.

This is going to take some time to answer, but I'll keep it simple for most people to understand.

Positives (of not having the Federal Reserve):
1. We will have less inflation. Reason: the Fed meddles with the money supply to 'stimulate' the economy. Most often than not, whenever the money supply (the amount of dollars/currency in circulation or in the system) is manipulated, it creates unsavory side-effects. Too much money supply = inflation (hyper-inflation when there's way too much), which raises the prices of everything, and devalues the paper currency. Too little money supply = deflation, which may increase the value of the paper currency, but businesses fail (and economy suffers) because people save more and spend less.

2. Stability of purchasing power. When the Fed is not around to meddle with the money supply, the currency remains stable, provided we have a stable economy and barring trade and budget deficits. People can expect their dollars (or any currency) to be able to buy approximately the same amount of goods (provided the supply and demand of goods remain stable).

3. Creates displine in government spending. The Fed lends money to the government. Sometimes, it lends too much money to the government even when the govt. cannot possibly pay it all back. Without the Fed to lend money willy nilly, the govt. will have to make ends meet by reducing spending, or having to resort to raising taxes (which is usually a political suicide).

4. The people will have more financial discipline. Without the Fed meddling with the money supply, the people will not be able to get loans they can't afford (because of low interest rates as a result of increased money supply). When people spend what they can afford, we will have less bankruptcies and less foreclosures, and a generally healthier economy (instead of the current unnaturally inflated economy).


OK.. that's good enough for the positive effects.

Now, the negative effects:

1) Some businesses will fail. When the Fed is gone, there will no longer be 'easy money' loans available. Some businesses, which rely on easy money loans, will fail. But this will allow stronger, healthier businesses to prosper.

2) People will feel the 'pinch'. When the Fed is gone, there will be no longer easy money loans. People who have been spending more than they can afford will either have to go bankrupt or curtail spending on things they can't afford.

3) The government will feel the 'pinch'. When the Fed is gone, the govt. cannot take out easy money loans. Then, it will have to either cut spending, or raise taxes to fund their spending.

Answer 2

I'd love to answer this, but it would bore most people to death. It would also make many angry, as their (usually wrong) view of how money is created is already ingrained. I was one of those people until a few years ago.

What I will do, is provide links for further research. Do not shoot the messenger, and do not think that I'm skirting the issue, as I find this question, and the answer, very interesting. I do not know how much you know, but if you wish to learn the basics first, please watch at least a few of these video's (in the form of a play list, there are 5 parts)

http://www.youtube.com/watch?v=cy-fD78zyvI&feature=PlayList&p=D8B8EAC323DC2524&index=0&playnext=1

Once you have done so, I would like you to read this.

http://www.mises.org/money/3s8.asp

W/o adding my bias, pure research would be much better to inform yourself and others with. Whether you believe my sources or not, depends on how much authority you perceive the source has. To me, it makes perfect, but painful sense - and there are even better, more robust indicators of these facts.

If we do nothing, and if other candidates don't address the issue at all, that would be the biggest problem. Because Ron often brings up the hardest, most tangible problems we face today, he's often ridiculed for it, by people that either don't want to be told anything differently, and by the elites that setup the system we have today.

Thank you for listening, I would love to see some others answers as well.

EDIT: Two other good answers appeared while I was typing this, but still, understand the how, and you will understand the why.

EDIT2: Uthman B - the US government, namely Congress. The government would not have to borrow money from a third party entity. Many will say that the Federal Reserve "managers" are appointed by the government, but that's not the entire story, the Fed, for most practical purposes, really is a private organization, with very little oversight and accountability by the government.

If you read between the lines, they try so hard to make it seem like there is no separation between "the fed" and the government... but there is, and this is coming from their own site.

http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5

Answer 3

The pro is having Congress in control of the money as it was supposed to be under the constitution and the Feds can't control the citizens with debt by manipulating the economy. The Feds will also not be able to drive down the value of the dollar by printing more worthless dollars causing hyper inflation.

The cons of returning to a gold standard is that there may not be enough gold since we've sold most of it off. We are bound to feel the strain if we do return to a return of a dollar backed by something other than credit, or faith that the dollar is worth being traded. But in the end, if we get the Fed's off our backs than at least we won't be paying interest to money that belongs to the US in the first place.

Answer 4

The job of the Federal Reserve Bank is to insure the value of our money. I am old enough to remember when each and every dollar was in fact a silver certificate, that is, each dollar was backed by a piece of silver which was worth a dollar.
Then when we didn't have enough silver to back up all the extra dollars that needed to be printed, in order to keep up with inflation, the Fed invented Federal Reserve Notes.
This new invention is just a smokescreen. It isn't real.
Ron Paul wants to get back to what is real.
If the foundation of a building is immaginary, the building won't stand for long. In like manner, if the foundation of the value of our money is imaginary, then the economy that we are building on it will fail. The only thing that is keeping it afloat now is the agreement of the bankers to do so.
If the only bankers who agree to this are American bankers, and the rest of the world refuses to take our word for it, we will rapidly become a third world country or worse.
The national debt has become so large now, that the idea of the rest of the world deciding to foreclose on us isn't terribly farfetched.
If you watch the markets, you will see that the value of the American dollar is down, against the Euro, the Yen, and even the Canadian Dollar. The Stock market has lost 1000 points in the last week or so, and securities backed by the American housing market have collapsed. These things tend to snowball, and could very easily slide into a very severe monitary crisis.
The Fed is the entity which has overseen this manipulation of our money, and doing something this chancy with our economy, makes us vulnerable to the whole world.
I don't expect that Dr. Paul would change this suddenly, but I think that he would push for our money to be backed by something other than the word of one weasel to another.
To re-enact the gold standard suddenly would put us in a sharp deflationary situation, and would be difficult to do.But if we were to gradually raise the value of the dollar, and sharply limit spending, would put us on track to get back to a real standard of value for our money.

Answer 5

labken -- I do understand out of your different postings which you're anti-Ron Paul, so undecided in case you made your end till now sorting out the solutions to questions like the single you're asking right here. besides, Ron Paul's tax plan isn't in basic terms excise taxes. it rather is that AND consumer expenditures. consumer expenditures, examples: a million. The Federal tax on gasoline is how the government will pay for roads (R.Paul referred to that it rather is abused, they assemble greater effective than what's mandatory for roads, and use the surplus for different unrelated issues.) 2. Passport expenditures - you pay a value for the applying and beaurocracy 3. Stamps - pay to run the submit place of work / mail provider 4. Federal expenditures on your airline tickets: pay for air site visitors administration .. countless those are in basic terms some examples of consumer expenditures that are at present in result. Then excise taxes conceal common expenditures not lined by utilising consumer expenditures. the final result develop into quoted in some interviews. income tax represents 40% of all federal sales at present accrued. Ron Paul plans to do away with this completely. So result: Federal gross sales drops 40% Federal spending is decrease 50% (Ron Paul recommends reducing it in 0.5) Spending would be decrease greater effective than taxes, final out the deficit. Now human beings could disagree with this: once you're a socialist and want great government. classes, you mustn't vote for Ron Paul. additionally, in case you have self assurance we ought to constantly have great armed forces campaigns, you should vote for somebody else. yet his financial coverage would not advise any form of deficit, or any form of unsound scam to make human beings experience good. there is not something obscure approximately what he desires to do, in case you only learn the small print. it rather is amazingly close-minded to think of that governments can not exist with taxing income. Many states in the U. S. have not any income tax: e.g. Nevada (final I heard they have been booming), NH, WY, Alaska, Florida, Texas, South Dakota, Tennessee, Washington ... and beforehand of 1913, income tax develop into not even element of the U. S. shape.

Answer 6

check out the federal reserve bank on wikipedia, many people don't realize that they are the men behind the curtain. They are no more federal, than Federal Express, it's bunch of rich guys running the world with their money and our leaders are all puppets.

Answer 7

There are no positives to "removing the Fed". First we would have to buy back all of our debt. That sounds good but would leave the world devastated economically. Think old western movie scene with tumbleweeds blowing through a ghost town. The other problem is the cost to gear up and manage our own money supply. Imagine if you decided to create your own currency right now. You would need everyone else to accept that your money is worth what is written on it. Isn't going to happen. So you collapse the world economy and now you are paying your bills with currency based on what exactly? It would take us at least 20 years to pay down our debt and return to the gold standard. One president isn't going to get it done without creating another depression and a "crisis of confidence".

Answer 8

I am not voting for Ron Paul but I will say this, If the fed is gone, then who will control our money?