QUESTION: Why do you support the fed in what you call elastic money and not a gold standard?
ANSWER: As usual, you listen to the nonsense about how the Fed is owned by the banks and is responsible for probably everything evil from creating wars to probably killing JFK. The entire use of ‘elastic money’ was not invented by the government or the Fed. It began in 1853 with a little known group to try to help in the middle of a crash for what you are advocating is precisely what Europe has done – impose austerity.
The Panic of 1873 saw the government make a small gesture to try to calm the panic. They did the same thing as Quantitative Easing back then – Yes, not even that is new. The US Treasury injected cash by purchasing government bonds. It did NOTHING to help the economy. Why? When confidence crashes, people HOARD money and will not spend it if they fear the future. The cash they injected was hoarded by the banks just as it has been post-2007. Quantitative Easing in this manner NEVER produces inflation nor does it stimulate the economy.
The banks got together to create their own ‘Elastic Money’ using the New York Clearing House. Failing to increase the money supply meant that the value of money in purchasing power rises and all assets decline. This is the hallmark of EVERY recession or depression. During the Panic of 1873, the national banks of New York pooled their cash and collateral into a common fund, and placed this in the hands of a trust committee at the New York Clearing House, which had been founded on October 4th, 1853. The New York Clearing House then issued loan certificates that were receivable at the Clearing-house against this collateral. These certificates were absorbed like cash and could be used to pay off debt balances. Ten million dollars’ worth of these certificates were issued at first, but the sum subsequently doubled. This Clearinghouse paper served its purpose admirably.
This post was published at Armstrong Economics on May 2, 2017.
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