Thursday’s Supreme Court ruling on President Obama’s flagship legislation and Attorney General Eric Holder’s vote of contempt are stealing the headlines this week. The 24-hour news stations are devoting all their energies into covering every nuanced angle of each decision, interviewing prominent politicians, and monitoring the public’s reaction to these significant changes in Washington D.C. In the shadow of these two monumental decisions, presidential candidate and Congressional Baseball Hall of Fame inductee Ron Paul held a hearing in the Domestic Monetary Policy and Technology subcommittee, chaired by Dr. Paul, entitled: Fractional Reserve Banking and the Federal Reserve: The Economic Consequences of High-Powered Money.
Chairman Paul, an adherent to the Austrian School of economics, invited fellow Austrians Dr. Joseph Salerno, Dr. John Cochran, and Dr. Lawrence H. White to discuss the effects fractional reserve banking and central economic planning have on the economy. If the need for massive government intervention in health care – that will benefit Big Pharma more than the Average Joe – and the Fast and Furious gun-running scandal are the symptoms; central planning, along with fractional reserve banking is the disease.
The unintended consequences of any government intervention, whether it be foreign or domestic, rarely affects those who enact the legislation in the same way as those who are on the receiving end. Both sides of the Congressional aisle make millions trading stocks of companies who lobby on bills that come before their committees. Sure it’s legal, but the conflict of interest is so obvious even a NBA referee could see it. The military-industrial complex continues to reap massive profits from the perpetual warfare state. Big Pharma loves government involvement in health care. In fact, the pharmaceutical industry has received a 77,500% return on their lobbying investment. This merging of state and corporate powers on the backs of the taxpayer, is a symptom of the Federal Reserve system and fractional reserve banking.
As Dr. Salerno’s testimony stated, “Fractional reserve banking occurs when the bank lends or invests some of its deposits, payable on demand, and retains only a fraction in cash reserves.” Salerno goes on to explain how fractional reserve banking is inherently inflationary. Since all banks engage in fractional reserve banking, the money supply continues to increase, prices go up, markets are distorted, we have the booms, and then the inevitable busts. The law of diminishing marginal utility tells us that the marginal utility of each homogeneous unit decreases as the supply of units increases. The more money Ben Bernanke drops from his helicopters, the less valuable the currency becomes. Purchasing power lost.
Who benefits from the inflationary, debt based pyramid scheme that is the Federal Reserve system? The banksters who get the secret trillion dollar loans, the special interests that throw millions to the legislatures, and the ever-expanding state apparatus that continues to threaten the life and liberty of its citizens. Who doesn’t benefit from paper money and central planning? Both Greeks and Americans. Those on fixed incomes. Those burdened by massive student loan debt. The savers. The job creators.
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