Thursday, February 12, 2009

Congressman Paul Kanjorski Is One Confused Dude

Jim Crum and Mairi have forwarded this video of Congressman Paul Kanjorski's explanation of the "bailout". Kanjorski is one confused dude. There is no benefit to the public from the government's subsidizing incompetently run banks by buying their bad mortgages. It is true that what Congress is doing now is even worse, and the caller has a right to be disturbed. But it is unfortunate that she cannot obtain the information necessary to analyze this problem. Wall Street's publicists, the New York Times, CNN, Fox, et al. have seen to that.

Kanjorski's confusion is particularly acute in his dramatic depiction of a run on money market funds. There is no such thing as a "run" on money market funds. Money market funds are fully backed by loans. The funds could refuse withdrawals until the short term loans expire, and then pay the depositors.

Nor is the current approach to banking essential to the American economy. The banking system is not worth a trillion dollars to the public. It is not worth a dime. It has been a cancer on the American economy for two centuries.

If Kanjorski had bothered to inform himself about the history of money, he would know that America's current arrangement, the fiat paper system and the Fed, is the result of historical decisions that have not been beneficial and that the public fared better under the gold standard. In the 1970s there was a possibility that Milton Friedman's fixed monetary rule might work, but it did not. The only choices are (a) gold and silver without fractional reserve banking, which would result in gradual, stable growth, and (b) the unstable paper and fractional reserve system that has resulted in the Great Depression, the current instability, the 1970s deflation and absurd investment in worthless construction and mortgages.

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