The Federal Reserve Should Be abolished:
Debate Rounds (5)
There are a few terms to this debate that you should agree to before accepting the challenge, they're really simple I just have to state them to resolve a few issues. First of all you are not allowed to "drop out" of the debate, once you accept the challenge you must respond to my arguments in their entirety within 3 days, that way if you start to lose you don't get to flake out on me.
Secondly, google documents are not a conduct violation, you could just as easily as I can start a google document and respond to my arguments that way. If you do not respond to my arguments, it will be considered to have been dropped.
I've had some issues with people flaking out when they began to lose, reiterating their arguments rather than responding to mine, and whining about google documents.
Before we begin, there is one thing I would like you to clarify. When speaking about abolishing the Fed, are you referring to the abolishing of the central bank system in the U.S. or the private company status of the Fed?
This is the first time I have an online debate. I hope I can do a decent job.
If history is any guide, it shows that having some sort of central bank may have been better than none. Out of 100 years of the Fed control, the U.S. has had 22 recessional years, including one depression. The 100 years before the Fed saw 44 recessions and six depressions(1). Throughout history, rulers have debased the currency to enrich themselves and their political allies at the expense of the common people. It"s hard to find an instance where the state has not taken advantage of its control over money to benefit itself.
Looking at the Article 1, Section 8 & 10 of the Constitution, some may argue that it does not mention the need for a central bank, nor does it explicitly grant the U.S. government the power to create one. However, if we were to take the meaning of these two sections of the constitution literally, it is clear that the founding fathers of America intended a national monetary system based on coin and for the power to issue money rest only with the federal government. That means that any fiat money which is not coin-base would be unconstitutional. Any money issued through state banks but not the federal government should also be forbidden.
In this case, state banks are forced to print bills of credit in exchange for specie deposits instead of "official" national money. These notes bear the issuing bank's name and entitle the bearer to the note's face value in gold or silver upon presentation to the bank. However, there is one potential problem - state banks may issue notes far in excess of their specie deposits. Customers appear from time to time wanting to exchange their banknotes for specie. The banks make allowances for this by keeping some of the specie on hand at all times. If the specie/banknote ratio is too low, even a small unexpected increase in the withdrawal rate could force the bank into insolvency (bank run). Remaining depositors who had not withdrawn their specie would be left with worthless banknotes.
In addition, in free banking era, there were 712 state banks in operation in the United States , each with its own currency(2). It should take little imagination to picture the difficulty for a local merchant in tracking the riskiness and value of perhaps dozens of different banknotes in addition to the other concerns of his business.
Although those who adhere to a strict interpretation of the Constitution believe a central bank system is unnecessary as it was not mentioned in the Constitution, the structure of our economy advances and it is important that the Constitution advances with it.
Another important factor which needs to be considered is the current ownership structure of the US treasury notes and bills. Foreign countries such as China owns a massive amount of US treasury and expected to be repaid in the green paper issued by the Federal Reserve. If Federal Reserve were to be abolished and replaced by state banks or other chartered banks in the US, it will sure create a massive outrage regarding to credit default . Not only the new US currency/currencies will most likely be depreciated, the vast amount of redemption of the treasury notes and bills will probably bankrupt America as well.
We live in an era that businesses are no longer only conducted domestically but internationally, and the ability to control exchange rate is extremely crucial for international trade for every countries. To abolish the Fed basically means to forfeit the core weapon US has in a currency war. With the rise and liberalization of RMB and the already weakening petrodollar, it's not difficult to see where the US will be heading after shutting down the Fed.
In short, abolishing the central bank of the US will not only create chaos but is also an act of irresponsibility by itself. It's like killing Jon Snow only because he is an illegitimate bastard but ignore the fact that he is the only person who can protect us from the white walkers.
If China wants to be played back in "official" US dollars which are accepted by all of America, and buisnesses need dollars usableaccross the U.S., that doesnt necessarily mean we need federal reserve notes, we can meet that demand for a national currency in a few ways, a) make gold and silver a tender across the U.S., or b) just printing United States Notes instead. I would make gold and silver our money to meat the demand of buisnesses in America but pay China in US notes.
Despite the irrelevance, allow me to share with you my views on the 1907 panic. If we look back at the economic conditions between 1897 and 1907, 10 years before the panic, it's not hard to see the why lots of the financial institutions including banks were already in stressed or distressed situation. Out of that 10 years, America was in recession for 8 years. The panic in 1893 caused by the Reading Railroad triggered a large crisis in the stock and commodity (gold and silver etc.) crises. Profits and incomes of many businesses dropped substantially and the credit condition became more difficult. In fact, the years 1897 to 1920 are what we call the the era of economic instability. Many banks were doomed to shut down or to have bank runs with or without the 1907 panic.
Let me get back to your response to my China argument. Since you are at the side of "Pro", if I'm not mistaken, you are at the side of abolishing the Fed hence no central bank. An establishment of a national currency without a central bank isn't impossible, but it's pretty near. Remember that the functions of the central bank isn't only to issue currency, but also to monitor the payment system and to regulate all state banks. The lack of a central bank will cause mass confusion of the credibility of the new US currency.
The restoration of the gold standard isn't practical either. The current gold reserve of the US (according the the world gold council) is 8,133.5 tonnes. The current price for 1 ton of gold is $35,090,816. This means the total gold reserve in the US would worth around $314 billions The US debt is more than $19 trillions and around 30% are owned by foreign countries. China alone owns $1.25 trillion and that means it will take the entire gold reserve of the US to repay only 1/4 of the debt owned by China if the country demands.
I personally like the gold standard but the US debt situation (especially after two rounds of QEs) is now too severely damaged to have the gold standard to be the remedy.
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