Ron Paul: Federal Reserve is Source of All Economic Downturns

Venue: Congress
Date: 12/01/2009


Ron Paul: Thank you, Mr. Speaker. Federal Reserve Chairman, Ben Bernanke, does not want us to know any of the details of the Fed’s secret operations. This position is not surprising and has been typical of all central bank chairmen. Bernanke’s stated goal is, “To design a system of financial oversight that would provide a robust framework for preventing future crises”.

During its 96 years of existence, the Federal Reserve has played havoc with our economy and brought great suffering to millions through unemployment and price escalation. And it has achieved what only a central bank can – a steady depreciation of our currency. Today’s dollar is now worth 4 cents compared to the dollar entrusted to the Federal Reserve in 1913. 96 years should have been plenty of time for the Fed to come up with a plan for preventing economic crises.

Since the Fed is the source of all economic downturns, it’s impossible for any central banker to regulate in such a manner to prevent the problems that are predictable consequences of his own monetary management. The Federal Reserve fixes interest rates at levels inevitably lower than those demanded by the market. This manipulation is a form of price control through credit expansion and is the ultimate cause of business cycles and so many of our economic problems, generating the mal-investment, excessive debt, stock, bond, commodity and housing bubbles.

The Federal Reserve’s monetary inflation indeed does push the CPI upward, but concentrating on the government’s reports of the CPI and the PPI is nothing more than a distraction from the other harm done by the Federal Reserve’s effort at central economic planning through secret monetary policy operations.

Real inflation, the expansion of our money supply is greatly undercounted by these indices. In response to our latest financial crisis the Federal Reserve turned on its printing press and literally doubled the monetary base. This staggering creation of dollars has yet to be reflected in many consumer prices, but will ultimately hit the middle class and poor with a cruel devaluation of their savings and real earnings.

The Fed has clearly failed on its mandate to maintain full employment and price stability. It’s time to find out what’s going on. Instead of assuming responsibility for the Fed’s role in the crisis, Bernanke brags about “arresting” the crisis. I would suggest to Mr. Bernanke that it’s too early to brag. Bernanke decries any effort to gain transparency of the Fed’s actions to find out just who gets bailed out and who is left to fail. Instead, he proposes giving even more power to the Fed to regulate the entire financial system.

What he doesn’t recognize, nor does he want to admit, is that he is talking about symptom while ignoring the source of the crisis: the Federal Reserve itself. More regulations will never compensate for all the distortion and excesses caused by monetary inflation and artificially low interest rates. Regulation distracts from the real cause while further interfering with the market forces, thus guaranteeing that the recession will become much deeper and prolonged.

Chairman Bernanke’s argument for Fed secrecy is a red herring. It serves to distract so the special interests that benefit from the Fed’s policy never become known to the public. Who can possibly buy this argument that this secrecy is required to protect the people from political influence?

My bill, HR 1207, has nothing to do with interferences in monetary policy. This was explicitly stated in the amendment voted on in the Financial Services Committee. Bernanke’s argument for protecting the independence of the Fed is his argument for protecting the secrecy of the Fed.

Chairman Bernanke concludes that “America needs a strong (think cartel) non-political (think Goldman Sachs) and independent (think secret) central bank with the tools to promote financial stability in the midst of a horrendous financial crisis and to help steer our economy to recovery without inflation.”

This belief is a dream that one day will become a nightmare for all Americans unless we come to our sense, stop our wild spending, runaway deficits, printing-press money, massive bureaucratic regulations and our unnecessary world empire.

A crucial step towards fixing these problems will be transparency of the Federal Reserve.

(If you’ve found a spelling or transcription error, please notify us anonymously by selecting the misspelled text and then pressing Ctrl+Enter. Thank you!)


  • hellowallet personal finance 10th edition

  • Sean
  • sean

    Nate: I don’t think you understand that when you raise taxes somewhere, you can lower it somewhere else… Like in Texas, the lady running for governor is trying to abolish property taxes and add a sales tax.. We could abolish the income tax and replace it with tariffs.

    The ones who will benefit from tariffs are Americans because they would be able to compete with a tax structure that is evenly balanced with tariffs. It is not fair that businesses here have to pay taxes on goods they produce, but the people shipping in goods have to pay none. I know you are against taxes, but you obviously know nothing about the outcomes of different tax structures.

    • Nate Y

      I would prefer to have neither the income tax nor tariffs. It is not an either or situation. Tariffs do not protect American industry. They protect some politically connected industries at the expense of other industries and the people in general. So how is the government to operate without tariffs or income taxes? Of course it couldn’t operate in it’s current form. But that’s a good thing. Government is much too big. So a small sales tax would be enough to raise the revenue required for the very limited government. The same small sales tax would apply to both domesitic and imported goods.

      • Sean

        So you think it is fair that our producers have to pay taxes that chinese producers dont?

        You yourself have pointed out that we need savings, how can we have savings when we import almost a trillion dollars a year more than export? Are you trying to say that our trade deficit is good for country or not?

        • Sean

          With your ideology, we should abolish the income tax for the rich and for big business, but we should raise taxes on the middle class and poor. That is ultimately what free trade does, except with business taxes instead of income taxes.

          • Nate Y

            Umm…nothing I have said is even remotely close to this. And there is no possible way the policies I would like to see implemented would lead to that you describe.

            If one wants to rob from the middle class and poor to give to the big banks, big businesses, government, and the uber rich, just establish a central bank and silently steal from the people through inflation. Which is exactly what we have at present.

          • sean

            If you want to remove taxes than say that..

          • sean

            tariffs are taxes for large corporations that send labor overseas.. When has the middle class or lower class ever gone overseas to do business? You’re free trade policies adhere to the large corporations.

            Yes we pay less for goods, but at the cost of cheap labor and large trade deficits that result to loose monetary policy and easy credit.

          • Nate Y

            I know that those taxes are imposed on businesses…and i am not in favor of them either. I have made my stance quite clear when it comes to taxes. I have no idea why you insist on always attempting to take discussions off on tangents. I say I’m against tariffs and you seem to take it as an endorsement of all the stifling taxes and regulations imposed on businesses here. As if I don’t want this country to flourish and want to give an advantage to other nations. Not at all. I want free trade because in the end free trade is fair trade.

          • Sean

            There is no such thing as trade or free trade if only one party is consuming.

        • Nate Y

          I can’t respond to this because it doesn’t address any of the points I have espoused. I have no idea where you would get the idea that I would think it fair for producers in this country to pay taxes that foreign producers do not have to pay. I already pointed out that both domestic and foreign producers would have to pay the (very small) tax. But this is not a tariff per se. It is not a form of protectionism because domestic sales are subject to the same tax. And I frankly can’t follow where you’re going with the questions about savings and the trade deficit.

          • Blackie_Chan

            I can’t believe it but I agree with Sean’s first statement. I would agree with tariffs on good, which was the original intention of the constitution for the Fed to raise money (the 16th amendment allows them to assess taxes on any form of income).

            I think to avoid protectionism the tariff amount should be in relation to the value of the good sold (not the production value as that is easy to manipulate through production in low labor cost countries) at a flat rate. I also agree with additional levies per how the EU intends to do as well. The EU looks to assess additional tariffs when it finds proof of additional government subsidies that allow for goods to easily outcompete local goods. That is fair, although I think their should be an approval process (like a subcommittee in congress) to review.

            I hate income tax, get rid of it, repeal the 16th amendment and keep government within its means.

          • sean

            Nate.. Domestic producers have to pay franchise taxes, employment taxes, and an excise tax. These are taxes that foreign producers don’t have to pay.. The whole idea of a tariff is to EQUALLY tax goods coming from foreign nations. I guess you don’t understand any of this, no wonder why you don’t understand the term “protectionism.”

          • SS

            Are you for or against fractional reserve banking?

          • sean

            of course i’m against fractional reserve lending. If we didn’t import so many goods than we would have the money to lend out instead of lending out money we don’t have. I don’t get why thats so hard to understand.. We give away almost a trillion dollars a year overseas for goods. We could use that trillion dollars here at home. Instead we print more money to cover the loss. COMMON SENSE

          • SS

            I now see, firsthand, why so many here are unable to have a constructive dialogue with you.

            “The illiterate of the future will not be the person who cannot read. It will be the person who does not know how to learn.”

          • sean

            Are you trying to say that those who speak with me, including yourself cannot learn? I believe everyone knows how to learn, but they choose not to.

          • SS

            TY 4 proving my point.

          • sean

            Proving what point? You have not said one thing about policy. You are all talk and no knowledge.

          • sean

            I think you are confused because I am for sound money and tariffs.. I’m not for the idea of tariffs, but for the idea of sound money and I believe tariffs are the only way to accomplish just that. Correct me if i’m wrong, with details.

        • longshotlouie

          “…tariffs are taxes for large corporations that send labor overseas.. ”

          Who pays in the end?

          • sean

            the people pay in the end, because it results in loose monetary policy and inflation.. Money somehow has to be created to pay for this labor. If the labor was here at home, than we could reuse their earnings to loan out to other people instead of creating more and more money.

          • SS

            So the consumer/taxpayer will pay either way?

            Are you still arguing for the maintenance of our daisy-chain of debt?

          • sean

            No, i’m calling for economic order so we can have sound money. We can’t import everything we consume and expect to have any form of sound economics.

          • SS

            Define sound money.

          • sean

            money that can hold value, preferably backed by some type of precious metal.

          • SS

            Are you for, or against, a centrally planned economy?

          • sean

            I’m against central economic planning. Do you have anymore annoying questions to ask? Please ask them all at once.

  • longshotlouie

    The tipping point is the deficit exceeding 40% of expenditures.

    The fat lady is tuning up in the wings, making ready to sing.

    God have mercy on U.S.

    • Matt

      Bond markets tend to disagree, 10-year United States treasury yielding 3.6%, 30-year at 4.53%, sufficient bid-to-cover, and the dollar showing some leadership.

      So, apparently the free markets have put a price on your apocalypse – and it’s price is ‘for every dollar i give you now, i’ll take a nickel each year until the impending apocalypse – and never get my money back after we all burn.’

      I’ll await for you to plagiarize something equally apocalyptic from Zerohedge.

      God have mercy to those that are giving up on their United States right now and god will shine on those that are being underestimated and are continuing to re-found this country under your very nose.

      You’ll make a nice fossil one day though.

      • longshotlouie

        I know you will enjoy the song.

        Dollar showing leadership? lmao

      • SS

        Is this guy bragging about 4.53% yield on a 30yr ?
        With a spread of only 3 between the 3mo and the 30yr there is little to rejoice.

        Click on the play button of the first chart for a little T-bond history:

  • C. Mantix

    More evidence sans emotion:

    A dissertation by Phillip Magness, Master of Public Policy, George Mason University, 2004

    From Tariffs to the Income Tax: Trade Protection in the United States Tax Code

    • sean

      So are you for the income tax or against it?.. Would you rather have the income tax or tariffs?

    • Nate Y

      Yes C. Mantix. Do you want a kick to the groin or a punch to the face?

  • C. Mantix

    Comparative Advantage versus Absolute Advantage

    • Sean

      This is from that web page.

      “The concept of comparative advantage emerges when considering trade. At first glance, there is no reason to think that A, with absolute advantage against B in goods X and Y, would wish to trade either X or Y with B. Another worry is that if B trades in either X or Y with A, he might harm his interests. These initial impressions are completely exploded by considering the nature of trade, and Ricardo’s discovery of the law of comparative advantage. It is not absolute advantage that is relevant when considering the gains to trade — it is comparative advantage.

      Comparative advantage, when confined to considering goods X and Y, refers to the relative costs of a marginal unit of X per marginal unit of Y. That is, if A enjoys absolute advantage, he is still in a position such that the cost of foregoing production of enough units of Y to produce a unit of X means that he would be willing to trade X for Y at a ratio that is favorable to his position.”

      The problem is… there is no A, only x and y.

      • Sean

        What your saying would work if they actually bought goods from us, but they don’t. That is the premise of trade..

  • Sean

    The income tax replaced tariffs in 1913. We could go back to the way it was before 1913 but I guess you people enjoy the income tax as a source of government revenue, instead of goods purchased overseas.. It seems like you would rather the government take from the fruits of your labor instead of the fruits of another countries labor… What a smart crowd. I find this conversation very funny and am sure you people don’t understand common sense.

    We had hundreds of years with tariffs and without war. That is a horrible excuse.. It is a tax, well you remove income taxes.. There is no valid reason not to have tariffs. I guess people think its okay to send all of our labor and money overseas. Do you people actually support the fed and easy credit, because they go hand in hand with our free trade scenario.

    We should support fair trade, but that wont fix everything.

    • Sean

      Obviously the free trade advocates here don’t know a thing about comparative advantage, or the basic philosophy behind free trade..

      If one country is rich and the other country has cheap labor, it is said that the rich country can make cheap goods to sell in exchange for goods that require cheap labor. This is by far not true. The countries with cheap labor cannot purchase goods from us because their labor is too cheap. These people can hardly afford homes much less buy goods from us… Actually, the goods we do export are used to be produced and brought back here to America. So we basically pay other countries to perform our labor. That is not how “free trade” is supposed to work.. The only way to finance this mess is through easy credit and fiscal policies.. Open your eyes, or your brain. You are supporting a failed institution. There is no way to correct this unless there are some type of trade barriers put in place. Correct me if i’m wrong.

    • John


      I’ve been arguing for tariffs and I am against the income tax. I’m also completely against the FED and easy credit. I’m not sure if you have read my post. This is what I spoke to earlier when I said its frustrating when people post comments that demonstrate they have not read my comments. Income taxes were not solely created to replace tariffs. In 2002 the steel tariff imposed a 30% tariff on imported steel products until 2005, this was long after the income tax was put in place. The income tax did allow for the lowering of tariffs but was also created to pay off federal debt and allow the federal government to increase their spending. When the FED and the income tax came into existence globalization began.

      I favor tariffs over income taxes for a couple of reasons. 1 – the amount of money that leaves the country from increased prices on imported products (which is a result of the manufacturers attempting to offset their loss from the tariffs) is usually about the same amount of money the federal government generates from the tariffs. So the money in equals the money out, nothing really lost. 2 – as a consumer you can do a very good job of picking products that don’t have higher prices due to tariffs. The income tax is unavoidable and you have to pay it (or at least that what the government wants us to think). You can avoid tariffs taking money out of your pocket for the most part. Once more manufacturers relocate to the US so as to avoid the tariffs then we can find other methods of generating federal government revenue.

      • Sean

        I agree

      • C. Mantix

        You have treated symptoms but the illness continues.

        • sean

          The wound is the trade deficit, the federal reserve is the band-aid.

  • C. Mantix

    ‘Lincoln’s Tariff War’

    ‘Gods, Generals, and Tariffs’

    • John

      Thats some good info. I don’t agree with the way Lincoln went about handling the situation and I don’t agree with tariffs that are as high as they were during that time period. However, I do agree that tariffs are a tool which can be used to protect US businesses and manufacturing. I believe the tariffs rates used in the 1800 would not be practical for today. Good things are only good in moderation. Even too much water can kill you.

  • Steve O’Connor

    Nate Y Quote:

    The truth is that even if we did away with the fraud that is fractional reserve/central banking and had sound money, there would still be instances of economic expansion and contraction. But this should not worry us. Quite the contrary. Just as a body needs to work and then rest, so does an economy expand and contract. Such cycles are the natural order of things and are necessary. The beauty is that under the much more efficient and harmonious free market system, the contractions would hardly be noticeable when compared to the vicious booms and busts created by fractional reserve/central bank inflation and government intervention.
    U.S. History 1783-1789

    DANIEL WEBSTER in a speech on the 8th of July, 1833, affirmed the truth of the foregoing statements when he said : ” From the close of the War of the Revolution, there came a period of depression and distress, on the Atlantic coast, such as the people had hardly felt during the sharpest crisis of the war itself. Ship-owners, ship-builders, mechanics, artisans, all were destitute of employment, and some of them destitute of bread. British ships came freely, and British ships came plentifully ; while to American ships and American products, there was neither protection on the one side, nor the equivalent of reciprocal free trade on the other. The cheaper labor of England supplied the inhabitants of the Atlantic shores with everything. Ready-made clothes, among the rest, from the crown of the head to the soles of the feet, were for sale in every city. All these things came free from any general system of imposts. Some of the States attempted to establish their own partial systems, but they failed.”

    GEORGE BANCROFT on page 432, Vol. I. Hist. Const., paints the picture of this period (1785) even a darker shade when he says :

    ” It is certain that the English have the trade of these States almost wholly in their hands ; whereby their influence must increase ; and a constantly increasing scarcity of money begins to be felt, since no ship sails hence to England without large sums of money on board, especially the English packet-boats, which monthly take with them between forty and fifty thousand pounds sterling.” Again on page 439 we find this :

    “The scarcity of money makes the produce of the country cheap, to the disappointment of the farmers, and the discouragement of husbandry. Thus, the two classes, merchants and farmers, that divide nearly all America, are discontented and distressed.”

    Years ago, Lord Goderich publicly declared in the English Parliament : ” Other nations know that what we English mean by free-trade is nothing more or less than by means of the great advantages we enjoy, to get the monopoly of all the markets of other nations for our manufactures, and to prevent them (the foreign nations) one and all from ever becoming manufacturing nations.”

    David Syme, another prominent English free trader and Member of Parliament openly said:

    ” In any quarter of the globe, where competition shows itself as likely to interfere with English monopoly, immediately the capital of her manufacturers is massed in that particular quarter; and goods are exported there in large quantities, and sold at such price:; that outside competition is effectually counted out. English manufacture have been known to export goods to a distant market and sell then under cost for years, with a view of getting the market into their own hands again, and keep that foreign market, and step in for the whole when prices revive.”

    RESULTS OF SUCH A POLICY.—And so the years from 1783 to 1789 were lovely, halcyon days for the merchants and statesmen of Great Britain. In about three years’ time, nearly all the money of the country had passed into the pockets of British merchants and manufacturers, and we were left “poor indeed;” for not only did they take from us our money, but they took, also, our good name for integrity, independence and common-sense, which we had won in the Revolutionary War.

    As there was no tariff to prevent, foreign nations literally poured in upon us their products of every kind and description, in such quantities, and at such prices that our people could not compete with them.

    Our domestic industries were suspended. The weaver, the shoemaker, the hatter, the saddler, the rope-maker, and many others, were reduced to bankruptcy; our markets were glutted with foreign products ; prices fell; our manufacturers, generally, were ruined ; our laborers beggared ; our artisans without employment; our merchants insolvent, and our farmers necessarily followed all these classes into the vortex of general financial destruction.

    ” Depreciation seized upon every species of property. Legal pressure to enforce payment of debts caused alarming sacrifices of both personal and real-state ; spread distress far and wide among the masses of the people ; aroused in the hearts of the sufferers the bitterest feelings against lawyers, the courts and the whole creditor class ; led to a popular clamor for stay- laws and various other radical measures of supposed relief, and finally filled the whole land with excitement, apprehension and sense of weakness and a tendency to despair of the Republic. Inability to pay even necessary taxes became general, and often these could be collected only by levy and sale of the homestead.”—Mason.

    Such were the ruinous results that necessarily followed the adoption of a free trade policy under the Confederacy.

    A writer of that period says: “We are poor, with a profusion of material wealth in our possession. That we are poor, needs no other proof than our prisons, bankruptcies, judgments, executions, auctions, mortgages, etc., and the shameless quantity of business in our courts of law.” HILDRETH’S HISTORY at page 465—68, Vol. Ill, speaking of this period, has this true but terrible indictment: “The large importation of foreign goods, subject to little or no duty, and sold at peace prices, was proving ruinous to all those domestic manufactures and mechanical employments which the non-consumption agreements and the war had created and fostered. Immediately after the peace, the country had been flooded with imported goods, and debts had been unwarily contracted, for which there was no means to pay.”

    Our imports from Great Britain alone were $30,000,000 in 1784-85, while our exports to her were only $9,000,000—a frightful balance on the wrong side. They drained us of our last dollar and left us, for a circulating medium, only orders on State tax-collectors and depreciated certificates of State and Federal debt, themselves worthless.

    • Steve O’Connor

      OTHER CALAMITOUS RESULTS.—The distress became universal and calamitous.

      In the District of Maine, a Convention was held for the purpose of revolting from the State of Massachusetts. In New Hampshire, the people surrounded the building where the Legislature was in session and declared that it should not adjourn till it had passed measures to abolish debt, or to relieve the people in some other way.

      In Massachusetts, fully one-third of the population joined in Shay’s Rebellion on account of the abject poverty and distress of the people, and nothing less than military force was able to repress all these lawless demonstrations and revolts.

      Among the causes that led to Shay’s Rebellion Hildreth mentions: “the want of a certain and remunerative market for the produce of the farmer, and the depression of domestic manufactures by competition from abroad.”

      The French minister at that period after relating the foregoing disturbances, adds: “It must be agreed that these insurrections are, in a great part, due to the scarcity of specie.”

      In Connecticut, more than five hundred farms were offered for sale for arrears of taxes, which the owners were too poor to pay ; and in Pennsylvania, North Carolina and South Carolina, matters were scarcely any better.

      There was no market for real-estate, and debtors, who were compelled to sell their lands, were ruined, without paying one-fourth of the demands against them.

      Men universally distrusted each other. The bonds of men whose competency should have been unquestioned could not be negotiated, except at a discount of thirty, forty, or even fifty per cent.

      FREE TRADE THE REAL CAUSE OF THESE EVILS. — It was generally understood and agreed, by the writers and statesmen of that distressful period, that the widespread and almost universal ruin which then involved the States in general disorder, revolt and rebellion, were in great part, if not wholly, due to the scarcity of specie, or good money.

      In his ” History of the Insurrection,” Minot regards as one of the leading causes that led to those troubles : ” The loss of many markets to which Americans had formerly resorted with their produce. Thus was the usual means of remittance by articles of the growth of the country almost annihilated, and little else than specie remained to answer the demands incurred by importations. The money, of course, was drawn off, and this being inadequat’e to the purpose of discharging the whole amount of foreign contracts, the rest was chiefly sunk by the bankruptcies of the importers. The scarcity of specie, arising principally from this cause, was attended with evident consequences ; it checked commercial intercourse through the community, and furnished reluctant debtors with an apology for withholding their dues both from individuals and the public.”

      But the scarcity of specie, or money, was due, as has already been shown, to the free trade policy of that period, which allowed and encouraged such enormous excess of imports over exports, and thus necessitated the withdrawal of the gold and silver from the country to pay such excess.

      ” Had there been no free trade, there would have been no inundation of foreign goods ; had there been no inundation of foreign goods,’ there would have been no drain of specie ; had there been no drain of specie, there would have been no lack of a circulating medium ; had there been no such distress, there would have been no impulse toward insubordination to the State.” (Mason).

      Consequently, it follows legitimately, that free trade was the principal source or cause of the widespread discontent, distress, and the demoralization of that period.

      OK Nate Y, explain to everyone how your “sound money” would have saved our nation from this disaster.

      • Nate Y

        How would honesty and integrity have saved us from this disaster brought to us by deception and fraud? I’m sure you can figure it out. I’ve already explained the principle and virtues of sound money a number of times on this site and have no interest to do so with you. But I will provide you with some links to articles/books that give the proper explanation. You can also go to the top of this page, scroll over the “issues” link and click “sound money” on the pull down menu for a decent explanation.

        Pay close attention to the parts where the authors discuss interest rates. You’ll come to learn how the central bank, fiat currency, and artificially low interest rates set the stage for our ongoing and current disaster.

        Oh hell I’ll give a short answer to your question…

        Under sound money, it is impossible to obtain a low level of interest without a high savings rate. Interest rates are prices. As such, they serve as signals to investors/entrepreneurs. When you have low interest rates, that is a signal for investors/entrepreneurs to focus their activities on longer term capital projects. Stuff like residential and commercial real estate, infrastructure, etc. Under sound money, this is not a problem because the savings are real and honest. The losses (and there inevitably will be some) can be absorbed. When the interest rate rises as a consequence of the borrowed and invested savings, that serves as a signal for investors/entrepreneurs to transition away from the long term capital projects and toward consumption projects (food, energy, etc.). New wealth has to be created in order to replenish the savings and bring the interest rate down again. This harmonious ebb and flow, however, is distorted and corrupted under a system of central/fractional reserve banking and fiat currency. The central bank can force down the interest rate even though the necessary savings hasn’t taken place. So the same signals are sent to investors/entrepreneurs to focus on long term capital projects (commercial/residential real estate, etc.) but there are no real savings to absorb the losses. If the central bank keeps this deception and fraud going long enough, they create an asset bubble which inevitably has to pop. When the tech bubble burst in 2000/2001, the Fed (and Congress) got to work inflating what turned out to be the housing bubble with their reckless monetary policy and deficit spending. That bubble burst (it was huge and global) and now we are suffering as a result. Sound money prevents the bubbles and malinvestments from getting out of hand.

        • sean

          No nate.. trade deficits are the reason why interest rates become artificially high. We spend all of our money overseas and banks come short on capital, so they raise their rates and charge more. This would happen with any type of money.

          • Nate Y

            Ummm…if you have a giant trade deficit you can’t very well be a nation of savers. So this does absolutely nothing to refute my point about savings, lending, borrowing, and interest rates.

          • sean

            What i’m trying to say nate… is that sound money doesn’t encourage savings.

            If interest rates go up, everything becomes more expensive and it becomes harder to save. Without creating new money and forcing interest rates down, you will have an irreversible stifled economy. Lowering interest rates brings down the prices of homes and increases disposable income which encourages savings.

            I agree, it is a band-aid approach but you have to fix the wound, where we are losing blood or money. I’m not talking about saving as individuals, but as a country. You must reduce the trade deficit to save money going out of the country so it can be reused as capital here at home.

          • sean

            The point is, you will have a trend of rising interest rates until we fix the trade deficit. The fed can meddle with the economy to try to bring interest rates down, but they wont come down until we can save as a country…

            In the movie “its a wonderful life,” the man goes through all this struggle because interest rates were at 2%… Now they are at like 10%.

          • Nate Y

            Sean says: “What i’m trying to say nate… is that sound money doesn’t encourage savings.

            If interest rates go up, everything becomes more expensive and it becomes harder to save. Without creating new money and forcing interest rates down, you will have an irreversible stifled economy. Lowering interest rates brings down the prices of homes and increases disposable income which encourages savings.

            I agree, it is a band-aid approach but you have to fix the wound, where we are losing blood or money. I’m not talking about saving as individuals, but as a country. You must reduce the trade deficit to save money going out of the country so it can be reused as capital here at home.”

            Almost everything in this post is exactly wrong. High interest rates encourage savings. Once the savings have been replenished, the interest rate will fall as a result. Artificially low interest rates do not make houses cheaper. They make things like housing more expensive. Just look at the last decade for proof. Greenspan forced the interest rate down to 1% after 9/11 and kept it there. Housing prices shot through the roof as a consequence. Disposable income does not encourage savings, it enables consumption. This is not bad per se. People are free to do what they want the fruits of their labor. But people didn’t even have disposable income in this country. They merely has access to easy credit/debt masquerading as disposable income. Eventually the bills come due and it a correction needed to take (and is still taking) place.

            It is unnecessary and in the long run very damaging to FORCE the interest rate down through the creation of new money/credit. Interest rates, like all prices, are determined by supply and demand. Supply in the case of interest rates is savings. If savings (supply) is low then a high interest rate (price) is in order. As a result, people notice that saving will give them a good return. As the savings (supply) increases, the interest rate (price) naturally falls.

            Here you go…


          • Sean

            Nate.. People can’t save money if all of the money is going overseas. It is inevitable that there will be defaults on loans and banks/finance companies will lose out, and interest rates will continue to rise as a consequence.

            The formula is (Interest+Trade Imbalance)/(Principle+Interest+Trade Imbalance)= Total amount foreclosed(money unable to pay back; save)

          • Sean

            If we’re sending our supply(capital) overseas, than the total amount of individual savings becomes minute.

        • Steve O’Connor

          Nate Y QUOTE:

          How would honesty and integrity have saved us from this disaster brought to us by deception and fraud? I’m sure you can figure it out.

          Are you talking about my post concerning the U.S. history of 1783-1789?

          Welcome to the real world, a great departure from mythical Laissez Faire land where nations never dump, subsidize, manipulate currencies, etc………

          As for the U.S. unilaterally returning to a gold standard, that would be economic suicide.

          The total amount of gold that has ever been mined has been estimated at around 142,000 tons. Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $7.6 trillion is in circulation or in deposit.

          Quantity is irrelevant except for gold has a market value. If you wish to artificially set gold equal to some dollar amount, be my guest. But you’re not allowing the market to set it then. Thus you force the value of gold to skyrocket, effecting the commercial uses of gold. Not very free market.

          Once you establish gold or silver or whatever as your reserve, it now must stand against fiat currencies in the world market.

          Historically, gold backed currencies gain value against fiat currencies making them stronger and pushing the trend towards trade deficits. Free trade economists have noted this since at least the 1800’s.

          The result is an international balance of payments between the gold and non-gold currencies that is usually settled by a drain of the gold reserves of the gold standard currency. If the drain continues it wreaks havoc on the gold currency by eliminating its basis for value. In England a run on their gold reserves drove the value of their currency down relative to gold and their economy went into a deflationary tailspin.

          “As had happened after previous major wars, the UK was returned to the gold standard in 1925, by a somewhat reluctant Winston Churchill. Although a higher gold price and significant inflation had followed the wartime suspension, Churchill followed tradition by resuming conversion payments at the pre-war gold price. For five years prior to 1925 the gold price was managed downward to the pre-war level, causing deflation throughout those countries of the British Empire and Commonwealth using the Pound Sterling. But the rise in demand for gold for conversion payments that followed the similar European resumptions from 1925 to 1928 meant a further rise in demand for gold relative to goods and therefore the need for a lower price of goods because of the fixed rate of conversion from money to goods. Because of these price declines and predictable depressionary effects, the British government finally abandoned the standard September 20, 1931.”

          If we returned to a fractional gold reserve (we were at a 25% reserve ratio until Nixon removed it ) China alone has enough U.S. dollars (over a trillion) to drive us off a gold standard.

          China could begin to exchange – dollar for dollar – its trillion dollar reserve in exchange for gold, thus destroying the basis in our economy for the creation of currency equal to 1/gold reserve ratio.

          If we had a 10% gold reserve ratio, china could destroy the basis for creating 10x$1 trillion or $10 trillion dollars – thus destroying the U.S. currency system.


          • Nate Y

            “Historically, gold backed currencies gain value against fiat currencies making them stronger and pushing the trend towards trade deficits. Free trade economists have noted this since at least the 1800’s.”

            Your whole post it confused but I particularly like this nonsensical statement. Damn you dollar!!! You’ve lost 96% of your value over time but your strength is responsible for our trade deficit!!

            The rest of your post is just more strawmen, red herrings, and non sequiturs. At least you’re consistent.

          • Steve O’Connor

            Nate Y, you’re being pretty juvenile and extremely ignorant of basic historical economics. Apparently nobody else takes you too seriously – understandable.


          • Nate Y

            Perhaps if you actually read my posts and responded to the positions I hold rather than write rambling (non sequitur), disjointed (red herrings) posts that argue against positions I never stated and do not hold (straw men), I could give more adequate responses. I have no idea if people here take me seriously, although I have made some ron paul cyber buddies here who share many if not all the same positions as myself. But if you’re going to argue against sound money and full reserve banking and in favor of fiat currency and central/fractional reserve banking, you are posting on the wrong website.

          • Steve O’Connor

            Nate Y, you accuse me of not responding to your position like a broken record.

            And I have responded several times, as well as Sean, that our trade deficit would destroy “sound money”.

            You refuse to address this issue.

            You have posted NOTHING, NADA, ZERO refuting this well known economic principal.

            Now if your logic is not capable of following this, perhaps you should pursue a different website because you’re not capable of defending your position in this one.

            I’ll let the audience decide for themselves the validity of trade deficits and their effects on sound money.

            As for you, I’m not wasting any more time. Get your last word in if it makes your juvenile ego feel better.

            My arguments need no final word, they can stand on their own for people possessing any kind of economic logic.


          • Nate Y

            You both hit the reply button but neither of you respond to the positions I hold. I’m fine with letting the audience decide. But even if more people think you are correct, that wouldn’t make it so.

            If you want to keep Sean as company that is your choice. I’ve been on this site a while and have had numerous exchanges with him. I’ve seen many people calling for him to be banned, calling him a troll, etc. He’s moderated his approach recently and has even made comments suggesting he’s in favor of 100% full reserve banking with gold as money. Although he now contradicts himself with his recent posts against sound money. But it seems you two are much closer to the thoughts of people like Lyndon LaRouche. You both obviously want protectionist measures and high tariffs (taxes). And you both are at the very least confused and potentially dead set against sound money. Why post on if you hold these ideas? You know Ron Paul is an adherent of Austrian Economics and as such, promotes the ideas of sound money and no tariffs (free trade). Why bother to post on a website dedicated to these ideals (among others) when you so obviously do not hold them? Where do you agree with the Ron Paul and the Austrians? Perhaps that will help us have a fruitful exchange.

            Also, if you could, try to limit your reliance on long quotes.

          • Steve O’Connor

            Nate Y QUOTE:

            Why post on if you hold these ideas? You know Ron Paul is an adherent of Austrian Economics and as such, promotes the ideas of sound money and no tariffs (free trade).

            I’m posting here because Ron Paul supporters are posting this free trade propaganda on YouTube. I didn’t know this site existed until I found it on a YouTube clip of Ron Paul.

            If you want to preach to your own choir, be my guest. I wouldn’t waste my time here.

            But when your fellow supporters go spreading this dogma all over YouTube as if it were gospel truth, then I believe in going to the source.

            I’ve spent most of my life in manufacturing. My Dad spent over 30 years in manufacturing engineering. My Irish ancestors escaped the free trade catastrophe of Ireland to come to the U.S. – the land of the highest tariffs in the world in the 1800’s.

            I am beyond sick of seeing my trade flushed down the toilet by dogmatists who wouldn’t know a lathe if one dropped on their head.

            People who wouldn’t know how to turn a CNC machining center on.

            Self-proclaimed know-it-alls’ on all subjects including manufacturing who couldn’t distinguish a screw machine from a screwed machinist – spew out their eternal self righteous blather about free trade and America competing against nations with per capita incomes that wouldn’t pay my property taxes.

            You and your ilk are armchair spectators pushing for a free trade agenda that put a gun to my head and my fellow American machinists saying “you go compete against slave wages, subsidized industries and closed markets”.

            People like you and Adam Smith never built one single solitary nation, but you sure have spread disaster and then looked around for every scapegoat on earth to avoid confronting the failures of your own free trade – free markets religion.

          • John

            Nate Y,
            After reading the series of post on this page, I have to say your the only one whos got it figured out. It appears most people have been duped by the corporate media who tell them that X is good and Y is bad with no logic or historical precedent to back up the claim. I don’t know about banning theses individuals who completely oppose economic freedoms, however, we should all ignore them or at least understand they either have an agenda or are extremely misinformed.

          • C. Mantix

            NAFTA is not free trade. Real free trade is not trade managed by federal bureaucrats beholden to political contributors.

            Free trade would be anyone in the United States being allowed to trade in any way with anyone they want. It wouldn’t take a government treaty with thousands of pages. It would take no paper whatsoever.

            Free trade could never exist as long as there is a piece of government paper describing the conditions under which it operates.

          • John

            The reason manufacturing jobs left this country was due to NAFTA and other international treaty. Globalization has not just happened its been facilitated by the government. The federal governments policies sent jobs else where.

          • Nate Y


            Thank you for your recent post. It has helped me understand where you are coming from. I would again suggest you read Bastiat’s Candlemaker’s Petition…


            I believe it will help you recognize the folly of the protectionist measures you support.

            I also think Henry Hazlitt’s Economics in One Lesson would prove instructive. Particularly the “Who’s Protected by Tariffs?” chapter as well as the closing remarks of the final chapter “The Lesson Applied”.

            Here’s a link to the pdf version of the entire book


            Your drive for protectionist measures stems systematically from the division of labor. Let’s leave it to Hazlitt as he writes far more eloquently than I.

            “Our study of our lesson would not be complete if, before
            we took leave of it, we neglected to observe that the fundamental fallacy with which we have been concerned arises
            not accidentally but systematically. It is an almost inevitable result, in fact, of the division of labor.
            In a primitive community, or among pioneers, before
            the division of labor has arisen, a man works solely for himself or his immediate family. What he consumes is identical with what he produces. There is always a direct and
            immediate connection between his output and his satisfactions.
            But when an elaborate and minute division of labor has
            set in, this direct and immediate connection ceases to exist. I do not make all the things I consume but, perhaps, only one of them. With the income I derive from making this
            one commodity, or rendering this one service, I buy all
            the rest. I wish the price of everything I buy to be low,
            but it is in my interest for the price of the commodity or
            services that I have to sell to be high. Therefore, though I
            wish to see abundance in everything else, it is in my interest for scarcity to exist in the very thing that it is my business to supply. The greater the scarcity, compared to everything else, in this one thing that I supply, the higher will be the reward that I can get for my efforts.
            This does not necessarily mean that I will restrict my own
            efforts or my own output. In fact, if I am only one of a
            substantial number of people supplying that commodity or
            service, and if free competition exists in my line, this
            individual restriction will not pay me. On the contrary, if
            I am a grower of wheat, say, I want my particular crop to
            be as large as possible. But if I am concerned only with
            my own material welfare, and have no humanitarian
            scruples, I want the output of all other wheat growers to be
            as low as possible; for I want scarcity in wheat ¢and in any
            foodstuff that can be substituted for it) so that my particular crop may command the highest possible price.
            Ordinarily these selfish feelings would have no effect on
            the total production of wheat. Wherever competition exists,
            in fact, each producer is compelled to put forth his utmost
            efforts to raise the highest possible crop on his own land.
            In this way the forces of self-interest (which, for good or
            evil, are more persistently powerful than those of altruism)
            are harnessed to maximum output.
            But if it is possible for wheat growers or any other group
            of producers to combine to eliminate competition, and if
            the government permits or encourages such a course, the
            situation changes. The wheat growers may be able to persuade
            the national government—or, better, a world organization—
            to force all of them to reduce pro rata the acreage
            planted to wheat. In this way they will bring about a shortage
            and raise the price of wheat; and if the rise in the price
            per bushel is proportionately greater, as it well may be,
            than the reduction in output, then the wheat growers as a
            whole will be better off. They will get more money; they
            will be able to buy more of everything else. Everybody
            else, it is true, will be worse off; because, other things
            equal, everyone else will have to give more of what he
            produces to get less of what the wheat grower produces.
            So the nation as a whole will be just that much poorer. It
            will be poorer by the amount of wheat that has not been
            grown. But those who look only at the wheat farmers will
            see a gain, and miss the more than offsetting loss.
            And this applies in every other line. If because of unusual
            weather conditions there is a sudden increase in the crop
            of oranges, all the consumers will benefit. The world will
            be richer by that many more oranges. Oranges will be
            cheaper. But that very fact may make the orange growers
            as a group poorer than before, unless the greater supply of
            oranges compensates or more than compensates for the
            lower price. Certainly if under such conditions my particular
            crop of oranges is no larger than usual, then I am certain
            to lose by the lower price brought about by general
            And what applies to changes in supply applies to changes
            in demand, whether brought about by new inventions and
            discoveries or by changes in taste. A new cotton-picking
            machine, though it may reduce the cost of cotton underwear
            and shirts to everyone, and increase the general wealth,
            will throw thousands of cotton pickers out of work. A new
            textile machine, weaving a better cloth at a faster rate, will make thousands of old machines obsolete, and wipe out
            part of the capital value invested in them, so making
            poorer the owners of those machines. The development of
            atomic power, though it could confer unimaginable blessings
            on mankind, is something that is dreaded by the
            owners of coal mines and oil wells.
            Just as there is no technical improvement that would
            not hurt someone, so there is no change in public taste or
            morals, even for the better, that would not hurt someone.
            An increase in sobriety would put thousands of bartenders
            out of business. A decline in gambling would force croupiers
            and racing touts to seek more productive occupations.A growth of male chastity would ruin the oldest profession
            in the world.
            But it is not merely those who deliberately pander to
            men’s vices who would be hurt by a sudden improvement
            in public morals. Among those who would be hurt most
            are precisely those whose business it is to improve those
            morals. Preachers would have less to complain about; reformers
            would lose their causes: the demand for their
            services and contributions for their support would decline.
            If there were no criminals we should need fewer lawyers,
            judges and firemen, and no jailers, no locksmiths, and
            (except for such services as untangling traffic snarls) even
            no policemen.
            Under a system of division of labor, in short, it is difficult
            to think of a greater fulfillment of any human need which
            would not, at least temporarily, hurt some of the people
            who have made investments or painfully acquired skill to
            meet that precise need. If progress were completely even
            all around the circle, this antagonism between the interests
            of the whole community and of the specialized group would
            not, if it were noticed at all, present any serious problem.
            If in the same year as the world wheat crop increased, my
            own crop increased in the same proportion; if the crop of
            oranges and all other agricultural products increased correspondingly,
            and if the output of all industrial goods also
            rose and their unit cost of production fell to correspond,
            then I as a wheat grower would not suffer because the
            output of wheat had increased. The price that I got for a
            bushel of wheat might decline. The total sum that I realized from my larger output might decline. But if I could
            also because of increased supplies buy the output of everyone
            else cheaper, then I should have no real cause to complain.
            If the price of everything else dropped in exactly the
            same ratio as the decline in the price of my wheat, I should
            be better off, in fact, exactly in proportion to my increased
            total crop; and everyone else, likewise, would benefit proportionately
            from the increased supplies of all goods and
            But economic progress never has taken place and probably
            never will take place in this completely uniform way.
            Advance occurs now in this branch of production and now
            in that. And if there is a sudden increase in the supply of
            the thing I help to produce, or if a new invention or discovery
            makes what I produce no longer necessary, then
            the gain to the world is a tragedy to me and to the productive
            group to which I belong.
            Now it is often not the diffused gain of the increased
            supply or new discovery that most forcibly strikes even the
            disinterested observer, but the concentrated loss. The fact
            that there is more and cheaper coffee for everyone is lost
            sight of; what is seen is merely that some coffee growers
            cannot make a living at the lower price. The increased
            output of shoes at lower cost by the new machine is forgotten;
            what is seen is a group of men and women thrown
            out of work. It is altogether proper—it is, in fact, essential
            to a full understanding of the problem—that the plight
            of these groups be recognized, that they be dealt with
            sympathetically, and that we try to see whether some of
            the gains from this specialized progress cannot be used to
            help the victims find a productive role elsewhere.
            But the solution is never to reduce supplies arbitrarily,
            to prevent further inventions or discoveries, or to support
            people for continuing to perform a service that has lost its
            value. Yet this is what the world has repeatedly sought to
            do by protective tariffs, by the destruction of machinery,
            by the burning of coffee, by a thousand restriction schemes.
            This is the insane doctrine of wealth through scarcity.
            It is a doctrine that may always be privately true, unfortunately,
            for any particular group of producers considered
            in isolation—if they can make scarce the one thing they
            have to sell while keeping abundant all the things they
            have to buy. But it is a doctrine that is always publicly
            false. It can never be applied all around the circle. For its
            application would mean economic suicide.
            And this is our lesson in its most generalized form. For
            many things that seem to be true when we concentrate on
            a single economic group are seen to be illusions when the
            interests of everyone, as consumer no less than as producer,
            are considered.
            To see the problem as a whole, and not in fragments:
            that is the goal of economic science.”

          • Steve O’Connor


            The French Commission, in their report of the Centennial Exposition in 1876, declared “that under the shelter of a prohibitory system the people of the United States have organized a powerful industry which rivals England in cheapness.”

            The German Commission also stated that “the present condition of American manufactures show the fallacy of the free trade doctrine, that the products of a country are raised in price by Protective duties.

            Before the Tariff of 1828 English axes sold here for from $2 to $4. By the Tariff a duty of 35% was levied on axes. In 1836 foreign and home-made axes were selling side by side at from $1.25 to $1.35 each, and in 1876 they sold for 80 cents each, a decrease to one-quarter of the price of 1828, as a result of home industries fostered by a Protective Tariff.

            In 1840 the English furnished us our saws at from $15.75 to $19 per dozen; with a Tariff of 45% on saws they sell at from $5 to $10 per dozen, which is a saving of one-half the price of a saw to every farmer and mechanic. Beside, the superior methods which we have devised in the manufacture of saws enable us to undersell England in her own markets.

            The average price of the salt per barrel, made at Saginaw during the year 1866, was $1.80, the duty being 34 cents per barrel; in 1882 the average price had been reduced to 74 cents per barrel, or but 40 cents more than the duty. Is the duty added to the price of the commodity ? Is the consumer not benefited by the Tariff which enables us to produce annually 40,000,000 barrels of salt and sell it at less than one-half its former price ?

            An importer of such goods (crockery) testified before the Tariff Commission: “I have here a tumbler, known to the trade as a whiskey tumbler; six years ago, when American manufacturers commenced to make them, they were imported by the case at $1.40 per dozen; we made some, the first price was $1.25. They now sell for 40 cents.” The duty levied was 40%; as a result we have the article for 16 cents less than the duty upon the original cost before home production began. Not only has the price decreased, but a large industry has been built up which employs thousands of men and millions of capital, making a home market for our products and increasing the wealth of the country.

            Before the Tariff of 1860 steel for locomotive tires cost 30 cents per pound; today, with a tariff of 2 ½
            cents per pound, they are selling for 5 ½ cents. Wagon tires which sold for 16 cents per pound, with no duty, now sell for 7 cents with a duty of 3 cents per pound.

            When the English controlled our market they sold us cast steel for 17 ½ cents per pound which they now sell us at 10 ½ cents, although in their near market in France they get 12 ½ cents for the same article. The reason is that the duty of 45% has so developed our industries that we control our market and fix the price 2 cents lower than it is in France, and the English must sell at our price or not at all.

            When the Tariff was removed in 1846 iron rails were selling at $50; the English immediately reduced the price to $40, until our mills were closed; then they advanced the price to $60, finally to $75 a ton; between 1850 and 1854 England sold us 800,000 tons at $75; all of which we might have produced with a Tariff of $10 and kept the price down to $50, and saved $20,000,000 to American railroad owners. In 1867 steel rails sold at $166 currency, with no Tariff, we produced but 2,277 tons. In the year 1883, with a Tariff of 1 cent a pound in force for 15 years, we produced 1,500,000 tons at $40, and the importation of steel rails has decreased from 182,135 tons in 1882 to 2,395 in 1885. It is estimated that we have produced $1,800,000,000 worth of rails since we began their manufacture; this is so much added wealth to the country, which has given just that much encouragement and profit to our labor, mines, farms and other manufactures. A like increase in product and decrease in price can be shown in all departments of our iron industry.

            The development of our bituminous coal beds under a Tariff of 75 cents a ton enabled us in 1884 to put out a product worth $143,700,000, much of which was sold at the mouth of the pit for $1 a ton, while the English paid $1.18 for the same grade of coal. Does this not show that it will profit a nation to grant a protective Tariff, or even a bounty, on any industry if thereby her own abundant resources may be developed ?

            The Defender
            Home Production
            April 28, 1890

            A glance at the history of prices of tin plate for twenty years past will make clear the necessity and propriety of the McKinley tariff, and, at the same time, illustrate the characteristic policy of British free trade manufacturers. “In 1873, British importers advanced the price of tin plate to $12 a box, in American markets ; and at once, American tin-plate factories commenced operations. British importers within three years reduced the price to $4.50 per box, and our mills had to shut down. When this was done British importers advanced prices to $9 and $10 per box, and under this stimulus, in 1879, American mills again started up. As soon as they were well at work, British importers again reduced the price to $4 per box ; and then made a standing offer or more properly a threat, to sell their tin plate twenty-five cents a box cheaper than the American product, no matter what the price of the latter might be. Of course, this action completely finished the American industry, and prices were at once advanced from $4 to $7 per box.”

            The McKinley tariff put an end to this outrage and robbery, and this fact alone is sufficient justification for its enactment.

            It puts a duty on tin plate so high that it will probably soon transfer the most of that great industry to this country. Already many large plants are in process of erection, or have been completed, and are producing a superior tin plate, at Brooklyn, Pittsburgh, Chicago, St. Louis, and other places, and others will soon go up. The largest mines of tin in the world have lately been found in the Dakotas, California, Texas and Virginia ; so that it is morally certain that in the near future we shall be able to produce at home the full supply of tin and tin plate that we need, and which now amounts to over $30,000,000 in value annually,

            When this is accomplished it will afford a new business that will annually pay to American labor not less than $23,000,000 ; it will require from iron ore miners not less than 1,000,000 tons of iron ore more than they now produce ; from limestone quarries 300,000 tons more of limestone ; from coal mines and coke ovens 2,000,000 tons more of coal and coke ; from blast furnaces 400,000 tons more of pig iron ; from lead mines and smelting furnaces 5,500,000 pounds more of lead ; from slaughter and packing houses 13,000,000 pounds more of tallow and oil; from chemical factories 40,000,000 pounds more of sulphuric acid ; from lumber yards 12,000,000 feet more of lumber ; and will give constant work to at least 35,000 persons. Indeed, it is already (1892) in large part fulfilled.

            D. G. Harrimon
            American Tariffs From Plymouth Rock To McKinley, 1892
            p. 65-66

            “Let me ask the Senator from Texas why is it that 11,000,000 men and women have left Europe, nearly all of them laborers, and have sought our shores ? Why is it that not 200,000 of them have ever returned to Europe ? Why is it that last year 700,000 laborers from Europe came to our country? Why is it that 50,000 came from England, the highest wage-paying country in Europe ? Why is it that you cannot go into a cotton-mill or woolen-mill in America to-day and not find on the pay-roll scores of English mule- spinners and card-strippers and dyers; and why is it that they never go home, but the moment they lay aside from their high wages enough they send for their brothers, their fathers, their wives, and their children to come out too ?

            Sir, Europe has 312,000,000 inhabitants, Massachusetts has 1,700,000. Europe has 184 times as many inhabitants as Massachusetts. Both are laboring communities, both engaged principally in manufactures. Why is it that in Massachusetts the laborers have $231,000,000 of money in the savings banks, one-seventh as much as the whole 312,- 000,000 in Europe in their savings banks, postal and other? Why is it that in the North alone—leaving out the South only because she has few if any savings banks—why is it in the States excluding the South, having a population of about thirty millions or thirty-five millions, they have §200,000.000 more in the savings banks than they have in all Europe with its 312,000,000 of people ?……….

            STEEL RAILS.

            We commenced their manufacture in 1865, and since then have made four and one-half millions of tons.

            In 1864 we paid for English steel rails from $80 to $112 in gold per ton, delivered at English seaports; in 1877 the prices in England ranged from $72.50 to $77 a ton, while we, since 1870, as appears in the testimony before the House Committee on Ways and Means during the last Congress, have sold more than one million tons as low as $55 a ton, and in 1877 they run down to $40. Even now, with the tremendous demand, they are sold for from $60 to $65. It must be remembered that there never was so great a demand for rails as during the last twenty years. Since 1861 we have built 65,000 miles of railroad, and during the last two years more miles than during the ten from 1850 to 1860, under the low tariff.”

            Senator William Pierce Frye
            Speech in the United States Senate, February 10,1882

            U.S. Steel Rail History

            Year……….Price (per ton)……….Average U.S. Wage (annual)……….Price/Wage%
            Production, Imports, and Foreign and Domestic Prices of Steel Rails (per ton)

            Year……. Product in……Imports,……..Average…….Average………..Average…………Duty
            ……………….U.S………….Gross………..Price in………Price in…………Excess in

            ……………………………………………………………………………………………………………….Aug. 1872
            ……………………………………………………………………………………………………………….March 1875
            ……………………………………………………………………………………………………………….July 1883
            1888…….1,391,000……… 63,000……. $29.80……… $19.20………… $10.60………. $17.00
            ……………………………………………………………………………………………………………….October 1890
            ……………………………………………………………………………………………………………….August 1894
            1897…….1,630,000………..–……………$19.60……….$21.00………. —$1.40………….$7.84
            1900…….2,385,000………1,500………..$32.30……….$36.00………. —$3.70………….$7.84
            1901…….2,872,900………1,900………..$27.30……….$29.50………. —$2.20………….$7.84
            1905…….3,375,600…….17,300………..$28.00……….$28.80………. —$0.80………….$7.84
            1906…….3,977,800………5,000………..$28.00……….$31.20………. —$3.20………….$7.84
            1907…….3,632,700………4,000………..$28.00……….$32.00………. —$4.00………….$7.84
            1908…….1,921,500………1,700………..$28.00……….$29.10………. —$1.10………….$7.84

            The figures for production and importation are from the Reports of the
            American Iron and Steel Association. The American prices are from the
            same source, but have been reduced to a gold basis for the years 1871–78.
            The English prices have been secured partly from occasional tables given
            in the Iron and Steel Association reports, partly from English sources. The
            American prices are those for rails at the mills, in Pennsylvania; the
            English are for rails free on board. Prices by yearly averages can indicate
            only the general fluctuations; but they suffice for purposes of comparison.
            Where the imports are less than 1000 tons in any one year, they have been
            omitted. Since 1888 the imports have been sporadic, and signify little.
            Cost of transportation from England to the United States has been
            usually somewhere between two and four dollars a ton. But sometimes it
            has been considerably (p. 417) less than two dollars; and carriage by water
            from England to places on the seashore in the United States has not
            infrequently been cheaper than carriage by land from the American rail mills
            to such places.

            It will be observed that there were three periods of active railway
            building and of heavy imports of rails: 1871–74, 1879–82, 1886–88.

            In the later years, the American prices came nearer and
            nearer the English prices. In 1897, prices fell abruptly in the first two
            months of the year, in consequence of a “steel-rail war,” marking the
            breaking up of the combination which had so long kept prices up.

            F. W. Taussig
            The Tariff History Of The United States, 1909
            p. 259

            From 1871 to 1908, 5 out of a span of 38 years saw the U.S. price exceed the English price by the tariff margin or greater.

            33 out of 38 years – 87% of the time span – the U.S. price did not take full advantage of the tariff to increase its profits.

            As the U.S. volume ramped up, the U.S. price eventually dropped below the English price.

            Not exactly a U.S. steel industry hiding behind a tariff wall to price-fix the U.S. consumer for high profits.

            This data comes from a book written by a free trade economist of that time.

          • Steve O’Connor


            “By the late 1980’s, Japan dominated America’s television and consumer electronics markets. The logical next step was to squeeze extra profits from this dominant position.
            In 1989, New York Attorney General Robert Abrams revealed that Panasonic and Technics (both subsidiaries of Japan’s Matsushita) had mounted a verticle price-fixing scheme in America. Matsushita, of course, was a founding member of the television cartel. The Panasonic/Technics scheme was hauntingly reminiscent of what the Home Electric Appliance Market Stabilization Council had pulled off in Japan in the 1950’s.
            Abrams revealed that between March 1988 and August 1989 the Japanese companies had forced their American retailers – among them, Best Products, K Mart, Montgomery Ward, Circuit City – to charge fixed minimum prices for their products. Though his charge referred only to the sixteen most popular products of Panasonic and Technics – VCR’s, camcorders, cordless telephones, answering machines, and stereo equipment, among other items – Abrams said that the firms had, in earlier efforts, tried to set fixed prices on all three hundred items they sold in the United States.
            Through their scheme, the firms artificially had raised their U.S. prices by 5 to 10 percent. Abrams said the price-fixing was administered “through an elaborate nationwide scheme involving scores of [Panasonic and Technics] sales executives pressuring thousands of retailers to comply with the scheme and monitoring the prices they actually charged.”
            To enforce this price-fixing effort, Panasonic directed its executives to keep all U.S. retailers of Panasonic goods in step with the firm’s policies. Panasonic told its employees that “those dealers not adhering to company policy could ‘create chaos in the marketplace’ and would allow Panasonic to ‘lose face with the entire industry.’ “
            The question that lingers is whether the rest of “the entire industry,”as Panasonic called it, really did know about Matsushita’s price-fixing activities. If they did not, then how could Panasonic “lose face”? More important, were other consumer electronics companies participating in similar verticle price-fixing schemes?
            When Abrams confronted Panasonic and Technics, they immediately agreed to a settlement – without actually acknowledging wrongdoing. The settlement required the companies to stop price-fixing, to repay $16 million in overcharges to nearly 700,000 customers, and to pay another $2 million to the state for settlement administration costs.
            The settlement also revealed:

            Lechmere, Inc., a retailer with stores in New York and other northeastern states, was told by Panasonic that it would “make an example of dealers charging below the ‘go’ price [the fixed price] and would terminate all or part of its shipments to noncomplying dealers.”

            When Luria and Sons, a Florida retailer, undercut Panasonic’s fixed price on a cordless telephone, four different Panasonic representatives threatened that Panasonic would cease doing business with noncomplying retailers.

            As in Japan, this sort of price-fixing allows the manufacturer to gain an earned monopoly profit, which can then be used to subsidize dumping and other anti-competitive behavior.

            But the Japanese were able to extort monopoly profits from American consumers because America’s own television industry in effect had been destroyed by two decades of illegal, anti-competitive behavior by the Japanese.”

            Pat Choate
            Agents Of Influence, 1990
            p. 102-103
            “After several years of lengthy and detailed studies and hearings concerning the problem of sharply increasing fastener imports and the impact that this has had on the U.S. fastener industry, the International Trade Commission recommended to President Carter that higher tariffs be imposed. On February 10th, President Carter rejected the ITC’s recommendation, saying that fastener tariffs would be inflationary and not in the nation’s best economic interest.

            But then, just a few weeks after the fastener decision, the President approved, reportedly without hesitation, a more than triple increase in tariffs on CB radio imports, from the current 6% to 21%. Apparently, President Carter believes that CB radios are more important to our nation’s economic well-being than a healthy fastener industry.

            Anyone who has followed the fastener import situation with anything more than casual interest will quickly point to the hundreds of pages of well-documented evidence showing how Japanese fastener firms, over a period of years, have invaded and captured U.S. markets for standard nuts, bolts and screws. No, I am not blaming the Japanese for taking advantage of what they correctly perceive to be an enticing opportunity to enhance their own best national interests. But what does concern me is that while we remain innocent as doves extolling the virtues of free trade, we’re being devoured by other industrialized nations that go after markets with a killer instinct. The facts are clear: Uncle Sam is taking a beating and coming out the loser.

            In the case of the U.S. fastener industry, imported standard fasteners already are taking about 50% of our domestic markets. As a result, close to 8,000 U.S. jobs have been lost. Industry profits have dropped sharply and a number of fastener plants have either shut their doors or sharply curtailed operations. Ironically, U.S. fastener manufacturers are the most efficient found anywhere in the world. And fastener company presidents do not oppose free trade and open markets. But they can’t compete against foreign companies that work in collusion with their governments with subsidized and planned strategies for capturing our markets. George Meany says that free trade is a joke and myth. I think he’s right.

            The important question that each of us, in our own way, must answer is: “Can we as a nation allow our fastener industry to erode and wither away without putting ourselves in an intolerably vulnerable position?” A Federal Preparedness Agency study already has concluded that fasteners are vital to national defense, and a continuation of our dependence upon imports will make it unlikely that we will be able to count on domestic suppliers alone in the event of a wartime emergency. But we could become vulnerable in still another way. We’ve already seen the devastating effects of an oil embargo and the pricing tactics of OPEC nations. Why then should we put ourselves in the same vulnerable position with respect to fasteners? The Japanese already have demonstrated how quickly fastener prices can increase when they have a market monopoly (400% increase for some fasteners during 1973-74). While President Carter is concerning himself with inflation, I hope that he will give serious consideration to this possibility.

            The outcome of the fastener import situation may, in part at least, rest in your hands. Under the provisions of the Trade Act of 1974, Congress can override a presidential decision that runs counter to ITC recommendations. A congressional vote is expected some time in July. Once again you have the opportunity to let your congressmen know how you feel about this important issue. It’s up to you.

            Bob Kelly, Editorial Director
            “Let’s Get Our Act Together on Trade”
            Assembly Engineering, May 1978
            p. 9

            Broadcast Engineering
            Nov 26, 2007

            EU fines Japanese manufacturers for Betacam videotape price fixing

            The European Commission has fined Sony, Fuji and Maxell nearly 75 million euros ($109.8 million) for fixing prices on Betacam SP and Digital Betacam cassettes for professional use.

            “Between 1999 and 2002, Sony, Fuji and Maxell managed to raise or otherwise control prices through a series of regular meetings and other illicit contacts,” said European Competition Commissioner Neelie Kroes.

            Sony’s fine was increased by 30 percent to just over 47 million euros after it obstructed the investigation. The fines for Fujifilm and Hitachi Maxell were reduced by 40 percent and 20 percent respectively — to 13.2 million and 14.4 million euros — after they co-operated with the investigation, Reuters reported.

            The commission began an investigation with raids on EU subsidiaries of Sony, Fuji and Maxell in May 2002. The raids found “abundant evidence of cartel activities” according to the report, although a Sony employee refused to answer questions by EU officials, and another employee shredded documents during the raid, the commission said.

            Reuters reported that Sony acknowledged its involvement only after receiving a formal charge sheet from the commission.

            The cartel covered the two most popular professional videotape formats at the time — Betacam SP and Digital Betacam. In 2001, the formats, mainly sold to broadcasters and independent television producers, had total annual sales of 115 million euros in the EU and other European countries.

            Sony, Fuji and Maxell controlled more than 85 percent of the professional videotape market. The trio “organized three successful rounds of price increases and endeavored to stabilize prices whenever an increase was not possible,” the commission said. The companies also regularly monitored the implementation of price agreements and had at least 11 meetings at which they organized the cartel.


          • Steve O’Connor

            John Quote:

            Nate Y,
            After reading the series of post on this page, I have to say your the only one whos got it figured out. It appears most people have been duped by the corporate media who tell them that X is good and Y is bad with no logic or historical precedent to back up the claim. I don’t know about banning theses individuals who completely oppose economic freedoms, however, we should all ignore them or at least understand they either have an agenda or are extremely misinformed.
            Be my guest, ban me.

            If you don’t like historical facts and can only respond with theoretical conservative economic rhetoric – then go scrap Article I, Section 8 of the Constitution along with the rest of the inconvenient trade history of this nation.

            Ignorance is bliss, especially from armchair conservatives who never were FORCED to competed with foreign subsidized, slave wage, currency manipulated industries.

            And no, the corporate owned, corporate censored media has NEVER taken the protectionist stance. They are far closer to your corner than mine.

            If anyone has been duped, it is you. Your Laissez Faire religion is far dearer to you than historical truth.


          • Nate Y

            Steve O’Connor says:

            “Be my guest, ban me.”

            Umm…neither John nor I called for you to banned. In fact, we both implied that we don’t want people banned from this site. I don’t think anyone has ever been banned anyway. But the fact that you can’t understand the very clear implication (we don’t want you banned and would argue against it if such an option was put forth) of our words most certainly suggests you don’t understand or don’t bother to understand what was said. Since you can’t (or refuse to) recognize such a simple statement, there really isn’t much point in attempting to persuade you of the folly of tariffs (taxes).

            Anyway, I’d like for you to explain how placing a tax on an item can make it cheaper as the supposed historical facts claim. It could very well be that the price of both foreign and domestic axes (or steel, or whatever) fell after a tariff was set in place. However, that does nothing to demonstrate that the tariff was the CAUSAL factor. I live in California and the sales tax was recently increased. However, I have noticed that the price I pay for milk (and TVs, and many other items) has gone down in the past months. I foolishly conclude that the sales tax caused the price to fall. Of course, such a conclusion makes no logical sense whatsoever. But we can’t argue with facts now can we? The error occurs because I have only bothered to look at two aspects (the increased sales tax and the decreased price). I have neglected all the supply and demand factors that are responsible for determining the price of goods.

            Do you also not realize that tariffs and other protectionist measures lead to retaliation from other countries and that very often these trade wars contribute to hot wars?

          • Steve O’Connor

            Nate Y Quote:

            Since you can’t (or refuse to) recognize such a simple statement, there really isn’t much point in attempting to persuade you of the folly of tariffs (taxes).

            The kettle calls the pot black.

            Nate Y Quote:

            Do you also not realize that tariffs and other protectionist measures lead to retaliation from other countries and that very often these trade wars contribute to hot wars?


            “In the late seventies, early eighties, there were dumping orders in effect on TVs from Japan, Korea, and Taiwan. As a result of that, those orders were very successful. What happened, Korean and Japanese producers set up assembly operations in the United States.

            What then happened was a massive inflow of color picture tubes. Regardless of the 15 percent tariff, color picture tubes came surging into this country. A case was brought by the color picture tube producers. The case was successful. Antidumping duty orders were imposed on color picture tubes.

            A result of that was the building of new color picture tube plants by companies like Matsushita. One of the great ironies — I recall saying this at another time — is that the day the Commission voted affirmatively on the color picture tube case, the president of Matsushusta stood up in Tokyo and announced that he was going to build the largest color picture tube plant in the United States in Troy, Ohio.”

            LAURENCE J. LASOFF
            Attorney representing the IBEW, IUE-CWA, and Industrial Division of the Communications Workers of America, as well as Five Rivers Electronic Innovations, LLC, a manufacturer of color televisions
            based in Greeneville, Tennessee.
            Testimony before the United States International Trade Commission
            In the Matter of China dumping TV sets in the U.S. market.
            April 15, 2004

            China has become one of the most significant targets in the EU anti-dumping practice. Since 1988, antidumping proceedings against China have substantially increased. Even worse from this perspective, most of the proceedings against Chinese enterprises resulted in high antidumping
            duties or minimum undertakings…….

            By the end of 1999, the Commission and Council had 151 anti-dumping measures and five anti-subsidy measures in force, covering sixty-three products and thirty-five countries.
            Of these 156 measures, thirty-three concerned China…..These measures severely undermined the competitive capability of many Chinese industries involved, and virtually excluded them from the European market. In this sense, China has also become the most distinctive victim of the EU anti-dumping practice.

            In 1988, the EU began to investigate antidumping charges brought against color televisions made in China and South Korea. The result of that investigation came out against the manufacturers, and an anti-dumping duty of
            15.3% was levied on Chinese televisions beginning in 1991. In 1992, the EU launched another investigation of imported televisions, which resulted in an anti-dumping tariff of 25.6% being imposed by the Council on Chinese sets beginning in March 1995. Three years later, following the promulgation of the New Anti-dumping Rule, the EU decided that the existing tariff rate on imported sets would remain unchanged for most nations, but rise to 44.6% for those made in China. Thus, for all intents and purposes, Chinese color televisions were expelled from the European market.

            Five Rivers Electronic Innovations LLC, the Greeneville television manufacturer that has filed for Chapter 11 protection with the U.S. Bankruptcy Court here, hopes by late next year to receive up to $23 million in tariffs imposed in the past year on Chinese-made TVs imported into the United States.
            Tom Hopson, Five Rivers’ president and CEO, said in a creditors hearing on Monday that Five Rivers expects to receive between $8 million and $23 million from the U.S. Treasury from customs duties collected on imported Chinese television sets.

            Hopson said Five Rivers expects to recover up to $23 million from the 20 percent tariffs that have been collected from the Chinese TV manufacturers since November 2003, if the U.S. government agrees with Five Rivers’ contention that the tariff was needed due to “critical circumstances” that then existed.

            Hopson earlier said, “There are only seven manufacturers in the United States” that produce TVs. Five Rivers is the only American-owned one of the seven. The other six are Japanese-owned, Hopson has said.


            Was this dumping case critical to the survival of your company? If you had had a bad case or you’d lost this case, would you have shut down?

            Tom Hopson:
            Absolutely. There’s no doubt in my mind that if [we] had lost this case, this factory would not be in business. …

            Interview with Tom Hopson
            President and CEO of Five Rivers Electronics Innovations
            June 3, 2004

            To this day, China has not retaliated for these tariffs. China has the trade surplus to lose, not the U.S. nor the EU.


          • John


            The post I wrote supporting Nate Y was mainly his stance against Sean on this message board and backing him in his stance on a gold or silver backed dollar. I guess the location of my post was not ideal for its purpose. I didn’t read many of your post before posting my support of Nate Y simply because I have limited time and they were all fairly long, sorry for that. However, it does appear that there is some disconnect in this ongoing debate between yourself and Nate.

            You seem to post evidence that is in favor of your argument regarding tariffs, its just hard to find what your stance really is on tariffs because its hidden with in the dense text that you post. From what I have read it appears you are favoring tariffs on imports, is that correct? If so, I would agree with you on this matter because tariffs protect US business and manufacturing in my opinion. However, I don’t agree with extremely high tariffs such as the mid 1800s levels. I just think this would be too devastating on consumers buying imports, however, over time they could be increased as more and more business relocated their manufacturing to the US.

  • sean

    Ross Perot against al gore and free trade.

    • C. Mantix

      NAFTA is not free trade.

      • sean

        What is nafta then? please explain in detail..

        Nafta was a policy eliminating tariffs. Do you not agree? Explain..

        • John

          Yeah thats one thing it did. By eliminating tariffs a company can then produce their product in Mexico at a lower cost and then ship it into the US with no penalty (that used to be the tariffs). This allows a company to increase their profit margins by producing their product in Mexico. Tthe price of the product produced in Mexico is still the same here in the US. So, if it cost the company less to make their product but they still sell it for the same price in the US then their profit margins go up. This helps the Mexican economy by exporting manufacturing jobs from the US to Mexico and helps the big companies who can afford to relocate to Mexico for manufacturing. It does absolutely nothing to help the average guy in this country.

          • Lindsey

            John: AMEN to your comment! While in the short run the average guy may benefit from slightly lower prices to pay for that imported product (Except the people that were laid off as they have no money to buy anything) in the long run our national sovereignty is affected by being dependent on foreign countries for our own needs. What a sad situation we are in already being dependent on China for consumer staples and the Middle East kingdoms for our energy supply!

          • Nate Y


            Thank you for the kind words. I hope I didn’t imply that I want people banned. When others have called for bans in the past, I have always said it would run counter to our belief in a free and open forum to do so. Anyway, nice work exposing the shortcomings of the truly Orwellian named North American Free Trade Agreement.

          • John


            I’m not sure it really benefited the average guy in the short run relative to the benefit of . I say this because the cost of mass shipping is relatively low when your only transporting your product from Mexico and the cost of labor, rent/property, power, etc… is extremely low in third world countries compared to the US. I bet the average guy couldn’t find a product manufactured in third world countries that was more than 2% less than the same product produced in the US. Basically, the companies producing products else where are not marking down their products enough to really pass any benefit on to the consumer.

          • John


            Your welcome. I understand you frustration, however, when dealing with people who appear to not be reading or understanding your post via their reply.

            I did want to touch on a comment of yours I read somewhere on this page. You stated that you were against tariffs because they are a tax. In my opinion they are one of the very few taxes we should uses to generate federal revenue. I think tariffs are a good tax simply because they are taxing foreign entities. This way we are taking money from outside the country to fund the federal government. I understand that the price of the tax will be passed on to the consumer, however, this will encourage companies to manufacture in the US. Thereby, making the US a more independent nation not entirely reliable on imported goods. Additionally, I believe that there tariffs should not be too high to discourage imports but high enough to give manufactures a reason to produce their products here in the US. The implementation of this would need to be somewhat slow and a balance would need to be found to encourage manufactures to move their production to this nation but not stop imports from elsewhere. I just see a great benefit from tariffs:They can keep jobs in the US, generate revenue off of foreign entities, and most importantly they could make it so that the US is not completely dependent upon imports.

          • Nate Y

            Well it appears we part company when it comes to tariffs. I once held that small tariffs are a good idea. But I have come to realize this to be an error. I will do my best to present the arguments against tariffs (even the little ones) when I have the proper amount of time. But i will ask this: what makes you think that the government can properly calculate what the “not too high not too low” tariff rate should be when they so obviously cannot calculate the proper interest rate?

            Also, you wrote “I think tariffs are a good tax simply because they are taxing foreign entities. This way we are taking money from outside the country to fund the federal government. I understand that the price of the tax will be passed on to the consumer…” Can you not see the contradiction here? You know that the tax is passed onto the consumer (Americans in this case) but at you first state that the tariff is good because it taxes foreign entities. You have unwittingly shot yourself in the conceptual foot. Tariffs don’t tax foreign entities. Of course that it the intent of the tariff. But (as you point out) the tax is passed onto the consumer so they end up taxing the people here.

            Anyway, thanks for the post and I’ll respond some more later.

          • John


            I guess we do part on tariffs and I would like to hear your counter argument to tariffs. While I wait I will add to my argument.

            First, lets take a particle example and keep it as simple as possible. Your a the grocery market and you need a multi-vitamins. Before you are two products, lets denote them X and Y. Product X is produced in the US and is $1.00, product Y is produced in China and is $1.10, the ten extra cents due to the tariffs. With all else being equal I assume you, like myself would choose the American made product for $1.00. This means we just avoided the tariff and any other smart consumer would do the same. Eventually, as returns based on sales of product Y decline, the company will more than likely set up a manufacturing plant in the US or just pull their product off the market, thereby creating a void that market. With the tariffs in place that void would more than likely be filled by a business who chooses to manufacture in the US. So, eventually the tax would that is passed on to the consumer would more than likely disappear. Or, the stupid consumers would continue to waste 10 cents every time they buy their multi-vitamin. I believe the former would occur before the latter, justifying the tariffs.

            Second, you ask “what makes you think that the government can properly calculate what the ‘not too high not too low’ tariff rate should be when they so obviously cannot calculate the proper interest rate?” This is a very good question. I will say two things in response. One, I believe that the Federal Reserve, not the government, chooses to put interest rates at a rate that they know will create bubbles, thereby hurting the economy via the bursting of those bubbles. You can find via youtube Bernake and Geithner both testifying before congress that they believe we should move to an international currency. I believe that the FED has purposely destroyed the US dollar in order to get us to move to an international currency regulated by the World Bank. I say this to point out that our, the American people, best interest were never in the minds of those deciding economic policy. This is why the interest rates are never where they should be. I do believe that the market should determine the interest rates. Two, I believe that if the regulation of tariffs was put in the hands of non-corrupt politicians such as Paul we would have our best interest in mind. Furthermore, I do understand that this is contradictory to my stance on a free market, however, that stance is specifically on a free market with in the US boarders.

            Continue to critique my points, please, and I will do the same with you. This can only help us understand each others ideas better and help us to refine our own ideas. I always love a good debate.

          • Nate Y


            In your “practical but simple” example, one could reasonably come down in favor of the tariff. However, your example omits much and turns a blind eye to the many factors worthy of consideration. Your example also falls short in raw logic. First of all, you imply that both the American multi-vitamins and the Chinese multi-vitamins cost $1.00 before the tariff. If this is the case, why would there be a need for the tariff? People clamor for tariffs only when they can’t keep up with their competitors price. The Chinese multi-vitamins (CMVs) would have to be less expensive than the American mulit-vitamins (AMVs) in order for a tariff to be “needed”. So let’s say the CMVs are .90 while the AMVs are 1.00 (this is necessary to justify the tariff). Rather than saving your fellow Americans .10 you are actually taxing them .10. They were once able to obtain CMVs for .90 and now they are in effect forced to buy AMVs for 1.00. This means they now have less to spend on other (perhaps American made goods/services) than they did before the tariff was put in place. The tariff has only served to benefit the producers of AMVs at the expense of the American consumer and other producers. The consumers now have to pay higher prices and as a result, other industries are deprived of business.

            Now some will say (as I once did) “well then we’ll just protect all American industry with a blanket tariff”. But such a course of action hardly solves the problem. In fact, it does the exact opposite and magnifies it. One may as well argue for closed borders. I think the reason why people argue for such impoverishing policies actually comes out of concern for their fellow countrymen (I know that’s one reason why I held the view). But as we have seen, one can argue in favor of tariffs only if he focuses squarely on those who benefit as a result of the tariff and neglects those groups who suffer as a consequence.

            Also, we must realize that tariffs (like slaps to the face) encourage forms of retaliation. We place a tariff on CMVs and in response the Chinese place a tariff on some American produced good. It could be beef, wheat, soybeans, airplanes, transistors, or anything really. Again, we can see how the tariff can have unintended but negative consequences on other groups.

            In addition, there is no reason to think the producers of CMVs would take their product off the market. The market (world) is a big place. They can simply take their product to countries who don’t impose barriers to trade (tariffs).

            Anyway, I have to make and eat dinner. I may expand on the last two points later.

  • Steve O’Connor

    Nate Y QUOTE:
    “How in the hell can (general) over production (an increase in wealth) be a problem?”

    You should have read my “strawmen, red herrings, and non sequiturs” a little more carefully.

    Try it again, start with Galbraith:

    The trouble was that the purchasing power of the workers did not keep abreast of what they produced.

    As a result, goods accumulated for which there were no buyers. A crisis became inevitable. Marx’s view of depressions, which he was still working out when he died, was roughly similar and so, in recent times, has been that of ALMOST EVERYONE.”

    John Kenneth Galbraith
    The Affluent Society, 1958, updated 1998.

    ALMOST EVRYONE did include this one:

    “All this notwithstanding, (Joseph Alois) Schumpter never became a cult figure of American conservatism as did von Hayek, von Mises and the other exponents of the traditional IRRELEVANCY. This was partly because he lacked solemnity and loved to shock his own natural supporters. He praised Marx as a genius, a prophet and “a very learned man.”

    Contemplating the future, he asked, “Can capitalism survive?” And replied, “No, I do not think it can.”

    John Kenneth Galbraith
    A life In Our Times, Memoirs, 1981
    p. 50

    Nate Y QUOTE
    “Yeah. Milton Friedman and (especially) Paul Krugman are wrong.”

    You have no idea how wrong. Take a look at this little gem:

    “The United States had tariffs throughout the nineteenth century and they were raised still higher in the twentieth century, especially the Smoot-Hawley tariff bill of 1930, which some scholars regard as partly responsible for the severity of the subsequent depression.”

    Milton and Rose Friedman
    Free To Choose, 1979
    p. 32

    Apparently, Nobel winners don’t bother with U.S. Statistical Abstracts (Historical 1776-1976 edition) which can be found in any public library:

    U.S. TARIFF HISTORY 1821-2000

    YEARS……………..AVERAGE EFFECTIVE TARIFF (% tax on all imports)





    As for the tariff issue, that was a myth created by economists of the time who promoted free trade at any cost. The Smoot-Hawley act was passed 8 months after the crash and after consumer spending had dropped and took until 1933 for the rates to be fully implemented.

    This comes from my edit job of WIKIPEDIA:

    There is no universal agreement about the effect of the tariff. According to the U.S. Statistical Abstract, the effective tariff rate was 13.5% in 1929 and 19.8% in 1933 with 63% of all imports being duty-free. From 1821 through 1900 the United States averaged 29.7% effective tariff rates and peaked in 1830 at 57.3% with only 8% of all imports being duty-free, dwarfing the Smoot-Hawley rate.

    In addition, imports in 1929 were only 4.2% of the United States’ GNP and exports were only 5.0%. Smoot-Hawley’s effect on the entire U.S. economy may have been small, compared to the monetary policy of the Federal Reserve System.

    By 1937 the effective tariff rate was reduced to 15.6% when the reaction of 1937-1938 occurred, demonstrating no statistical correlation between this economic downturn and tariff levels.

    Senator Robert L. Owen testified at the hearings on HR 7230, the bill to make the Federal Reserve banks a national property, that; “In 1937, when the Federal Reserve Board called upon the banks to raise their reserves to twice what they had been before, there was a contraction of credit of two billion dollars.


    • Nate Y

      Apparently you don’t know what strawmen, red herrings, and non sequiturs are.

      This thread is about the Federal Reserve and it’s inflationary monetary policies. It is not about tariffs. But I’ll chase your red herring a little. Being against taxes in general, I am necessarily against tariffs. Tariffs are taxes. Bastiat’s candle maker petition usually proves instructive.


  • Steve O’Connor

    Where the credit comes from makes very little difference.

    That the vast majority of labor needs credit in the first place to consume the output of the economy because it isn’t paid enough in real wages is the central problem.

    It is obvious that an ever increasing debt load for labor is unsustainable and eventually must collapse – no matter who extends the credit.


    • chris

      “It is obvious that an ever increasing debt load for labor is unsustainable and eventually must collapse – no matter who extends the credit.”

      the banks get the money to extend loans from the fed, no longer do they have to back loans on their customers deposits. this has been going on under emergency protocol since the last depression, in case there ever were another run the bank. its not the fed by itself doing it, but its its existence that allows it to happen. credit like this can only come from a fiat monetary system thats secretly monopolized under the name of price stability, so i would object to your claim that it doesn’t matter who the credit comes from. its a poor attempt at blame shifting without ascribing it to a particular source.

      • Steve O’Connor

        Again, why do you ignore the depression of 1893-1897?

        Our own Federal government admitted that the problem was overproduction – not the banking system – which was well before the Federal Reserve.


        • Nate Y

          The panic of 1893 was caused in no small degree by the fractional reserve banking system as well as foolish government subsidies and guarantees to the railroad industry. This is the “overproduction” read: bubble that eventually popped and started the panic. Notice how eerily similar the events of then and now have proved to be. Back then you had fractional reserve banking and a government fueled railroad bubble. We still have a fractional reserve system (held together by a central bank as all fractional reserve systems eventually have to be) and experienced a government fueled real estate bubble.

          The only thing that caused both bubbles to get so out of hand was the corrupting influence of government intervention.

  • sean

    Easy credit doesn’t come from the federal reserve but from shadow banks. The regional banks that the fed props up only accounts for 20% of the loans in our country. The shadow banking system makes up the other 80% and were not under the authority of the fed.

  • Steve O’Connor

    Ron Paul blames all economic ills on government, especially the Federal Reserve. This is historical nonsense as the U.S. had severe economic periods before the Federal Reserve existed – note the Depression of 1893-1897 which I cited.

    The economic crises of 1783-1789 gave birth to our present Constitution and our system of tariffs – which Ron Paul opposes as interference in the Free Market – a direct contradiction of Article I, section 8:

    The Congress shall have Power To….. REGULATE Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

    Ron Paul assumes that the Free Market is perfect, it cannot be blamed for creating economic distress.

    History proves this to be complete ignorance of the economic record.

    Our own government concluded that the crises of the U.S. economy was over production. The U.S. market could not consume its own output – as I cited in my post above.

    This characteristic of capitalism is inherent in the capitalist system itself, not a product of government interference.

    The most elementary texts on economics recognizes this as a market failure.

    But the Austrian school of economics, of whom Ron Paul is a zealous member of, has always avoided this.

    Nobel laureate and neo-Keynesian economist Paul Krugman argued that Austrian business cycle theory implies that consumption would increase during downturns, and cannot explain the empirical observation that spending in all sectors of the economy fall during a recession.

    Austrian theorists argue a recession can result from a monetary contraction or a “credit crunch” that causes the investment boom not to shift but simply to disappear.

    Nobel laureate Milton Friedman, after examining the history of business cycles in the US, concluded that “The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false.”


    • Nate Y

      Yeah. Milton Friedman and (especially) Paul Krugman are wrong.

      How in the hell can (general) over production (an increase in wealth) be a problem?

      “My fellow Americans, we have determined the cause of our economic woes. We have too much wealth and prosperity.”


      This is like a doctor telling you “Steve, we’ve conducted the tests and we have determined the cause of your sickness. As it turns out, you are too healthy.”

    • Lindsey

      Steve: When we have overproduction then the result is deflation. (Too few dollars chasing too many goods) If you equivocate deflation with recession then you have a valid argument. I do not make that equivocation. With sound money, deflation and inflation will balance each other out and we will have limited periods of expansion and contraction if we have sound fundamentals. I agree with you that tariffs are the right of the government to impose and we should impose them upon slave labor nations etc. in order to protect the soundness of our own economy! Our lack of tariffs over the past quarter century have resulted in an American economy with some rather unsound fundamentals that foreign nations can and do exploit. (i.e. dependence on foreign oil, electronics etc.)

      • sean

        The reason we got off the gold standard was because of our trade deficit with oil exporting countries.

        This is mercantilism and because the oil producing countries, the chinese and the japanese don’t use our currency, they are investing it into our government. They are making money off of us and then using it to invest in our government so the people will have to pay it back with interest.. We’re getting ripped off and taxed to buy their worthless crap that could be built here at home.

        • Nate Y

          Worthless crap? I bet most of the clothing worn by the people in this country comes from China, Vietnam, and the like. My golf spikes (which are the most kickass spikes I’ve ever owned) are made in China. Take a look at the appliances in your house and place of work. Don’t be shocked when you discover that they come from the East.

          But sure, the goods could be produced here. A few important changes would have to be made though. The government would have to get out of the way with their burdensome regulations and taxes. It would also be nice if the unions would stop lobbying the government for special treatment. Unfortunately, we have all these elements in the system at present. The result is a concentration of wealth and power in the hands of the government and the politically well connected at the expense of the common man. They also drive goods producing businesses out of this country.

          • sean

            We don’t have the money to buy this cheap stuff. I’m sure you do like to live with higher standards. Who doesn’t.. Easy money is not the answer.

      • Steve O’Connor

        Lindsey QUOTE:
        Steve: When we have overproduction then the result is deflation.

        Overproduction creates the need for massive borrowing to consume the output.

        In our current crises the Fed has been forced to print currency to replace the $5 trillion sitting in the central banks of China, Japana, Germany that was the result of trade deficits.

        We do agree on tariffs – common ground.


    • Tim

      Ron Paul blames all economic ills on government, especially the Federal Reserve.” Wrong Steve, because the Federal Reserve is NOT part of the government. It’s a private corporation that LOANS us all our money AT INTEREST. So how do we pay off the interest? With more money borrowed at interest?

      The Federal Reserve needs to be abolished an the currency needs to be put BACK in the hands of OUR GOVERNMENT so it will not come with perpetual debt attached to it. Because with that economic foundation, it doesn’t matter how well the economy does because we will ALWAYS be getting deeper in debt either way! It’s like spending twice what you earn with credit cards every year and only paying back the interest.

      • Steve O’Connor

        I am not a fan of the Federal Reserve and agree that it must be replaced by the Federal government issuing the currency. But you ignore previous economic depressions that occured with no central bank around to blame.

        • Nate Y

          Indeed. The true culprit is the very institution of fractional reserve banking which inevitably gives rise to central banking if the fraudulent system is to be perpetuated. Ron Paul always brings us this point when asked something like “What about the panic of 1907? There was no fed until 1913 and we still had a panic.” The Austrian School has written extensively on the problems of fractional reserve banking.

          The truth is that even if we did away with the fraud that is fractional reserve/central banking and had sound money, there would still be instances of economic expansion and contraction. But this should not worry us. Quite the contrary. Just as a body needs to work and then rest, so does an economy expand and contract. Such cycles are the natural order of things and are necessary. The beauty is that under the much more efficient and harmonious free market system, the contractions would hardly be noticeable when compared to the vicious booms and busts created by fractional reserve/central bank inflation and government intervention.

  • GarbageCan

    I sincerely hope that every American realizes the extent to which the Federal Reserve’s decisions affect peoples’ lives, not only in America but the world over. A central entity with such great power is very threatening to every individual’s freedom. Please help in making HR 1207 become part of law and ensure Federal transparency.

  • Steve O’Connor

    “Further and in its ultimate influence perhaps the most important of all, the system had an inherent tendency to devastating depression. Sismondi, the great Swiss historian, philosopher and economist, had published at the beginning of the century a book which reflected much of the hopeful attitude of Adam Smith. Then, sixteen years later and after extensive travels over Western Europe, he returned to the subject impressed by the importance of industrial crises and persuaded that they would get worse.

    The trouble was that the purchasing power of the workers did not keep abreast of what they produced.

    As a result, goods accumulated for which there were no buyers. A crisis became inevitable. Marx’s view of depressions, which he was still working out when he died, was roughly similar and so, in recent times, has been that of almost everyone.”

    John Kenneth Galbraith
    The Affluent Society, 1958, updated 1998.

    “When the produce of any particular branch of industry exceeds what the demand of the country requires, the surplus must be sent abroad and exchanged for something for which there is a demand at home. Without such exportation a part of the productive labour of the country must cease, and the value of its annual produce diminish.”

    Adam Smith
    [i]The Wealth of Nations[/i], 1776

    “Even the traditional policy of tariff protection was questioned and modified by Americans who saw reciprocity treaties as a way of getting into foreign markets. When it was organized in 1895, for example, the National Association of Manufacturers devoted over half its original program to the problems of expanding foreign markets. One of its specific proposals favored reciprocity treaties as a “practical method of extending our international commerce.” And within a year the organization had established special commissions to push business expansion in Latin America and Asia. Its leaders also emphasized the role of such expansion in preventing labor unrest and in making it possible to obey the laws on child labor and yet earn a profit.

    While he was president of the NAM in 1897, Theodore C. Search summarized the general feeling within the business community.

    “Many of our manufacturers have outgrown or are outgrowing their home markets,” he explained, “and the expansion of our foreign trade is their only promise of relief.”

    ……..The founding convention of the NAM was keynoted, for example, by (President to be) McKinley. He similarly pushed overseas economic expansion in his address at the opening of the Philadelphia Commercial Museum in 1897. And the NAM., no doubt encouraged by McKinley’s appointment of Frank A. Vanderlip (Vice President of the National City Bank) as Assistant Secretary of the Treasury, maintained the liaison in its vigorous efforts to win such objectives as reform and enlargement of the consular service. As Theodore Search explained in a letter shortly after McKinley was inaugurated as President,

    “the manufacturers of the United States never were so deeply concerned in foreign trade as at the present time.”

    William Appleman Williams
    The Tragedy of American Diplomacy, 1962
    p. 27-28

    In the introduction of Chapter One comes this astounding quote:

    “It seems to be conceded that ever year we shall be confronted with an increasing surplus of manufactured goods for sale in foreign markets if American operatives and artisans are to be kept employed the year around. The enlargement of foreign consumption of the products of our mills and workshops has, therefore, become a serious problem of statesmanship as well as of commerce.”

    The Department of State
    April 1898

    The United States was in a severe economic depression starting in 1893 and lasting through 1898.

    By the end of the first year, some 500 banks and 15,000 businesses had failed.

    In mid-summer, 1894, there were 4,000,000 unemployed.

    And this occured well before the Federal Reserve existed.

    • Lindsey

      Steve: What is the point of this post?

    • Nate Y

      Wow! What a waste of time and energy. Your posts contain nothing but strawmen, red herrings, and non sequiturs.

    • longshotlouie


      The gig is up.
      Clean out your desk.
      They’ll send your last check in the mail.

      • Steve O’Connor

        Try being a little more mature and I might treat you the same.


        • longshotlouie

          Please, do not feel obligated to go out of your way for the rest of us.