Another Ron Paul Critic at the Fed: “I Know Some Powerful People”

Stephen Williamson another Fed economist from the same Fed branch, the St Louis branch where another economist, David Andolfatto, called Congressman Ron Paul a pinhead is out with a clarifying rant.

He starts his rant by telling us that:

I have worked full-time at the Minneapolis Fed (2 years), and have been a visiting academic at the Federal Reserve Banks of Richmond, Cleveland, Philadelphia, Kansas City, Atlanta, and New York. I currently spend an average of something less than one day per week at the St. Louis Fed, in my hometown, where my full-time job is at Washington University in St. Louis. My title at the St. Louis Fed is “Research Fellow,” and I have an office over there (no window unfortunately) with my name on the door. I also know some powerful people. I went to graduate school with 2 Fed Presidents, know 4 Fed Presidents well (Narayana Kocherlakota is a rather aggressive poker player; Dean Corbae is not), and am an acquaintance of Ben Bernanke’s from back in the day (e.g. we both belonged to Glenn Hubbard’s NBER group for a time).

I am not trying to boast here.

 He then goes on to attack some of Ron Paul’s specific points:

1. The Fed is immoral. The idea here has to do with what Paul calls “printing money out of thin air.” We have a government, and the government is a tyrant. The tyrant must confiscate resources in order to keep itself alive….Is the Fed immoral? Ron Paul wants you to think that what the Fed is doing is mysterious, secretive, and underhanded. We have all been hoodwinked but, according to him, he has figured it out, and will proceed to enlighten us. You can forgive Paul somewhat for the “printing money out of thin air” idea, as this is part of what is conveyed in conventional money and banking undergraduate courses. Indeed, Paul’s exposure to formal economics training appears to be confined to a single undergraduate course, in which he seems to have been exposed to the money multiplier, probably the most misleading idea propagated in monetary economics

He then argues:

As discussed here, a central bank is best viewed as just another financial intermediary, the unique characteristic of which is that it has a monopoly on the issue of some class of liabilities. The Fed creates liabilities out of “thin air” to purchase the assets in its portfolio. A bank creates deposit liabilities out of thin air to purchase the assets in its portfolio. General Motors can create equity claims out of thin air to finance the purchase of new plant and equipment. Further, the fact that the liabilities of the Fed do not represent specific claims to anything in the future is neither here nor there. In private markets, in which Paul puts much trust, we have developed arrangements by which private firms issue claims (stock) which are not specific promises to pay anything specific in the future (dividends are discretionary). Further, private firms make no commitments about their future plans to issue more stock, or to buy back stocks, decisions which will affect the value of stock held by existing shareholders, just as decisions by the Fed affect the value of the existing stock of money outstanding. Nothing mysterious here at all.

This is typical Fed bait and switch talk. By calling money “a liability”, Williamson is removing it from a special class and arguing a point about Fed money because it falls into a larger class, also.  It’s like calling Sports Illustrated cover girl Irina Shayk, a homo sapien. Well, yeah, she is a homos sapien, but being a homo sapien is not sufficient to get you on the Swim Suit issue cover of SI. Or maybe Williamson thinks this is going to happen.

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I wear many hats but history, economics and political observance have always been a passion. I am a graduate of the University of Cincinnati College of Business with a degree in Information Systems and Digital Business with a minor in European History. I work for a small mom-and-pop IT consulting and software design company. We deal in servicing mostly government funded non-profit mental and behavioral health care agencies in the state of Ohio. In this I deal with Medicaid and Medicare funds and have a little insight on the boondoggles of government there. Thankfully the undemanding nature of my daily profession gives me ample time to read and stay aware of our current state of affairs which I find stranger than fiction in many instances. In addition to being in the IT field, I have also been self employed with a small contracting company so I might know a thing or two about the plight of small business that employs 71% of the American workforce. I however don't draw my knowledge from my day jobs, which I have had a few; I draw it from an intense obsession with facts and observation about the world in which I live. I do have formal education in things such as history, economics and finance particularly as it pertains to global issues, but I have come to find much of what I thought I knew from the formalities of a state university I had to unlearn through much time and independent research. I hope you enjoy what I bring you which is not often heard in the mainstream news outlets. I would like to think my own personal editorializing is not only edifying but thought provoking while not at all obnoxious. That last one may be a hard to achieve.

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