Why not promote some good old sane lending practices?

In December 1863, H. McCulloch, U.S. Comptroller of the Currency and later Secretary of the Treasury, wrote to all national banks. Here are some of the paragraphs.

“Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to encourage speculation. Give facilities only to legitimate and prudent transactions.

“Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank.

“If you doubt the propriety of discounting an offering, give the bank the benefit of the doubt and decline it. If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you. “Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime.

“The capital of a bank should be reality, not a fiction; and it should be owned by those who have money to lend, and not by borrowers.

“Pursue a straightforward, upright, legitimate banking business. ‘Splendid financing’ is not legitimate banking, and ‘splendid financiers’ in banking are generally either humbugs or rascals.”

Gamblers must not manage society’s saving. Central banks ought to institute qualifying psychological testing to bar bank leaders with gambling propensity from wheeling and dealing in customers’ deposits and shareholders equity.

Elie Elhadj; author: Experiments in Achieving Water and Food Self-Sufficiency in the Middle East

http://www.dissertation.com/book.php?method=ISBN&book=1581122985

Also:

http://journals.aol.com/eeh100/daring-opinion/

I remain stunned that the average Joe/Jane doesn't realize the following and its impact on our economy:

World Wide Military Expenditures

http://www.globalsecurity.org/military/world/spending.htm

Notice that the US is spending 10 TIMES more than China, the next largest spender.

The US military budget is more than twice that of All other countries combined.

1. United States $623 billion

2. China $65.0 billion

3. Russia $50.0 billion

4. France $45.0 billion

5. United Kingdom $42.8 billion

6. Japan $41.75 billion

7. Germany $35.1 billion

8. Italy $28.2 billion

9. South Korea $21.1 billion

10. India $19.0 billion

11. Saudi Arabia $18.0 billion

The 623 billion dollars comprises nearly half of the US total budget. Is this becoming clearer to y'all yet?

End the War in Iraq now...don't wait another year.

I think we should shift the focus of discussion from what Willaims Jennings Bryan said in the late 1800s and what President Wilson wanted in the early 1900s to what has actually happened, especially since early 2000, with the Fed "in charge".

The Achilles heel of any fiat monetary system is that is easy to inflate (devalue) the money supply by running the printing press; papering over bad debts and funding foreign misadventures with additional credit/cash created out of thin air. Kinda like the last seven years. It's only competence, discipline and ethics that prevent such occurrences. Elements seemly rarer than gold in Washington.

Instead of the "Gold is the enemy of the common man" meme with it's validity based on the political, social and economic context of over 100 years ago, why not look at what the common man is facing now?

- A "hedonic" CPI that many feel understates true inflation. Some have stated that inflation is understated by about %7. It sounds rather geeky to enumerate the changes to the CPI algorithm since the Carter Adminstration in the 70's, but Social Security payments would double if the original formula was used

- Questionable advice from Sir Alan Greenspan to finance homes with adjustable rate mortagages (ARMs), uttered at the end of a historic Fed easing cycle.

- The Fed holding interest rates at historic lows for three years. This helped fuel an asset inflation boom of epic proportions. Think housing bubble.

- Increasing lack of transparency at the Fed. The Fed stopped publishing M3 statistics that track the overall growth the of money supply last year. While the still published M2 statistic has held steady since then, recreated M3 is growing at 10% a year.

- China, Japan, OPEC, and others hold trillions of US debt that we, the tax payers are on the hook for. All created using Fiat money.

Gold may indeed be a barbarous relic, but I think we should all be really concerned about the US financial situation, and not just because a bottle of first growth Bordeaux is over $1,000.00. It's no suprise that gold is $750-$800 an ounce and the Euro is over $1.40 when you read the numbers. Ron Paul may not have the right solutions, but he's one of the few politicians willing to address this problem.

It's hard to see how the Fed and the Fiat money system has been working for me and other average Americans over the last 30 years. The days when the Fed took away the punch bowl when the party got interesting are over(*).

If the level of finacial literacy was only a little higher in the this country, there would be hell to pay!

some links:

www.shadowstats.com/cgi-bin/sgs

bigpicture.typepad.com/comments/2006/11/the_return_of_m.html

(*)William McChesney Martin, Jr.

Fed Chair 1951 to 1970,

"The job of the Federal Reserve is to take away the punch bowl just when the party starts getting interesting."

so I welcome any edifying responses. But I just don't get the argument that gold has any intrinsic value. Sure, fiat currency is a paper (or coin) representation of purely theoretical value. But what value does a bit of gold have? To springboard off the Roman coin/paper bills example in the post above, can one spend that Roman coin, or is it only liquid in coin collecting circles and a gold market? And correct me if I am wrong, but don't obsolete paper bills have value to collectors as well?

It seems to me that gold and silver only hold their reputations as precious metals because of an ancient reputation garnered from their rarity and utility in decorative arts. As with other rarities (fine art, baseball cards) their value doesn't have much to do with actual economic worth. They only remain valuable because a certain number of people believe them to be valuable.

I remain quite open to the fact that my understanding of economics is rudimentary, but from here at my starting point, I'm not buying the idea that a gold standard is anything more than a fiat system boiled down to a single commodity.