The Present Banking Situation and What to Do About It
The Road to the Present
The bank bust of 1929 led to widespread distrust of the banking system. Eventually, citizens were forbidden to own gold, and their private stock was confiscated by the federal government as an emergency measure, and consolidated at Fort Knox 9where it remains to this day). Also, the dollar was taken off the gold standard domestically, though foreign governments and banks could redeem cash of gold.
In the same year, the federal deposit insurance corporation (FDIC) was created to restore public faith in banks. Member banks pay premiums to the FDIC, in exchange for which their customers' deposits are insured.
A series of other mishaps created and exacerbated the depression, foreign gold flowed into the states by countries previous to the second world war, and the attempt to fix international exchange rates without any reference to a gold standard led, in effect, to national bankruptcy, causing Nixon to take the UIS off the gold standard completely in 1971, giving the Fed limitless powers to inflate at will.
The Present Money Supply
Fundamentally, there is a great deal of argument over the very nature of the current monetary supply: between printed cash, deposits, notes, and various new forms of monetary instrument, it is completely unclear.
The crucial distinction among them is whether a claim can be withdrawn on demand, suggesting that cash that is frozen (in a six-month CD, for example) is not part of the money supply during the time it cannot be withdrawn.
This is not universally accepted, thus there are competing estimations of what the money supply actually is at any given moment, and how it is to be calculated.
How to Return to Sound Money
Rothbard argues that the following measures are needed to return to "sound" money supply:
- Return to the gold standard
- Abolish the Fed and return to free and competitive banking
- Separate government from money, once and for all to end the "pernicious and inflationary domination of the State"
- Enforce a 100% reserve requirement on banking
He goes further in suggesting a specific plan for doing so.