Now here's a sensible approach!

An Austrian Bailout Plan

by Mark Thornton

Austrian Bailout Package--Part A

1. Suspend Basil II regulations (to at least 4/2/09)
2. Cancel FDIC insurance on all demand deposits after 1/1/09.
3. Increase FDIC premiums on short term time deposits of less than one year.
4. Make interest earned (starting 1/1/09) on bank time deposits and non-governmental, non-agency, and non-authority bonds tax free (not demand deposits and MMMF).
5. Convert Fannie Mae and Freddie Mac's status from conservatorship into receivership.
6. Convert AIG's status from government owned to receivership.
7. Cancel the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF) at the end of the announced program (January 30, 2009).
8. Announce that the Federal Funds rate will be allowed to "float" at market rates starting January 30, 2009.
9. Announce that the Federal budget will be prorated beginning with the fiscal year starting 10/1/08 including all defense spending and transfer payments.
10. Restore constitutional monetary status to gold and silver to act as an alternative medium of exchange (no capital gains taxes).

3. Surely the Austrian solutiion is to abolish the FDIC. Bank deposits can be insured on the market, or, more likely, option clauses can be introduced into free market note issue, when the Fed is abolished and free banking replaces the current highly regulated commercial banking industry.

8. What does it mean for the Fed-funds rate to float? It's like the monetarist fallacy that exchange rates should be allowed to float (as opposed to being fixed). The correct view is not fix vs. float, but monetary freedom and free market money vs. monetary policy and central banking. The supply of money, as well as the demand for it, should be determined on the market, not by central banks. That means free banking, freedom of note issue, etc. Bye bye fed-funds. No more Comptroller of the Currency either. Bye bye.

10. Re: the gold standard, governments hated it because it put a natural break on fiscal expansion and the growth of the State, as Schumpeter pointed out. Support for the gold standard should be subordinated to support for free banking,in my view, because the latter is fundamentally more important to the efficient working of a free market. The Mises Institute always enshrines the gold standard above any other monetary consideration. A better approach would be to favor free banking; gold's role in a free market monetary system would then fall into place and be subordinate to free banking and freedom of note issue. Of course, they have a wrong-headed and ahistorical opposition to fractional reserve banking and free banking, so it's unlikely they'll ever see the link between the two or realize that in order to have a real gold standard we should have free banking too.

Not to mention that all the gold and silver in the world put together are a fraction of the value of all currency currently in circulation.

Lonnie--any amount of money is optimal.

any amount of money is optimal.

Absolute nonsense. The value of a gold coin would rise far above the actual use value of gold, thus giving a situation very similar to our current one, where we have a piece of paper whose use value is but a fraction of the face value of the bill.

I understand many of the arguments for having money backed by actual commodities, but I don't understand why one would want to use only gold or silver.

Kid: see George Reisman, A GOLD STANDARD TODAY. Or, chs. 19-20, et pass., of his Capitalism treatise. 'Nuff said.

Stephan:

(1) Too complicated.

(2) The value of gold in paper dollars is at times unrelated to inflation, or may be more affected by inflation. Thus, while the gold dollar may be a better indicator of inflation and may raise the questions that George Reisman raised, even with zero inflation the value of the gold dollar and the paper dollar would almost certainly vary.

Oh, I misunderstood. I thought you were arguing for a commodity-backed currency, but you are just trying to fix the value of the dollar. For that we don't need any gold standard. Just set up very strict regulations of how much new money may be created each year.

Lonnie, see also the panel "The Transition to Sound Money" at the Mises Institute's Austrian Scholars Conference earlier this year.

The Federal Government, in its efforts to bail out the top mortgage firms Fannie Mae and Freddie Mac, made fast payday loans to both of those companies to keep them out of bankruptcy, and to recapitalize them so they can resume business. As a result of being bailed out by the Treasury Department, the House Oversight Committee demanded a session with former executives and other employees of the firms to determine just how the two lending giants wound up that way in the first place. The former execs of the companies insisted that they believed they were doing the right thing in investing the company into sub prime mortgages, after senior risk managers had advised them not to do so. See, the way it works is that these companies bought other people's debt, the intended result being that it guaranteed income from mortgage payments. The thing is that the debt that they purchased, were mortgages lent to people who wouldn't have qualified for a loan under normal circumstances. Once the credit bubble burst, they raised the interest rates, and many of these sub prime mortgages fell into default when the borrowers stopped paying the mortgage bills. Once the income stream was lost, both firms began to unravel and slip off the ledge. House Oversight Committee Chair Henry Waxman decried those actions of the executives as irresponsible. Let this be a lesson to all of us: if we think an investment is too good to be true, it probably is. Proper budgeting and security is vital, and those of us who aren't large national lenders should do well to remember it also, and if we get hit with a sudden drop because of a sudden expense, we can get fast payday loans to bail us out.

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FDIC Chairwoman Sheila Bair doesn't want to have to ask the Treasury for another line of credit. Apparently, Bair and Treasury Secretary Timothy Geithner aren't on great terms, so you can imagine how such a thing would go over as well as a meeting between a polecat and a gerbil farm.While no consensus has been reached yet on what direction the FDIC will go, expect a decision soon. Calling for banks to prepay their 2010 premiums is another idea, but let's hope the country is out of the recession spiral by then. If it isn't, we'll need more than payday loan lenders to fix our financial problems. We'll need body armor.It would appear that the FDIC is in need of payday loan lenders these days. Maybe they'll need something even stronger.

FDIC Chairwoman Sheila Bair doesn't want to have to ask the Treasury for another line of credit. Apparently, Bair and Treasury Secretary Timothy Geithner aren't on great terms, so you can imagine how such a thing would go over as well as a meeting between a polecat and a gerbil farm.While no consensus has been reached yet on what direction the FDIC will go, expect a decision soon. Calling for banks to prepay their 2010 premiums is another idea, but let's hope the country is out of the recession spiral by then. If it isn't, we'll need more than payday loan lenders to fix our financial problems. We'll need body armor.It would appear that the FDIC is in need of payday loan lenders these days. Maybe they'll need something even stronger.