"To be sure, there are many different reasons why people voted against the bailout. The legislation did not regard in any meaningful way the plight of millions of Americans who are about to lose their homes. It did nothing to strengthen existing regulatory structures or impose new ones at the Securities and Exchange Commission and the Federal Reserve in order to protect investors. There were no direct protections for bank depositors. There was nothing to stop further speculation, which is what brought us into this mess in the first place.
"This was a bailout for some firms (and investors) on Wall Street, with the idea that in doing so there would be certain, unspecified, general benefits to the economy...
"Here is a very quick explanation of the $700 billion bailout within the context of the mechanics of our monetary and banking system:
"The taxpayers loan money to the banks. But the taxpayers do not have the money. So we have to borrow it from the banks to give it back to the banks. But the banks do not have the money to loan to the government. So they create it into existence (through a mechanism called fractional reserve) and then loan it to us, at interest, so we can then give it back to them.
"This is the system. This is the standard mechanism used to expand the money supply on a daily basis not a special one designed only for the '$700 billion' transaction. People will explain this to you in many different ways, but this is what it comes down to.
"The banks needed Congress' approval. Of course in this topsy turvy world, it is the banks which set the terms of the money they are borrowing from the taxpayers. And what do we get for this transaction? Long term debt enslavement of our country. We get to pay back to the banks trillions of dollars ($700 billion with compounded interest) and the banks give us their bad debt which they cull from everywhere in the world.
"Who could turn down a deal like this? I did.
"The globalization of the debt puts the United States in the position that in order to repay the money that we borrow from the banks (for the banks) we could be forced to accept International Monetary Fund dictates which involve cutting health, social security benefits and all other social spending in addition to reducing wages and exploiting our natural resources. This inevitably leads to a loss of economic, social and political freedom.
"Under the failed $700 billion bailout plan, Wall Street's profits are Wall Street's profits and Wall Street's losses are the taxpayers' losses. Profits are capitalized. Losses are socialized. We are at a teachable moment on matters of money and finance..."
He voted it down, and he was right, along with nine other Ohio Congressmen (seven of whom were Republican!)
What is the lesson of this "teachable moment"? That the only sure promise of long-term economic stability is to reintroduce a 100% reserve requirement in silver (and/or gold). This will force banks to adopt sound lending practices, because their survival will be on the line. It will result in a dollar that retains (if not increases) its value over time. Wages may remain steady, but productivity gains will benefit all of us. The precious metal naturally regulates the amount of money in circulation.
As Matt Cember wrote in March in this space:
"The way 'out' of this is not to increase bureaucracy, add government regulation, and give even more power to the Fed. The way 'out' of this is 'through' it: let it happen, learn from it, and pick up the pieces."
There is a great deal of pressure being placed on the Congress to act quickly. While there may be serious dislocations, it is much more important to the American people (and for that matter, to the people of the world!) that we get it right this time.
More from The Ohio Republic on the Federal Reserve Bank.