June 15, 2009
Velocity Proves You Have Power
By Jim Babka

Quote of the Day: "Those who predict price inflation believe that the money multiplier [velocity] will turn upward again. They just don't know when. Those who predict price deflation believe that the money multiplier will not turn upward again... I am in the inflationist camp. But until I see a sustained reversal [from down to up] of the money multiplier, I will continue to predict relatively stable consumer prices." - Gary North

Subject: The Federal Reserve might be powerful, but velocity proves YOU hold some of the cards

When speaking of monetary policy, do you know what velocity is?

It's the speed at which dollar bills are spent -- change hands.

They're moving slow. That has a lot people bandying around the word, "deflation."

It doesn't make sense. As we've reported on several occasions, including the June 5th Downsizer-Dispatch, the Federal Reserve Bank (the FED) is counterfeiting at record levels -- doubling the entire money supply in less than twelve months.

That's inflation. So why aren't prices exploding -- increasing by 10%, 20%, 50%, or more?

The answer is found in velocity. All that new money just isn't moving.

* You, the consumer, aren't spending as much. Most of you are paying off your debts and reducing your spending -- probably because of a loss of overtime, if not the threat or the actual loss of a job.

* And business owners aren't borrowing as much, neither are banks as prone to lend. Both are waiting, forgoing growth and profits in favor of security.   

The concept of velocity is a reminder of two very important things...

1. The federal government, the Federal Reserve, the media, whatever -- all may be powerful, but you have more control than you may realize. The revolutionary act of paying off your debts, and of simply reducing your borrowing, dis-empowers the Money Monsters and their Infamous Counterfeiting Machine.

2. The key to the central banker's power is their monopoly control of what we use for currency. If they couldn't "print" more money (a euphemistic "catch-all" for their money creation methods), they would have much more limited ability to bailout and stimulate. Once we grasp that, we can craft the best strategy to pursue.

At Downsize DC we believe that in every situation there is a lever. Archimedes suggested that if he had a lever long enough, and a place to stand, he could move the entire Earth.

Consistent with that principle... 

* We seek to Downsize DC by slowing Congress down, and making them a deliberative body, through our Read the Bills Act and the One Subject at a Time Act. These ideas are levers.

* We also demand that Congress quit their un-Constitutional delegation of legislative power to the Executive Branch by passing our Write the Laws Act. This too is a lever.

* And in the instance of monetary policy, we recognize that ending the Fed's monopoly control of what we use for money is also a lever.

Many DC Downsizers would like to End the FED. People have constantly asked us to tackle this issue, but no one had a plan. Money and banking are quite complicated. I would explain the lever principle to them, and then ask these thinking people, "What's the lever in this situation?" The reactions were stunning.

* Some became agitated. They suggested we weren't really serious about shrinking government.

* Others were simply confused. "Why are you talking about levers? We should be talking about killing this corrupt institution." 

Hoorah, and all that... But that line of reasoning made as much sense as taking on an armed battery with butter knives.

Then, one day, we were given the answer, by a thinking DC Downsizer Joe Cobb. It was simple:

Break the legal tender monopoly, and make it possible for gold and silver to compete.

Gresham's Law essentially states that, under a legal tender law that forces people to use a particular form of money, "Bad money drives out good money." People will hoard the valuable stuff, and spend the rapidly depreciating stuff. That's why governments attempt to make it illegal to use alternative methods of payment.

They want to force you to use their garbage currency. They do this through legal tender laws.

But a curious thing happens in the absence of legal tender laws. Rational actors in an economy will do all they can to obtain sounder means of exchange, and when selling, they will tend to reject garbage currencies.

In other words, on a level playing field, Federal Reserve Units of Accounting, Dollars (FRAUDs!), would lose considerable market share. Gresham's Law goes into reverse -- the good money would drive out the bad money!

And the collapse of FRAUDs would be the virtual undoing of the FED. Call it a "defanging." 

Remember, you have great power as a consumer! Just as you can choose to spend or not spend, thereby reducing the impact of the Fed's counterfeiting, in the absence of legal tender laws you could choose to accept or reject FRAUDs. 

Three bills would empower YOU to choose what you want to use for money, thereby dis-empowering Big Government and allowing a competitive currency to emerge:

* The "Honest Money Act" would repeal the legal tender law, which gives the Federal Reserve a monopoly over the money supply.

* The "Free Competition in Currency Act" would repeal part of the U.S. Code which gives the United States government a monopoly over the creation of coins for use as currency.

* The "Tax-Free Gold Act" would prohibit federal and state taxes on precious metal coins and bullion.
These bills were introduced by Representative Ron Paul in the last Congress. THEY ARE THE VERY BEST WAY TO DEFANG THE FED. For the life of us, we can't understand why Mr. Paul hasn't yet reintroduced these bills (which should be joined into one bill).

If you've supported his campaigns or you live in his district, please call him and ask. His DC office number is (202) 225-2831.

Everyone reading this should send a message to their two Senators and Representative asking that these three proposals be introduced in a combined bill. And we've made that action simple and free using our Educate the Powerful System at

Remember, you have more power than you realize. And the Downsize DC lever grows longer as we send more messages than the 36,512 messages we sent last month. To keep pace, we need to send 1,575 messages to Congress today.

And it would also help lengthen the lever if you'd go to the blog and Digg this Dispatch, and then use Digg's buttons to post it to your Twitter or Facebook page.

Thank you for being a DC Downsizer,

Jim Babka, President, Inc. 

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