That having been said, though, I sincerely hope (but do not really expect) that - at least in the second part - he might get around to answering my question. Essentially, what I'm wondering about is this:
Q: Do you believe that it is possible to make positive incremental changes to our monetary policy, entitlements, taxes, etc. within the system, or is it just a matter of waiting for failure and then coming in with a solution?I just don't see things happening this way. If gold and silver are allowed to act as currency alongside the dollar, the effect will be a collapse of the dollar. This is unless issuing policy for the dollar is rewritten to credibly ensure that the supply of dollars will increase no faster than the supply of gold and silver. This, in turn, would basically prevent the state from being able to protect bank depositors in the event of a financial crisis; and this, in turn, would bury banks. Which then prompts the question that I ask:
A: Yes, I do believe we can make successful changes. And I want to start making those changes now so that we can avoid a devastating collapse. But we need to start quickly before it’s too late. If we can cut spending and balance budgets, beginning with our overseas expenditures, we can do a lot to fix this mess. We also need monetary reform. I would begin with the incremental step of repealing legal-tender laws and legalizing the use of gold and silver to act as a currency alongside the dollar. That would help stabilize the dollar and strengthen our monetary system. [denis: my emphasis]
The way I understand it, one of Dr. Paul’s fundamental proposals is to deregulate currency, allowing people to use gold as they choose to, or whatever else they like. This renders an inflatable fiat currency non-viable, and provides the state with no way to support banks in rumor-based runs or in liquidity crises. This in turn leads to the Iceland effect, where banks go down not because they are insolvent, but because there is a run on them or because the market temporarily dries up.
The monetary policy that Dr. Paul is proposing would therefore make it foolish to put money in a bank, as any interest gained is likely to be outweighed by risk of the bank’s failure.
My question to Dr. Paul is as follows: is your opinion that banks are not fundamentally important to prosperity and growth? If they are not, then what is your opinion of the economists who say that banks are a crucial link between borrowers and savers?
On the other hand, if banks are important for GDP growth, then what system do you envision would replace banking, after your monetary policy has rendered bank deposits foolish, and banks prone to fail?
— denis bider