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If you particularly enjoy national debt, Huckabee is your guy. He's certain to give you plenty of it. Huck has a strong record of spending increases, and tax increases, in Arkansas. However, Huck realizes that he cannot win on a platform of tax increases, so he endorses the Fair Tax. Great! But the Fair Tax is a stranglehold, as is ANY tax cut, if it is not matched with spending cuts. Huck rarely if ever talks about spending cuts, and his track record in Arkansas demonstrates a socialist, big brother viewpoint of government. Bush has already increased the national debt from less than $3 trillion to nearly $10 trillion over 7 years. Its become so bad the DEMOCRATS are using a balanced budget as a campaign platform. Pathetic.

No GOP candidates are strong. I think Thompson has the best principles, though he's a dead-man walking as far as the election is considered. McCain, IMHO, is our best option (isn't that depressing??).

Well, I guess I'll have to explain myself further.

The reason for government the existence of certain tasks from which all citizens receive benefit but no individual or group of individuals would undertake because there is a strong incentive for the non-participants to free-ride. National defense and law enforcement are two such activities. I, along with an overwhelming number of economists, financiers, and executives, consider a central bank to be another.

To understand why the Fed is important, we should look at what caused it to be enacted in the first place. The Fed was established by the Federal Reserve Act of 1913 in response to the Panic of 1907, which was the fourth major banking panic in 34 years. Overspeculation in the stock market combined with banks' attempts to fight off the growing influence of trusts created a panic which saw the stock market plummet 50%. In turn, the public caused runs on nearly every New York banking trust. The banking runs created a huge disturbance in the ability of companies and people to obtain a loan. Congress threw some money towards the problem, but true disaster was averted when J.P. Morgan arranged funding for the faltering banks and purchased the falling stock of healthy corporations.

Banking panics affect more than just bankers. Financiers are very intelligent individuals and they know how to safeguard their money. If the threat of a banking run increases, they pass those costs on to borrowers. Although modern portfolio theory had not yet been prescribed (the theory that describes the tradeoff between risk and return; i.e. if the risk of a loan, or chance of default, increases, the lender will require a higher rate of return as compensation for bearing this greater risk), financiers implicitly understood the concept. We take for granted the ability to obtain cheap financing, but those of you who held a mortgage in the 1970's understand that it has not always been this way (though a major factor of those high rates was inflation). Banks achieve profit through lending out more money than they hold in reserves. Its basically a bet that depositors will not all simultaneously withdraw their funds. The more money they can lend out over their reserves, the greater their profit. More importantly, banks can now afford to provide loans at lower interest rates.

An example may help. Let's say you deposit $100 with me at 3% interest. I think that there is an 80% probability that you will withdraw these funds over the next 12 months, so based on this probability, I keep $80 in reserves and loan out the other $20. I will require a minimum of 15% interest ($3) just to break even. That does not include compensation for the possibility that the borrower defaults or any profit. Both are required, pushing that rate up closer to 25% or 30%. Now, think about this from a borrower perspective -- the borrower must be relatively certain that he/she can achieve a return of 25% or greater to take out the loan. How many entrepreneurs can achieve this return over just a few years? Most new businesses, if they don't fail (90% of new businesses do), only achieve this return 5+ years into the business. Rates this high prohibit most business ideas from coming to fruition. What if there was only a 20% probability that you needed those deposited funds? I can then loan $80 and require just 3.75% interest to break even. After adjusting for default risk, inflation, profit, etc., the rate may be 10%. That's quite a big difference from 25%!

Almost all bank runs are based on irrational fear of failure and, worse, are self-fulfilling. This was evident during the Northern Rock bank panic in the UK last year. The bank held sufficient reserves to avoid failure, but depositors, gripped by fear, lined down the road to withdraw their funds. Other depositors watched these events on the evening news and many more lined up the next day. As the number of withdrawals increased, the fear of failure increased, turning out still more depositors to withdrawal. It wasn't until the Bank of England guaranteed the deposits that the fear subsided.

What does this have to do with the Fed? The Fed serves as a source of confidence for depositors that their money is secure, and for lenders that they can withstand an irrational run on the bank.

Though he was unable to keep it from occurring in the first place, JP Morgan kept the Panic of 1907 from causing outright disaster. Unfortunately, there is no bank today that has the finances and clout that Morgan had to solve these crises. Without JPMorgan, the Panic of 1907 could very well have descended into a first great depression because banks would have been almost entirely unwilling to lend. Why would they lend if they thought their deposits would be withdrawn? Businesses that relied on debt (90%+ of all businesses) would have either defaulted on their debt because they could not refinance, or be forced to fire most employees to save cash. There is no JP Morgan that could stave off a banking crisis today, save one that has the backing of the United States government. The Federal Reserve rarely has to provide emergency funding to banks, yet their very presence provides such confidence and stability that rationality, not fear, can be the predominating force in financing.

Quick note before I run to church: note that the people hurt from high interest rates are not just financiers and corporate execs. Businesses themselves require affordable financing, and without it they cannot afford to hire workers. The most intelligent and hardest working businesspeople will find ways to make money. In the long run, it's the average Joe who is hurt the most through instability in the financial markets.

Philosophically, I don't like the idea of a central bank. Philosophically, I wish we didn't need a federal military and instead have a state-run militia. But both are unrealistic in the world we live in today.

There are a number of other functions of the Fed I didn't discuss for brevity's sake. The argument for the Fed and all its functions is complex and lengthy, and one that I just don't have time to present in full. I hope this at least begins to demonstrate, if nothing else, that the argument for/against the Fed is far, far more complex than Mr. Ron Paul wants you to believe.