Tuesday, December 23, 2008
Exponential Theft
Tuesday, December 23, 2008 | 
Posted by
Chris Waner
Legend has it that a sixth century Asiatic sage and mathematician created a little game called Chaturanga, which consisted of a square board with 64 small squares (8 squares on the length and 8 on the width). This game caught on among the people and eventually found its way into the hands of the king. So enamored was the King with the game that he ordered that the sage be brought to him. The king praised the sage's accomplishment and offered the sage one gift of the sage's choosing. The sage refused, but the king persisted and demanded that the sage request a gift. The sage made a simple request: fill the first square on the game board with one grain of rice, the second square with two grains, the third square with 4 grains, the fourth with 8 grains, and so on until the board is full. The king marveled at such a modest gift and ordered that it be done as the sage requested. The first row of squares was filled, but as the second row began filling it it became obvious that the board would not hold all the rice. Bags were brought in, and as the 20th square was filled, the king was forced to give rice fields over to the sage. By the time the 30th square was filled all the rice in the land belonged to the sage. The king became furious and ordered the sage killed for his treachery and banned the game from the land. But the game only grew in popularity, and as it came to the west it became known by a different name, Chess. Had all 64 squares been filled, all the rice on earth for several decades would have belonged to the sage.As mathematician, Albert Bartlett, famously said:
The greatest shortcoming of the human race is our inability to understand the exponential function.
No truer statement was ever said. And our inability to perceive the exponential curve is used against us in a number of important ways. Lets create a simple example to examine the problem. Let's say the Government promises you a $100 raise per year for hard work. The first year you earn $100 dollars; the second year you earn $200 dollars; the third year, $300, and so on. The government informs you that it will keep inflation (the amount of money in the economy above and beyond assets--clothes, cars, houses, etc.) at a steady 2% increase per year, to keep the economy from getting out of control. This sounds pretty good and looks pretty good on paper too, at least for a while. However, something insidious has occurred. One quantity (income) has a linear growth while the other (inflation) has an exponential growth. The 2% inflation the first year will be $2 per $100; however, the second year it will be $2.40 per $100. What starts off as a very small increment becomes a big problem over time. Let's look what happens in this economy over 150 years. The red line on the chart below represents income while the green line represents the amount of newly printed money in the economy:
Each dollar in the economy that does not directly represent an asset (house, car, shoes, a company, whatever) in the economy makes every other dollar have less buying power (see my Inflation Tsunami article for a detailed explanation of this). The graph above, therefore, can also be viewed in another way. Instead, in our simple mock economy, the red line represents the rate that money comes into your account, and the green line represents the rate that money is leaving your account. If you've ever wondered why it seems that your standard of living is decreasing even as more and more money is coming in, you've discovered, intuitively, that your income is not keeping up with the cost of goods and services.
If this is what's happening in the economy in the US today, then why do we see that wages and inflation are more or less the same? How can I be experiencing these losses if the government statistics say that income is rising at the same rate as inflation (2.3% since 1967). The answer is that unlike our graph above everyone is not gaining at the same rate in the US. The rich are getting richer much fast than the poor are.
The rich are getting richer because they are exploiting the exponential system. They understand it and position themselves to benefit. How? By using what money they have to ensure that they get first access to the new money in the economy. If they spend the new money on investments, houses, cars, etc., then they are buying things at a lower price than you and me, who get the new money that they already spent. They build a house and pay a contractor, and the contractor pays me, the worker. The money is already aging. If you work at a retail shop or a restaurant, the money has already been filtered several times. By the time we get it, the market has adjusted and the prices are already higher.
The system is set up to make the rich richer and the poor saddled with more and more debt as they try to keep up with the increased cost of living. Who creates the money in this county? The banking and Federal Reserve System. This is yet another reason that it has to end.
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Saturday, December 13, 2008
The Fed Stranglehold: UPDATE
One aspect of the Federal Reserve system that I elected not to mention in my previous post is the role of Congress in the process of issuing new money. The reason for the omission is that in recent history the roll of the Congress has been largely for-show, as with the 4 trillion dollars in new bailout money this year.Technically, the Congress grants the Fed "permission" to print more money, usually for the purpose of funding some legislative spending that the congress doesn't want to levy as a tax (they don't want you having to worry your pretty little head about the details, and taxes draw too much attention).
This week a remarkable and I would have thought almost unthinkable thing happened. The Fed went before Congress to talk about the possibility of the Fed issuing its own debt. What does "issuing its own debt mean?" Traditionally, the treasury or other authorized institution issues a bond which the Fed purchases with money it prints out of thin air. This money then enters the economy, starting with the treasury or investment bank and then trickling down to the rest of us. Because the Fed is buying a bond, not just printing money, they charge us interest--see this article for a more detailed examination of this.
What the Fed now wants to do is issues its own bonds and then buy them with money printed out of nothing. What's the difference you may ask? A bid difference. Although the Fed previously was not accountable to the people directly, they were accountable to (though not willing to be audited by) the Congress, who is accountable to us. If the Congress gives the Fed the ability to issue its own debt, it is then finally no longer accountable to anyone whatsoever. The Fed would have full power to issue as much money as it wants any time it wants with no restrictions and no genuine oversight or ability to adequately measure the amount of money being pumped into the economy.
This is a takeover, folks. I urge everyone who reads this to go to this site, which guides you through the very simple process of emailing your congressional representative. All you have to do is pick which state you live in, enter your name and address, and copy and paste the message below into the form (Note: to copy simply select the message below and go to Edit/Copy then to paste simply click in the message portion of the form and go to Edit/Paste, that's it):
I am writing to express my opposition to the Federal Reserve's issuance of dept. I implore you to adhere to the strict limitations placed on the Federal Reserve in the 1913 Federal Reserve Act, which requires Congressional oversight of all issuance of currency. Allowing the Federal Reserve to issue its own dept represents a serious threat to the proper checks and balances laid out in the US Constitution in Article 1, Section 8, which states:
"The Congress shall have Power to . . . coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures . . . ."
I urge you to look carefully at the Federal Reserve's proposal before Congress and uphold your sworn duty to protect the US Constitution. These are the kinds of grave issues I carefully weigh when entering a vote for Representative for my state.
Thank you for your full consideration.
Thursday, December 11, 2008
The Fed Stranglehold
Over the last 95 years the Federal Reserve's power over the economy has become virtually absolute. Once we have a basic understanding of the Fed's fraud against the American people, see this article, we can begin to examine how this power is becoming increasingly complete.The US economy was one of the most vibrant and complex in the world. As of the turn of the 20th century, our economy was riding high on the gold standard. Gold is a commodity that has remained relatively fixed in price to the inflation-adjusted dollar for quite some time, at least since the early 19th century. So long as the dollar is pinned to a commodity like gold, the value and quantity of dollars in the market remains relatively stable.
This is a serious problem for the central bankers who want to make large sums of money by controlling the currency. Under a gold standard or, even better, a mixed commodity standard: copper, nickel, silver, gold, and platinum, the bankers must have the majority of the world's supply of these metals in order to have a major influence over the value of the dollar. This is difficult in the extreme--infinitely more difficult than issuing paper currency because fixing the value of the currency under a commodity standard requires limiting the supply. The Fed and the international bankers have worked hard to avoid a gold standard and especially a mixed commodity standard. And in 1933 they succeeded when FDR, at the behest of the Fed, took us off the gold standard and put us on a fiat currency--a currency which has value because the government says you must use it.
When this happened, the value of the dollar was no longer controlled by a commodity resistant to mass production--like gold or silver, but was now purely controlled by the quantity of paper money and the demand for that money. FDR made domestic demand for the paper dollar 100% when he made it illegal to use anything but the dollar as money.
The result is that now the only factor which determines the value of the dollar is the quantity of dollars in the market. And who is in absolute control of the quantity of money? The Fed and the international bankers controlling the Fed. Truly, the fewer factors that influence the value of money, the easier it is to control. And the other factors have been systematically eliminated.
The only remaining factors working against the Fed's absolute control is an informed public watching the economic statistics. Please don't get bogged down in these terms; I'm including the definitions because they might help clarify their importance. There are many economic/monetary indicators, but three of the biggest are the Consumer Price Index, the M3, and the Money of Zero Maturity. The Consumer Price Index (CPI) is a survey of products compared over time to determine whether monetary inflation is occurring--to determine if the buying power of the dollar is dropping. The M3 indicates how much money the Fed has directed into the economy (printed) because this stat includes long term capital investment holdings like bank reserves, derivatives, money held in foreign banks, and large donation ($100,000 or more)--it keeps track of what the big money players like bankers are doing with their money. The Money of Zero Maturity (MZM) is money immediately or almost immediately available for withdrawal, like checking and savings accounts, mutual funds, etc.
Now even these available statistics are under attack. As of March 23, 2006 the Fed/US government has stopped publishing the M3 numbers, claiming that it is largely irrelevant. If they are irrelevant, then why not publish them and let the public decide how relevant they are. In my opinion something fishy is going on here.
Walter Williams, economics professor at George Mason University, has documented proof that the Fed and the US government are cooking the books with regard to CPI (and other key indicators for that matter, including unemployment numbers) by subtly changing the year by year product comparisons; the CPI is becoming increasingly irrelevant because year by year comparisons are no longer comparing apples to apples but apples to oranges [source].
I have no proof that the MZM has been tampered with, and by all measures it is a better indicator of inflation than CPI; but Bernanke, the Fed chairman, has said under oath before Congress that the Fed will take no monetary inflation indicator into account except for the CPI, and as I just mentioned the government is actively cooking those books.
I don't know how to put this softly; we're in trouble. Our monetary system is outside the control of the people and largely even the federal government. The Fed has a stranglehold on the quantity of money, and the government won't allow competitive currencies into the market. The dollar is forced on us, and now even the information about the dollar that is supposed to be available to the public and make everyone accountable is becoming contaminated, ignored, or removed all together. It's time to get educated. Tell people around you what's happening. Point them to good sources of information. Get them interested. Compel them to take an active roll. Contact your Congress person. Make your voices heard. Something's going down, so keep your eyes open.
Wednesday, December 10, 2008
Good Government is a Myth, Part 2: Government Employment
This week Obama again emphasized his goal to stimulate the economy. His plan, simply put, is job creation. How does he plan to get people back to work? By implementing two techniques: job training and public works projects.No one denies the value of education in promoting long-term employment; but as a short term goal, it makes little sense for most people. The job lost today is needed today, but training takes not only time but also money. Foregoing employment puts a great stress on families of the unemployed, especially when the cost of education is so outrageously high. For most people, education means less money coming in and also going into debt to pay for it. Americans are already strapped with debt. To help, Obama is promising tax relief.
Tax relief is an unbelievable claim given part two of his get-back-to-work initiative: public works projects, which can only properly be paid for with taxes. Obama plans to employ workers on the Federal, State, and local level in various infrastructure projects like laying roads, building bridges and schools, as well as beautification projects. Where will all the money for this come from?
Surely, one of the great myths about government is that it can employ people for the betterment of the economy or in this way help the economy through tough times. Henry Hazlitt perhaps said it best:
Every dollar of government spending must be raised through a dollar of taxation . . . the bridge has to be paid out of taxes . . . Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else . . . All that has happened, at best, is that there has been a diversion of jobs because of the project. [source]
The government cannot spend a single dollar which does not have some negative effect on the economy. Truly, we put up with much in the hope that everyone will be better off, but such faith is largely misplaced. I've said before, using tax dollars to pay workers is like eating your stomach to stave off starvation; it's shortsighted and ruinous. In addition to the chronic inefficiency (see this article), the taxation and/or printing of money to expand public works sends damaging waves through the economy.
Money pulled out of the free and open market means that you and I, and the companies we own or work for, have less money to work with. And these public works projects are particularly bad because they inevitably go over budget, which requires money that was not budgeted for. That volatility in the market is horrible for business because companies are forced to be cautious as they see an ever-increasing number of unknown variables in the market--variables like confiscatory tax rates, government competition for what would normally be private sector jobs, and, as we'll see, the prospect of inflation.
The worst part of it is that, in truth, Obama has no intention of significantly raising taxes to pay for education or for paying workers to carry out public works projects. He plans on letting Congress issue treasury bonds so that the Fed will simply print the money needed. If it can be imagined, this is worse than taxation. Unlike taxation, which is somewhat out-in-the-open (even if much of the taxation is designed to be subtle, the information about the tax is readily available if one cares to look), the Fed promotes a largely invisible "inflation" tax that occurs when too much money floods the market, making each dollar worth less. The money printed from nothing is inefficiently used, sends false signals into the economy because the money isn't "real," and causes inflation.
The fact is that this recession is the best thing for the economy. The natural laws of free-market economics are in the process of correcting the current financial disaster, putting the unemployed in jobs that are actually needed in the economy, readjusting all the mal-investment, encouraging savings instead of run-away consumer debt. The medicine doesn't necessarily taste good, nor does it work immediately, but it does begin working immediately, and, honestly, it's the only thing that will actually fix the problem.
Monday, December 8, 2008
The Federal Reserve Scam Made Simple
The Federal Reserve (Fed) is the source of all money in the United States. However, don't be mistaken. The Fed is not a federal government institution; rather, it is privately owned bank whose primary shareholders are the London Rothschild family, Warburg family, Rockefeller family, Morgan family, Harriman family, Kuhn and Loeb families, the Lehman family, and the Schiff family. Neither does the Fed simply issue money into the economy; they loan money to us at interest. Where does the Fed get the money to fund the entire US economy? They simply print it out of thin air. Each dollar in your pocket is a dollar of debt to the Fed; the quantity of the debt is not only the value of the dollar but also the additional interest to be paid to these bankers for the trouble they go through in turning on a printing press.Here's how the scam works. The government or certified dealer, like an investment bank, issues a bond. The Fed buys the bond not with money it has in reserve, but with money it prints from nothing. This money is deposited into the bank account of the institution that issued the bond.
The commercial or investment bank that now has this newly printed money as a deposit on its books uses what is called Fractional Reserve Banking, simply the ability to loan out more money than you have, to create 100 times as much money in the form of loans or debt in the US economy. I can't make this process clear enough. It is crucial that each person understand the process: the Fed prints money out of thin air to buy bonds. The new money is deposited into the account of the person who sold the Fed the bond. Then the bank that has the Fed's new money loans out up to 100 times that amount of money to private citizens.
Lets look at a simple example. A bank issues a $1000 dollar bond. The Fed buys that bond for $1000 with money it printed out of thin air. Since that $1000 dollars was purchased from a bank, that money now exists in the banks holdings as a deposit. Now the bank loans out 100 times as much money as it has in reserve, which is $1000. So the bank loans to private citizens $100,000 for every $1000 that it has on hand. (Note: This is a slightly more complicated process that I'll cover in detail in an upcoming article about the 1/10 reserve requirement and the 9/10th deposit loan requirement).
The money from these bank loans go to fund private purchases like houses and cars as well as businesses and business expenses. It eventually works its way into everyone's pockets.
But it comes at a price. The international bankers require interest for the money they printed out of nothing and loaned to us. How do we pay for it? Are you ready for this? Our Federal Income Tax. That's right, your income taxes are not paying for roads or schools; it's not going to the poor or for Medicare or Medicaid; it's not helping out with Social Security or investing in clean energy or anything else beneficial to the American citizens. No, a report ordered by President Reagan in 1984 declared the unbelievable truth. Not a single cent of our income tax goes to anything at all except paying interest to the international bankers who own the Federal Reserve, and they didn't even loan us their own money; they just printed it, counterfeited it. And we pay through the nose at a staggering rate of more that $36,000,000 per hour.
Our money is debt, plain and simple--debt to the Fed and the international bankers. Can we every pay off the debt? If we gave every cent and sold or gave everything we own to them, we would likely only cover the principle and still owe much or all of the interest. The answer is, no. To do so would be bankruptcy and poverty for every man, woman, and child. Every dollar we have is a dollar plus interest of debt to first the commercial and investment bankers and then to the Fed.
This is the grandest fraud in the history of the world, and we're the ones who are the victims. History will look shamefully on us, and rightfully so. And it continues for two reasons. The first reason is that American citizens remain ignorant. If the average citizen knew the awful truth, knew that they and their children were being sold into slavery as a debtor nation, there would be revolt. Indeed, education is exactly why I'm writing this article. The second reason, is that Congress loves having a virtually unlimited supply of money because they can content their constituents with subsidies, goodies, entitlements, and handouts that the people don't pay for in taxes. Congress' ability to contribute public works without raising taxes is what keeps many of them in power.
Make no mistake about it. Congressional power is a puppet power of the real power that is the Federal Reserve and the international bankers. Congress is selling us into slavery for their own benefit. Some don't know the truth and only understand how to work the system. Others work the system because they know how the system works. Each American citizen, and, in fact, people all over the world need to know how the worldwide network of reserve banks is destroying lives for their own gain.
The true irony is that it could all be stopped tomorrow. The congress with one stroke could abolish the Fed and the Sixteenth Amendment, which allowed for the Federal Income Tax, and simply cancel the debt to the Fed. The money they loaned was not their money to begin with. And we could begin building a system based on sound, debt free money.
Share this article with others or point them to the information they need to make sound judgments. Write your congress person and senators, and encourage others to do the same. Let's abolish the Fed together. It's time to make a difference.
Wednesday, December 3, 2008
The General Welfare Clause Made Powerless
Since the ratification of the US Constitution, one of the most-used and misrepresented clauses has been the General Welfare Clause, found in Article 1, Section 8 of the US Constitution:The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States. . .
The rest of Article 1, Section 8 goes on to innumerate the specific powers granted to the legislative branch of the Federal government, and I encourage you to read it in its entirety here. It remains truly unfortunate for the American people that this clause remains in the law of the land because of the widespread potential for misinterpretation. And misinterpreted it has most surely been.
Many of the most egregious violations of the Constitution and the American people have been born out of the fundamental misunderstanding of this clause, not the least of which are the departments of Health, Homeland Security, Housing, Labor, Interior, and Transportation; agencies such as the FCC, EPA, FDA, and the FAA, and laws and programs such as welfare, social security, minimum wage, medicare, medicaid, etc. I could continue at some length. Each of these have used this clause in some way to springboard to a position of full Federal control--all in the name of "general welfare."
Such government expansion has not gone unchallenged either in Congress or in common discourse among American citizens. I have been in many conversations where the general welfare clause has been used to bolster the argument in favor of government expansion. I have argued that the aforementioned interpretation of that clause is not in keeping with the intentions of the founders. To which , almost to a fault, I receive the droning sound of the subjectivist's mantra: it is impossible to determine the original intent of the founders.
As much as many would like to believe that the Constitution is best interpreted by post-modern deconstructionists and philosophical relativists, original intent in the Constitution can be known because the original intent was explicitly spelled out in the Federalist and Anti-Federalist Papers.
So what do we learn from these writings? What we find is that, remarkably, there is unanimous agreement from both the Federalists and the Anti-Federalists. Their views are summarized in a speech given by Shawn O'Connor of the Free Enterprise Society:
Hamilton and Madison . . . re-state that if the general welfare clause conveyed absolute power to the government, why would they go on to list the specific powers they were going to grant the government. That wouldn't make any sense at all if they were going to give absolute power to the government. It was finally conceded by all at the convention that the general welfare clause conveyed absolutely no power to the government.
In other words, not even Hamilton, the staunchest of big-government proponents, viewed the general welfare clause to be anything other than an introductory statement to Section 8, later to be clarified and defined by the subsequent clauses in that Section.
We know original intent because original intent is explicitly stated in the Federalist and Anti-Federalist Papers, written by the very hands which inserted the general welfare clause into the US Constitution. We are forced to conclude, therefore, that the founders' intent was not to present an opportunity for government to expand by means a general and ill-defined clause, but rather that the general welfare of American citizens is best served when the strict limits in Article 1, Section 8 are placed on government. Objective readers must conclude that the general welfare clause cannot be used to defend the current size and scope of the Federal government. Further, if no Constitutional provision can be provided in support of far-reaching jurisdiction, then the government, as it stands today, is over-reaching and is in violation of the law of the land.
Monday, December 1, 2008
Good Government is a Myth, Part 1: Efficiency
I will take as a given that the private sector, even with excessive government intervention by way of subsidies, price controls, taxes, and tariffs, is more efficient than government could ever dream of being. Not only do I consider government inefficiency to be generally agreed upon by most Americans, but when I encounter individuals who disagree with this premise, I'm usually completely satisfied in proving the point by asking him or her to simply name any government department or agency that they believe stands as a model of efficiency. Indeed, Social Security is bankrupt, Medicare and Medicaid are vastly overextended along with the other entitlement programs, our public education system slips further behind the rest of the world every year; not even the IRS can claim success as literally billions of dollars go uncollected each year (though I can't think of a better use of inefficiency than that).Surely, if only the government would contract private industry they could be a slick, modern institution of efficiency. Well, not so fast. The numbers are in, and they don't look good. Since Bush took office in 2001, governmental private sector contracts for everything from mowing the lawn to missile defense have more than doubled. Surely, efficiency in those areas has also doubled, right? Not even close. In fact, representative for the US Government Accountability Office, Schinasi says,
[Officials] can't answer the most basic questions about what the companies are doing--including how many contractors have done a good job or bad job, and whether or not they have saved taxpayers' money. [Source]
How can this be? The efficiencies of the private sector should translate into greater efficiencies in government as well. Unfortunately for Ronald Reagan (the ardent promoter of private government contracts), Bill Clinton (who raised the bar by claiming that the era of big government was over), and George W. Bush (who has all but perfected the art) the situation is not that simple.
During the 2008 presidential campaign we repeatedly heard Obama talk about giving more aide to programs that are succeeding and getting rid of those that don't work. We should look extremely skeptically on such claims, not because they are insincere, but because there is no rational measuring stick for efficiency except that which arises naturally out of the competitive free market, where prices are determined based on the relationship between the scarcity of the good or service and the industry-wide demand for that good or service. I cannot emphasize this point clearly enough. No one anywhere, no matter how brilliant or well educated can accurately determine the price of anything. The only means of determining the price is by comparing how plentiful something is with how in-demand it is. And the only system that can accomplish this task is the free market. This is not a matter of opinion, it is an immutable law, like gravity. Every other measure of price, no matter how well intended or informed, is arbitrary and, therefore, inefficient by its very nature.
The truth is that government is the sixth toe on the global foot, adding very little but is usually an eyesore and, more often than not, gets in the way. Economies thrive as competition forces companies to produce the highest quality product at the lowest possible price in order to win the largest sector of the consumer market. Government faces no competition, however, so all other proceeding considerations quickly become irrelevant. As a consequence, private contractors go unsupervised, invoices go unchecked, results go un-analyzed, and the problems further explode as sweetheart deals are given to friends, family, and associates of government officials.
How does Obama plan to fix the problem? By promising to and eventually reducing the number of private contracts.[Source] This swings the pendulum the other way, but it fails once again to address the fundamental issue: that true efficiency can only be attained in the free and open market.
If government left to itself is utterly inefficient and government in cooperation with the private sector is equally inefficient, what should be done? How about we follow the Constitution. There is no provision whatsoever in the US Constitution that provides for the departments of Agriculture, Commerce, Education, Energy, Homeland Security, Housing, Health, Interior, Labor, Mining, Transportation, or any of their myriad agencies including the IRS monster. The following departments should be left standing: Defense, Justice, State, and Treasury. The evaporation and privatization of all of these departments and associated agencies would leave the government only one fifth its current size. [Source]
The privatization would be a boon to free enterprise, be subject to market competition, and be more efficient as the incentive to provide the highest quality product or service at the lowest possible price drove down operating costs while maximizing the so called bang-for-the-buck. Further, smaller government would require fewer taxes or possibly no taxes at all. Look for proof of this claim in an upcoming article. Even if taxes were merely reduced, the extra money in the hands of consumers would benefit nearly every person in the country.
We are forced to conclude that efficiency and government are incompatible terms. Every government action is an unnatural imposition on progress. The most efficient government, therefore, is the smallest government.
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