Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Tuesday, January 20, 2009
Confiscation of America, a Road Map: Overview
Tuesday, January 20, 2009 | 
Posted by
Chris Waner
Between July 4th, 1776 and December 23, 1913 the US was embroiled in no less than five major wars. But the defining war, the war that most characterized the battle for freedom and liberty in the land thereof has been largely omitted from the history books. It remains the longest running war in US history, lasting over 130 years. The balance of power shifted no less than seven times, as an international chess game played out between principled American citizens in the highest elected offices and international financiers. Winning this war meant freedom and prosperity for every American, losing meant nothing less than slavery. On its surface this was the war against "the Bank," but more accurately it was against global totalitarianism, and prior to 1913 this war and every other was largely nothing more than a continuation of the one and only war this country had ever fought--the Revolutionary War, the war for our freedom. Unknowingly the United States became a slave nation with the stroke of the Congressional pen on December 23, 1913. Remarkably its citizens remain ignorant to this day. But the awareness in creeping in slowly. The truth is like a living thing: it wants to be known, and those who have tried desperately to obfuscate our bondage and even the existence of the war itself strive desperately to keep the curtain drawn. The articles which follow detail not the war itself, though the history of it is filled with many victories and many heroes, but, rather, these articles detail the final battle, the subsequent plundering of the American people, the dividing of the spoils of the war, and the road to our postmodern slaver; simply put, the articles which follow provide proof for and are an historical account of the confiscation of America.
Labels:
Friday, January 9, 2009
The 2008 Credit Crunch Swindle
The 2008 credit market statistics are out and the results prove just how much the government and banking interests control the game. Robert Higgs, Senior Fellow in Political Economy for the Independent Institute and editor of The Independent Review, writing for mises.org, has called the 2008 credit crunch a hoax. He points out that the statistics show that at no time was there a net decline in the credit market in 2008 but only a brief plateau in mid 2008. What does this mean? That means that we are trillions of dollars further in debt because Bernanke, Paulson, Bush, and the big banking interests were faking it.
But faking it to what end. Well let's look at what happened. The Federal Reserve (the Fed) has purchased hundreds of billions of dollars in Treasury Bonds with money that they printed out of thin air that the American citizens have to pay back with interest to the Fed's shareholders--international bankers--money which they will have less of because of the dramatic inflation caused by printing 1.4 trillion dollars. Treasury Secretary Paulson sold the idea into Congress as a means of buying toxic assets, but instead he used the first half of the money to give bankers big bonuses, buy stock in the banks, and enlarge the size and scope of the federal government. The second half of the money he has ordered to be released, but refuses to tell us where it's going or how it's going to be spent, calling disclosure "unproductive."
If that wasn't enough, major land shifts are underway in the banking community. Just as in 1907, 1919, 1929, 1971, and 1984 a massive consolidation of banking is happening right under our noses. Institutions are being systematically bankrupted, and who is waiting in the wings but even larger banks aided and abetted by the federal government. These Goliaths are buying up the defunct banks, companies, houses, cars, and assets of all kinds. The result is that now fewer and fewer people own more and more of the nations wealth. This is the business cycle at work. Unfortunately, that's just the economic impact. As Higgs writes:
The beauty of the Great Hoax of 2008, from the perspective of the ruling class, is that is was also a Great Scare, and such scares invariably serve as pretexts for the rulers' most audacious assaults on the peasants' lives, liberties, and purses.
What can we expect to see? More of what we've experienced over the last few months: inflationary spending, more regulation, more taxation (yes, a tax was levied to help pay for the bailouts), more government ownership in corporations, more multinational corporations in bed with big government, more lies, more deceit, more corruption, more money, freedom, and liberty for them, and a whole lot less for you and me.
Tuesday, January 6, 2009
The Business Cycle Theft
For more than 50 years the media, political pundits of both parties, and well-placed academics have portrayed the rise and fall (good times to bad times) of the US and world economies as a natural phenomenon, occurring as investment stochastically flows into promising areas and then on to new investment horizons. Nothing could be further from the truth.Rather, the business cycle or boom-bust cycle, as it is called, is a carefully orchestrated contrivance of the banking and central banking cabal. It is designed to build confidence in a false market, lure investors and borrowers in, and then collapse the pseudo-market in order to confiscate wealth from the population. Each boom-bust cycle has six steps. Lets look at the current (and past) credit/real-estate market fiasco to see how the scam works:
Step 1: Find or Create a Problem. The cliche' goes, "necessity is the mother of invention," but hand-in-glove with that is, "necessity is the mother of investment." Financiers look to the public and public officials to find an issue to exploit. In both the seventies to eighties and again in this decade the problem of affordable and available housing was used, some argue it was created, in order to generate a new economic boom.
Step 2: Pump the Problem. In the seventies the housing issue received a great deal of attention. The media, largely owned by those who owned the banks, were a-buzz with stories highlighting not the median housing situation but the worst of the worst. At the time very little was mentioned of the roll high energy and commodity prices played in the housing situation, a problem compounded by the fact that very few loans were given out due to exorbitant federal interest rates, resulting in a low money supply. Academics wrote papers talking about the ethical and moral travesty playing out among the poor, who desperately sought a house to call their own. The American dream was declared dead. The public outcry was heard by Congress, which promptly passed legislation and regulation to ensure that credit was easily available and monthly payments were "affordable."
Step 3: Boom the Economy. To meet the "demand" for housing and to comply with government regulations like the Community Reinvestment Act (1977), the Federal Reserve (the Fed) and fractional reserve bankers pumped money into the economy in the form of loans to real-estate investors, builders, and new home buyers. As the money supply ballooned, the Congressional plan appeared to have worked. More people were in homes. However, the loans came with a grave price--usually variable interest rates and low down payments on overvalued loans.
Step 4: Let Supply and Demand Work. We should make no mistake, our nation's financiers (as well as those on the world stage) are no dummies. They understand supply and demand perfectly, and they know how to use it to their advantage. As soon as there are more houses built than buyers for those houses, the system will crash. The value of homes will drop leaving borrowers underwater, owing more than the house is worth. The over-investment in the housing market rushes away to more logical, real, and sustainable areas. Layoffs in the housing industry ensue; corporate and consumer spending decreases; more layoffs; people are unemployed and unable to pay the loans on the new houses.
Step 5: Constrict the Money Supply. Often the government--who is largely complicit in the scam, receiving campaign contributions from big banking financiers and being personally invested in the financial sector--commences with the bailout dog-and-pony-show. They spend even more of your money or print more money, which is inflationary. But this is all a sham. This money goes no where because the bankers have already received the slap on the wrist for government mandated and subsidized predatory lending practices and have increased the loan requirements beyond what most can bear. The result is that less money is flowing into the economy from loans. Those who have not defaulted on their loans continue to make their payments, which also goes no where in the system because no loans are being given back into the economy. This results in less money. And the hardship spreads as businesses and families go bankrupt. Incidentally, as I write this, we are currently in this stage of the game; banks that are usually running at 3% reserves are now sitting in the mid 90% range in reserves. They are actively and purposely taking money out of the economy.
Step 6: Confiscate the Wealth. During the boom stage the confidence in the market was high and loans were easy. Families and companies who were overextended were still able to make ends meet because the money supply was also elevated. As the money supply dwindles these families and companies are unable to pay their loan payments. The result is foreclosure and the confiscation of not only the loan asset (the house) but also the collateral on the loan. The bankers created money out of thin air to give as loans in the first place, then took away the ability for those people to pay back the loans, then took away the actual wealth--houses, cars, businesses, etc. The rich are made richer and the poor, poorer.
If you can survive the years between the bust and the next boom, you'll see that there's another investment opportunity to solve a new problem, and the money and loans will flow freely. People will think that the government bailouts worked and the world has learned a valuable lesson, but as things reach a euphoric high, the immutable law of supply and demand will take over. The bankers will be there to constrict the money supply, take your wealth, make themselves richer and you poorer, and do it all again.
The stakes are getting higher though, and the economic variables are getting harder to juggle. Each boom is getting bigger and so is each bust. Each time more money is dumped into the economy, hyper inflation becomes a more serious risk. Do the international financiers believe that this cycle can go on forever? Are we headed for a systematic crash of the US economy? Unfortunately, I can't say. But given how close this crash was, chances are we'll still be around to find out.
Tuesday, December 23, 2008
Exponential Theft
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.
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.
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.
Sunday, November 30, 2008
Geithner, Summers, and Volcker: Change We Can Believe In?
Let's quickly summarize our economic situation. The Federal Reserve, riding on the back of the fractional reserve banking system, has managed to print out of thin air enough money to allow US banks to explode to sizes that are "simply too big to fail." The loans that these banks issue are backed by nothing more than a promise to be paid back at a later date. This money, which is not backed by any asset or commodity value, has facilitated unsustainable investment in energy, then technology, and now housing. This mal-investment has produced economic havoc in the form of bankruptcies, foreclosures, bailouts, probable recession, and, thereby, almost certain inflation and monetary collapse. Don't worry everyone, Obama's on the case. He has new people with new plans. Who are these new people? Enter Timothy Geithner, Lawrence Summers, and Paul Volcker. Have you heard these names before. The Obama administration is counting on the fact that you haven't. So who are they?
The most familiar name on the list is Paul Volcker, former Chairman of the Federal Reserve, conservative Keyensian, and promoter of the US's money-as-debt system. His record is well known, and you can find it here.
Timothy Geithner began his career working for the Treasury Department starting in 1988. Yes, the same Treasury Department that bailed out the savings and loan industry because of (sound familiar?) poor real-estate investments and the subsequent collapse of the FSLIC (the Savings and Loan version of the FDIC). "In 1999 he was promoted to Under Secretary of the Treasury for International Affairs and served under Treasury Secretaries Robert Rubin and Lawrence Summers [source]," whom we'll meet shortly. Geithner was again around just in time to enjoy the ".COM" bubble burst. His latest exploits include work for the Council on Foreign Relations (proponents of the North American Union), the International Monetary Fund (the tool of the US Treasury to bailout any country whose corrupt economy threatens to leave their Keynesian dreamland in shambles), and lastly the President of the New York Federal Reserve.
Finally, Summers was one of the prominent spokesmen for the "Commodity Futures Modernization Act, which allowed many derivatives--like the credit default swaps that have rocked markets this fall--to go unregulated." Summers fought hard for the $750 billion dollar bailout and continues to fight hard for another round of bailouts of undetermined size, but certainly in the hundreds of billions. Economist Dean Baker says of Mr. Summers, "the policies he promoted as Treasury Secretary and in his subsequent writings led to the economic disaster that we now face." [Source]
Does this list of appointees sound like a change we can believe in? Does it even sound like a change at all? These men aren't going to rescue our economic situation; these are the men that created our economic situation. One or another of these men have been in active economic or governance rolls for every major economic disaster of the last 40 years.
One could make the argument, "whom could Obama have appointed, who also has the economic credentials to advise a US president and at the same time was not a participant in the calamity? I'm glad you asked. How about picking the gentleman who repeatedly predicted the chaos over and over again, was repeatedly shunned and ridiculed by the media and the so-called economic experts that were, themselves, responsible for the mess. I refer to none other than Peter Schiff. Need proof of his credentials and sheer economic genius? Watch this YouTube video and join me in encouraging Obama to choose the people who predicted the problems not produced the problems:
Monday, November 24, 2008
Is the Stock Market Losing Money or Points?
Much talk is circulating in the press and on the Hill about the trillions of dollars lost in the stock market. However, this statement is not entirely accurate. I don't mean to belittle in any way the depletion of funds in peoples' portfolios, retirement accounts, etc. Indeed, the money, which many Americans were counting on is gone. But to say that it is a dollar loss is misleading and casts the stock market in a light that it simply can't live up to.The truth is that the stock market is almost always a moderate to high risk investment--a gamble, and losses are the tail's side of the coin. The question is not so much whether investors are losing, it's what are they losing?
If we are really losing money--losing cash, then where is all the money going?
The money isn't going to greedy CEOs or your broker; it's not sitting in someone else's account somewhere. Nor has it been returned to the Fed. So where is it?
The fact of the matter is that the profits investors thought they had were imaginary. As long as investor's profits were in stocks, the profit could not be adequately measured in dollars, but, rather, only in the ability to sell the stock--nothing more than the willingness of someone else to buy the stock at the going rate in dollars at a fleeting moment in time. Further, tangible dollars are not lost until the stock value drops below the initial inflation adjusted purchase price.
Historically, the market has performed very well. Maybe too well, and therein lies the problem. Years of shabby financial decisions by the Federal Government has flooded the market with pseudo-capital, which has driven prices to unsustainable levels. The market is pulling back in order to correct the fallacious investment. It is likely to overshoot on the low end as well before settling to a true market rate, and even then only if the government will get out of the way.
Friday, November 21, 2008
The Inflation Tsunami
On December 26, 2004 a magnitude 9.3 earthquake shook the subduction zone along the India and Burma plates in the Indian Ocean, sending multiple walls of water--some as high as a hundred feet--racing toward Sumatra, Indonesia at a rate of nearly 600 miles per hour. The tsunami, which struck land, took the lives of more than 225,000 people and caused still-inestimable economic damage to the region. Survivors interviewed following the disaster almost unanimously relayed the same grim tale: minutes before the tsunami hit the animals were spooked and flighty and the beach water receded dramatically. Ignorantly, many people treated the receding waters as a spectacle and looked at the situation as an opportunity to venture out and collect stranded fish and shells. They were to learn too late the awesome gravity of the situation.And yet, unbeknownst to many, an even more devastating tsunami might well be building. And like many in Indonesia the warning signs are now becoming evident, but do we understand what we are seeing, or are we treating it as a boon; are we walking out to collect fish and shells?
Economic Tectonics
Deep beneath the surface of the US economy there is a seismic fault where the Federal Reserve meets the fractional reserve banking system. Unlike sound banking where each dollar loaned is a dollar deposited in the bank in a fixed term maturing account like a CD, this system uses initial capital investments and deposits to pyramid a hundred fold expansion of money in the US economy--essentially printing out of thin air $100,000 for every $1000 of productive money on reserve. The new money is given as loans to individuals and businesses to be paid back with interest at a future date. The Federal Reserve (the Fed) aggressively price fixes interest rates (the cost of immediate access to money) to further embolden citizens to take out these loans.
When a business person, for example, takes out a loan from a bank to build a new facility, s/he signs a contract with the bank to repay the loan with interest after a period of time. As unbelievable as it might sound, the bank from whom s/he burrows the money does not actually have the money to loan. One might ask where the money comes from. With a few keystrokes in the bank computer, the banker types in that the business person now has the money in his or her account. The money, as the banks will reluctantly tell you, is nothing more than the promise of paying it back. The new loan money then is used for architects, engineers, contractors, laborers, suppliers, etc. Once this money is in the hands of this second tier, some money is exchanged further for goods and services and some money is saved or invested in, say, mutual funds, stocks, retirement accounts, etc. This money in the form of currency, savings, and investments makes up what is called M1 and M2. It further becomes a part of the MZM (Money of Zero Maturity)--money immediately available for withdrawal.
The Nature of Inflation
Monetary inflation begins at the precise moment that more money has entered the economy than there are assets in the market. It might be easy to think that if everyone in the US were suddenly one million dollars richer, everyone could buy a million dollars worth of stuff and be better off. As nice as it sounds, this is simply not true. No, if everyone were a million dollars richer, Cars, boats, big screen TVs, etc. would immediately fly off the shelves (so to speak), producers wouldn't be able to keep up with the increased demand for those products, and prices would skyrocket as demand for precious few resources increased. After a short time prices would reflect the influx of new money and everyone would be exactly where they were before the million dollar pay day--only now the purchasing power of a dollar would be greatly decreased.
Though the sums of the loans are different and the number and distribution of the debtors are unevenly dispersed, banks are, indeed, engaged in precisely this practice. With all of this extra money floating around, however, should we not already see massive inflation? The Fed is quick to point out that the CPI (consumer price index) shows that inflation is rather stable, at about 2% per year. Herein lies the insidious nature of the Federal Reserve system. Although money flows like water and appears to be of unlimited supply, natural resources, goods, and workers are not of unlimited supply. The extra money in the economy promotes expansion and investment in areas that are not necessarily sustainable in terms of assets and supply and demand. Nevertheless, so long as consumer and business spending increase with the influx of money and companies can continue to produce at elevated levels, inflation is held at bay. What happens, however, if spending and production drop off?
The answer is that we get serious problems like those found in the current housing market. Massive and unsustainable investment was pumped into the housing market with unending credit expansion and government loan guarantees on both loan principle and interest. As long as consumers were buying homes, building and loaning could continue. However, eventually something occurred which no Keynesian economist appeared to think possible: housing supply exceeded demand, and the market simply dried up.
The housing bubble, however, was just the side effect of an easy-money-credit-crises-earthquake deep below the surface of the economy. And the economy soon began its tumult: unsustainable businesses produced by years of easy-money investments began closing; unemployment began rising; home owners were going into foreclosure; bankers were stuck with houses that no one wanted; eventually banks failed; bailouts ensued and with it a new influx of debt--money printed out of thin air, and the inflation tsunami was on its way.
The Warning Signs
But what are the warning signs of an inflation tsunami? Ironically, the most visible manifestation might well be sudden and sharp deflation coupled with a sharp increase in the strength of the dollar. In other words, look for the water to recede from shore and the height of the water off the horizon to rise. Why might this be? As consumers pull back on spending and burrowing, retailers also pull back with the fear of holding more product supply than product demand. Wholesalers perceive this pull back and retreat. Manufacturers see the retreat and stop burrowing for expansion projects and cut back on production. Parts suppliers see the cut back and then demand reduced quantities of raw materials--iron, steel, coal, oil, etc. along with other commodities. Finally when even raw materials drop production the waters might well be close to nadir.
This Week In the Headlines
"Prices Record Largest-ever Fall from Precious Month" -WSJ
"US Producer Prices Fell Sharply Last Month" -WSJ
"US Steel Layoffs" -WSJ
"Giant Mines Scramble to Cut Output" -WSJ
As industry pulls back, all the talk turns toward deflation. Some even mention the boon of the decreased prices and head out to collect fish and shells. Indeed, if deflation was slow and steady and money was pinned to a commodity like gold, deflation might well be a boon for the economy. But the deflation on this economic beach is more sinister. The printed money, mal-investment, frozen credit markets, foreign debt, and bailout cash is ballooning, pulling money away from the tangible production/consumption markets. The money is still out there though, and it has to go somewhere.
Suddenly, the Fed finds itself in a precarious conflict of interest; it is logical and appropriate for the Fed to sell securities, take money out of the market--thereby raising interest rates, but with no money to loan, the credit markets further freeze up, businesses fail, unemployment rises, and the chain of chaos continues. So instead, the Fed does not raise but, rather, lowers interest rates and money moves into the banking system. Hilsenroth and Evans of the Wall Street Journal spell this out cearly:
...but the mere risk [of deflation] puts added pressure on Congress and the incoming Obama administration to quickly advance a large fiscal stimulus plan. It also increases the likelihood that the Federal Reserve will take steps--such as pushing interest rates lower--to boost sagging consumer and business demand.
John Hilsenroth and Kelly Evans. Prices Post Rare Fall; A New Test for the Fed. Wall Street Journal November 20, 2008.
Because the money starts with bankers, those who now qualify for increasingly stringent loan requirements--the rich--will get the first grab at the new money. For them the purchasing power of the dollar will remain essentially unchanged. However, as that money--which does not represent an increase in asset production because of the economic pull back--enters the market, the disparity between the volume of money and hard assets grows. Further, because new production is low, new jobs are not being created as quickly as the money is increasing. Those citizens who are overextended in their personal finances, including the poor and lower middle class and those on fixed incomes, begin liquidating the MZM. And the tsunami grows as it approaches land.
The result is that the dollar will likely crash and flood the consumer market and the inflation will grow as the money volume increasingly exceeds assets. The buying power of the dollar will plummet, and those close to the water--those holding the dollar--will be washed away.
The Size and Scope of the Inflation Tsunami
The big question at this point is how big will this inflation tsunami be? This question depends largely on the liquidation of M1 and M2 money. When inflation is examined in terms of the MZM for 2008 rather than the CPI, we find that the actual inflation rate could be as high as 20%. If liquidation was total, inflation could be this high or higher in terms of the CPI. This would be catastrophic, but a total liquidation might not be realistic. Perhaps 15% might be though. To make matters worse the Fed and the US Treasury might continue to pump money into the economy, creating aftershocks and undermining consumer and business confidence.
Where should you be when the inflation tsunami hits? The answer, as far away from the dollar as possible. My vote is the hard commodities, specifically precious metals--gold, silver, and platinum. As the purchasing power of the dollar plummets, the demand for, let's say, gold will increase, driving up the price to its current inflation adjusted market value price, which is likely about $2,250 per ounce (some project it lower and some much higher depending on where and when you begin measuring).
Even these investments are not without perils; specifically, world governments have resorted to price fixing for precious metals and even confiscation in exchange for fiat dollars, as happened in the US in the 1930s.
Can the Tsunami Be Stopped?
Simply put, there is no stopping the tsunami once it is started. However, to a limited degree, it can be pushed back. Right now the US Treasury and the Fed are moving earth, sky, and sea to avoid an economic meltdown. If credit markets were to miraculously reinvigorate and consumers and business owners were able to devise only productive businesses with sound supply/demand principles, hire unemployed workers, and do it all before the tsunami hit, they might be able to push off the collapse. If the Fed then burnt billions upon billions of dollars and the congress outlawed the fractional reserve banking system, the power of the tsunami might be somewhat mitigated though not removed. Will this happen? No.
Truly the best solution to this problem is one outlined over 80 years ago, and remarkably it remains virtually unchanged no matter how progressed the ill. Ludwig von Mises accurately predicted the boom bust cycle and has been right all along--reduce government spending, lower or eliminate taxation on individuals and businesses, return to sound money based on gold or silver, end the Fed and fractional reserve banking system, pay off debt, save money, invest with true capital, grow the economy without the fetters of egalitarian price controls, subsidies, taxes, and tariffs, and trade freely. Even if we adopted these policies immediately, there would still be a price to pay, but the sooner we turn around, the sooner we find our way to higher ground.
Subscribe to:
Posts (Atom)
About Me
Subscribe to The Free Exchange