Posts Tagged ‘money’

Why Mitt Is Desperate to Force Newt Out

Sunday, February 5th, 2012

Reason to Worry

First, he called Adelson to convince him to stop adding financial support of Gingrich via his SuperPAC.  When that didn’t work, he piled on some more of his own money, and those who fund the SuperPacs advocating on his behalf or at least slamming his competitors.  When that didn’t work, some shills in the press dropped the conspicuous rumor that Newt’s “…hold a press conference after the Nevada Caucus on Saturday, raising new speculation about his future in the race,” implying he would get out Saturday evening.  This was solely to try to undermine the vote in Nevada in Romney’s favor by creating the impression among Caucus-goers that Gingrich would be out of the race by night-fall anyway.  You might wonder why Romney who is the putative front-runner, and his army of establishment hacks, would go through all this trouble if he’s got this “all sewn up,” as the “inevitable” meme pretends.  The answer is as simple as this:  It isn’t over, and Mitt knows it, because he can read a calendar.

One of the things weighing in Mitt’s favor is the postponement of the Texas primary.  Texas is a state likely to favor Gingrich, but its primary that should have happened on Super Tuesday has been postponed to April 3rd, and may yet be kicked further back on the schedule over judicial tinkering with the redistricting. Texans are starting to speculate that perhaps this is intentional, and is being used to reduce the importance and relevance of Texas in selecting the nominee.  There is good reason for that speculation, but I think it won’t matter unless the Texas Republican party gets smart and makes it a winner-take-all affair, which sine it is after April 1st, by national party rules it could be.

Romney doesn’t want this primary dragging on and on through the convention, because at the rate he’s spending money, he’ll soon look at the general campaign with emptied coffers and no ability to do in any measure to Barack Obama what he’s been trying to do to Gingrich, with some success.  As it is, he will be at a huge financial disadvantage come the onset of the general campaign.  This is why for Mitt’s sake, he must push this to a speedy conclusion, and it’s the reason why since Iowa, he’s been relentlessly hammering Gingrich.

As Governor Palin recently pointed out, we all love a rough-n-tumble debate, and a strongly contested primary, but I think Mitt’s reliance on these under-handed tactics and back-room deal-making will eventually take a political toll.  Even as he rides high on the expected wide margin victory in Nevada, people around the country are beginning to take notice of the fact that he is outspending all opponents by a phenomenal amount but when it’s closer to par, he can lose, and lose big.

Voters in the GOP must ask themselves now, because it will be much too late in the fall, whether we want to rely upon a candidate who can only seem to win where he either has a distinct home-field advantage, such as in New Hampshire and Nevada, or a gigantic financial advantage such as in Iowa and Florida.  He’s not likely to have many of those advantages, particularly in money, when it comes to the general election, so we must begin to ask of Mitt Romney: How will you outspend Barack Obama’s expected $1billion war-chest?

He can’t.  If this is so, my friends, we have a problem beyond his lack of conservatism.  If at the end of the day all he has is money, but no good arguments to elect him other than he’s not Barack Obama, we’ll lose, and lose big.  The Democrats know this, and this is why they want Romney so badly they can taste it.  It’s time to rethink this a bit and realize that if money is everything in 2012, then the GOP is going to get beaten badly. Only a candidate who can take the fight to Obama with a small relative budget is capable of beating him, and right now, by any guess available, that candidate is still Newt Gingrich.

Advertisements

Get Ready For More Inflation

Saturday, January 14th, 2012

What Will It Buy You?

There’s a new report by CNBC that the Federal Reserve is considering some more “quantitative easing,” also known as “firing up the printing presses.” They’re going to make money cheaper again, and when it’s cheaper, it’s necessarily worth less.  For those of you who don’t really follow how all of this works, let me remind you of a few things I’m sure you’ve heard, but which you may not pay much ongoing attention.  The idea is to try to stimulate the economic activity by putting more cash into circulation, theoretically making it easier for banks to loan money for new home construction, businesses, and all manner of things.  The notion is that with more cash flowing, more economic activity will result, and more jobs will be created.  That’s the theory, and it sounds simple enough until you recognize some complicating factors.

First, every time the Federal Reserve follows this procedure, what’s really happening is that for all intents and purposes, they’re flooding the economy with new money.  There’s really no new value being added to the system, so what this effectively accomplishes is to devalue all existing money by some amount.  What this causes in turn is a diminution of your money’s purchasing power.  A loaf of bread costs $1.20 instead of $1.10, or a gallon of gasoline goes from $3.50 up to $4.00, or a 2″x4″ down at the home improvement store goes up in price, but the total effect is that money is less valuable.

Back when QE2(Quantitative Easing, Round 2) was announced, back in late 2010, Sarah Palin came out and warned against it, and was scoffed at by the geniuses who push this inflationary policy upon us. Of course, with predictable regularity, she was right about it, as we who pay attention knew would be the case, so now the Federal Reserve is considering more of the same. As with last time, most of the inflation has been hidden by the fact that amazingly, energy and food are not counted in the CPI(Consumer Price Index) but of course, that’s an absurdity since it’s where much of our spending is concentrated.  This helps the politicians and the Federal Reserve shield from your eyes the true cost of their stimulus, but what you should know is that it amounts only to a delaying tactic.  What they’re hoping is to buy time until the economy can somehow catch up, but the problem is that the policy they’ve undertaken ultimately leverages against that end, since it will take ever more dollars for you to fund your energy and food costs, and those aren’t things on which you can really do substantial trimming if you intend to go to work each day.

The whole thing is a colossal fraud, and it’s one of the reasons I agree with Ron Paul that we need to re-examine the role of the Federal Reserve.  It’s become obvious that they’re just as willing as most politicians to lie to you about the end result of their policies.

Does Money Corrupt Politics?

Saturday, December 10th, 2011

Which is Corrupted: Money or Politics?

Many people believe that money corrupts politics.  It’s certainly an easy conclusion to draw from the evidence if you consider only the superficial aspects of the problem, but my argument is a bit different.  I don’t believe that money corrupts politics nearly so much as politics corrupts money.  Money is merely a symbol of value. It’s a token we use in place of a barter system, since it’s far easier to exchange.  When you work, you’re creating value, but it’s difficult to exchange the value of that work directly to those from whom you would like to purchase, so the people to whom you sell your labor pay you in money, and then you take that money to all the places you would like to spend it.  This is the nature of money.  It’s an efficient system of exchange and it works quite well, right up until the moment you insert politics.  Rather than spend our time on a question I think misses the mark, let us now examine how politics corrupts money.

If you earn your money by honest labor, whether by manual or mental exertions, you are creating new wealth.  If you consider a block of wood, and you carve it into something fantastic, whether practical or artistic, if somebody will pay you more than it had cost you in materials and energy, that net payment is both an assessment of the value of your time and therefore also your profit.  Some of us are able to turn very little time into huge profits, while others of us are able to make only minimal profits on our time and exertions because what we are producing is not so valuable to others.  That is natural, and normal, and must always be the case.  The maker of candles will never be rewarded as highly as the person who invents a light bulb or the electric generation system to power it.  The reason is simple:  Almost anybody can make a candle.  Workers who can do this are numerous.  The mind that can imagine a light bulb or a generator are rarer, and therefore, their efforts are more valuable. It is the market in which you sell that labor that decides its worth.

Here is where politics enters to corrupt money:  Because candle-makers are more plentiful than inventors, they have many more votes.   They can turn to the political class and demand laws to make their candle-making unnaturally more valuable.  Politicians can follow a number of courses in response to the demands of the numerous candle-makers:

  • They can enact a law making candle-making more valuable than it is in fact
  • They can enact a law making inventors’ efforts less valuable than they are in fact
  • They can steal money from the inventor and give it to the candle-maker
  • They can say “No, property is property, you have yours, and the inventor has his!”

Which of these do you suppose the politicians is least likely to do, since it will not satisfy all his candle-making constituents, and thus will lose him his next re-election?  Of course, this situation becomes a good bit more complicated when we add competing inventors.  Suppose somebody comes along with an invention to replace the ordinary light bulb. Let us imagine that unlike compact florescent bulbs, it has no toxic mercury, and it’s much more efficient at the same brightness. If it’s also less expensive than the ordinary light bulb, and is in all measures a superior product, the market will answer by making it the new leader, and it will become the new ordinary light bulb in short order.  Now, the manufacturers of the older style light bulb will descend on politicians to demand protection of their market.  Politicians can respond in a number of ways:

  • They can enact a law outlawing the new style light bulb
  • They can enact a law requiring the use of the old style light bulb
  • They can add extra taxes to the manufacturer of the new style light bulb, driving up its cost
  • They can give a tax break to the manufacturer of the old style light bulb, driving down its cost
  • They can do nothing at all, and ignore contributions from the manufacturers of the old style bulb

Which of these options is the politician unlikely to choose?  Now let us imagine that the new light bulb is actually a terrible idea.  Let us imagine that it is filled with toxic mercury, and that in the long run, you’ll have EPA hazards created in your home if one breaks, and that while they are slightly more efficient, they are also annoying, and the light is actually modulating at a very high rate, and while barely perceptible to you, your eyes lead you to constant headaches, and besides the high frequency buzzing drives your pets insane, because they can hear frequencies you cannot.  Let us now imagine what politicians might do, not on behalf of the old style bulb manufacturers, but on behalf of the new ones:

  • They can enact a law outlawing the old style bulb
  • They can give tax credits to purchasers of the new style bulb
  • They can do nothing and let the market decide and skip the opportunity of contributions

Which of these have politicians actually done?

Now some will tell me this is all well and good, and merely proves their point, in that the money offered to politicians corrupted them.  Instead, I will tell you this is a lie, and now I will be happy to explain it if you missed what has really happened over the course of this post: The law was used as an instrument of enrichment by already corrupt  politicians.  They had no money apart from their salaries and immediate benefits, but in order to have more money, either in their own pockets, or in their campaign war chests, they used the law, your law, in each and every case to skim money from the system for their own purposes.  What this has the effect of doing is to change the market, and to change what people do in the market.  That means you are changing the value of the labor and the value therefore of money irrespective of what the market might prefer.  What you have done is to use politics to corrupt money.

There is an economic law, “Say’s law,” that tells us something about natural economic function, and it is that a supply creates its own demand.  The inverse and equally true corollary of this law tells us that without a supply, there can be no demand.  (Demand as an economic term, but not as a human behavior.)  What does this mean in the question of politics and money?  It means simply that you cannot purchase that which is not for sale.  No candle-maker, no light-bulb inventor, and no manufacturer of any sort can purchase influence that is not first offered for sale.  This is not a question of corruption by money, but of money.  When the politician uses his position and his legislation to influence the markets, whether he takes payment from a player in the market, or instead merely profits directly by his previous purchases in the market, this is not a matter of money corrupting politics.  It is the much more deadly issue of politics being used to corrupt money.

In every way, this upsets the natural order of the market.  Things that the market would find worthless are suddenly made precious, by law, and things that had been precious are made worthless, or even illegal to possess.  Any such action commits a fraud on all holders of money everywhere and at once.  What else could be the meaning of a law that imposes on you the purchase of compact florescent bulbs, that cost many times their traditional competitor, the incandescent bulb?  Do you have any doubt that most of the politicians who supported this law did so in order to profit in some way from the law, your law?  Notice, however, the ordering of cause and effect, and this will tell you which has corrupted the other, money or politics:  Which came first?  The political action, or the monetary result?  How many of these elected thieves had invested in GE or other CFL producers, before the enactment of the law, knowing what gains their investments would see once they made a law banning the good old incandescent bulb?

I am sympathetic to those who believe, innocently, that money corrupts politics, but the truth is something else:  Politics is being used to corrupt money.  When people make money by graft, it is the money that is corrupted.  It is a form of counterfeiting money, and since money is just an expression of value, what you must see if you’re to have any hope of reversing the trend is that the reason our system is so corrupt is not because of money, but because of those who use the law, and the power of government to extort, coerce, and otherwise gain money they haven’t really earned.  This is because government is involved in far too many things, and I’d ask you to consider Bastiat’s view of plunder to understand it.  If you want to solve the problem, don’t seek to get the money out of politics, but instead get politics and politicians out of money and markets.  That’s a real reform that could save our country.

Greenspan Gets One Right; Blows Up on Taxes

Wednesday, October 26th, 2011

Once Upon a Time...

Maybe the problem is that when Greenspan is actually in charge of something, he loses his competence. I don’t know. Back in the 1960s, he got it. Back when I was in diapers, this man exercised a fertile mind.  Then, he was an unabashed advocate of capitalism and liberty.  Somewhere on his way to becoming the chairman of the Federal Reserve, he lost his way.  Now that he’s been out of there a while, it seems like he’s slowly coming back to his senses.  He offered an in-depth analysis of the Euro Crisis, and I find it to be fairly close to the mark in most respects, but it also seems to be a scathing reproach to some of his own policies while he was the Chairman of the Federal Reserve system.  In the end, however, he takes another step towards the failed policies in the US that Barack Obama is pursuing.  Greenspan seems to have adopted statism, and while still occasionally correct, as often as not, he’s been tragically wrong.

His primary critique of the Euro goes back to it fundamental, underlying flaw:  The cultures of Mediterranean Europe are vastly different from those of Central and Northern Europe.  It’s much as I mentioned earlier when I described the debate I overheard among Germans in the late 1980s about the proposed European Union and a single unified currency:  Germans viewed the southern Europeans with suspicion due to a long, long history of fiscal chicanery.   Two decades have proven the point and Greenspan is now recognizing the fatal flaw those guesthouse discussions of two decades ago made plain to me at the time:  Two distinct cultures and traditions cannot share a single currency, because one culture will tend to treat the currency and their fiscal responsibilities under the union with a higher level of diligence and respect than the other. Is there really any doubt but that this lies at the heart of the European crisis?

Of course, Greenspan is not the sort of fellow who will readily admit a mistake, and what he fails to mention in this critique of Europe is the extraordinarily loose monetary policy he himself administered over at the Federal Reserve.  Frankly, between he and the hucksters of easy mortgage qualification, they together created a bubble of another sort that was likewise doomed to failure.  You cannot build or center an economy on continuing growth in a housing market that is sabotaged by bad lending practices encouraged by your monetary policy, and your fiscal and regulatory policies besides.  To see Greenspan make the one criticism without understanding his own role in the second is an irony of the most enlightening form.

In the end, however, Greenspan discusses the looming debt crisis in the US, and he seems now to be a budget hawk, but as ever, he is neutral to hostile on pro-growth fiscal policy.  He believes in manipulating monetary policy to effect economic ends, so he sees no effective problem with massive tax hikes.  This indifference, as much as anything else he said,  demonstrates the coldly calculating view of individuals as a means to statist ends, and it is here that I suspect that Greenspan really hasn’t reformed much since departing the seat of Fed Chairman.  At the end of the day, he still views your money and your life as instruments of the state, and his policy prescriptions fail to note a similar duality in cultures in our country, every bit as distinct and intractable as the differences between Northern and Southern Europe.

In our nation, the distinction isn’t formed along State borders, but at the split between urban and suburban/rural America. This also largely defines the political polarization he laments in Washington DC.  It really is that obvious.  Of course, I don’t expect Mr. Greenspan to notice this any more than he noticed the irony manifest in his criticism of the Eurozone.  I also don’t expect him ever to make a full recovery to the days when he understood the moral root of money, when he wrote many intelligent articles in his youth.  That was a long time ago, and it seems he has forgotten what he once knew.  It’s one of the few areas in which I  firmly agree with Ron Paul, although so many of his policy stances makes him unpalatable as a Presidential candidate.  Still, I’d like to remind you of what Alan Greenspan once wrote, before he began to accept the premises of the statists. First published in Ayn Rand’s “Objectivist” newsletter in 1966, and subsequently reprinted in her book, Capitalism: The Unknown Ideal, in 1967:

Gold and Economic Freedom

by Alan Greenspan

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

Yes, once upon a time, Greenspan was a sensible man who found the statists detestable. Somewhere, he lost his way, and I wish he would remember his earlier positions that had been far more logical.

Drunken With Power: Democrats Justify Tax Hikes With Downgrade

Sunday, August 7th, 2011

Past His Limit?

One could look at the headline and assume they’ve had one too many beer summits at the White House, yet the story on The Hill asserts flatly that not only are these spend-a-holics serious, but also that the S&P’s downgrade essentially demands it.  They can’t honestly believe the path to restoring our nation’s AAA credit rating lies in more taxes on the wealth-producers.  As the President weaves from curb to curb, it’s clear that the nation is in desperate need of sober, capitalistic leadership that it’s not likely to get from Obama.  As ordinary Americans struggle, small businesses fail, and banks foreclose on record numbers of homes, still drunken with power, the statists run rampant, spending your money as though it had been their own.

This President claims that his predecessor, who is famously to blame for all things, put the car in the ditch.  Even if that had been so, ignoring evidence to the contrary, wouldn’t you want a new driver behind the wheel who can pass a roadside economic sobriety test?  If economic intoxication is the standard of measure, Barack Obama and his cohorts in Congress have just blown a 2.0.  It’s not credible to suggest, after one too many nights of painting the town red, that the national hang-over we now face hasn’t been long overdue.  After all, it’s not as though the people Obama and Reid wish to tax are the ones who returned stumbling to their beds at 4am.  The people they wish to tax are the same people they always seek to hit up for one more round: Those who rise each morning and produce the wealth upon which such besotted ne’er-do-wells as this pair can thoroughly rely.

The Federal government of the United States will spend an astonishing $3.7 Trillion in FY 2012.  Stepping that off in heel-to-toe fashion, for a man the President’s stature, that’s roughly 700 million miles.  That’s a trip to Jupiter, with side-trips to all its moons, assuming he had the manned space flight program and a flagon of lager sufficient to carry him there, and that he could maintain himself along a straight line.  Meanwhile, the government takes in roughly $2 Trillion annually, which is more than enough to finance the essential needs of government.  Of course, defining what “essential” means is a larger part of the trouble, isn’t it?

To politicians like Barack Obama, there is never sufficient money to spend on all the things they believe to be essential.  Much like the tipsy fool whose eyes grow ever larger than his constitution permits, the more inebriated he becomes, the more likely he is to demand larger and larger mugs-full at a faster rate from the tap.  Of course, since he’s run up the mother of all bar-tabs, he’s not to be trusted with much, since he barely keeps ahead of the bar-tender’s patience.  This is the nature of our situation, and all pretense by those in power to the claim that if they could have “just one more drink, just a wee bit more,” all would work out in the end.  This only serves to beg the question: Whose end?

The American people are right to demand that the bar-tender cut off this particular patron.  He’s not capable of self-regulation or self-control, and what we now need for our government is a twelve-step program of another sort.  Rather than focusing on our president’s addiction to our money, and how to quench his thirst for more of it, we must simply cut him off.  There are some things and some times in which the only rational answer is to quit cold-turkey.  No easing-up, no gentle backing-away.  This spender has lost control, and he needs the helping hand of compassionate countrymen who care enough to tell him “no” and mean it.

The answer to this downgrade has always been to cut spending, immediately.  Any suggestion to the contrary is the bar-stool philosophizing of that fellow who’s stayed one round too long.  As the drunk overstays his welcome, so has this President, his advisers and his policies. It’s well past time for we, the bouncers, to show him gently to the door next November.  We’re a compassionate sort.

We’ll even spring for the cab-fare home.

Stealing America Blind – How to Steal Money by Printing It (or: Sarah Palin Warned Us)

Friday, June 24th, 2011

You may remember candidate Obama telling Joe the Plumber that he wanted to spread the wealth around. President Obama, in concert with the Democrats and Ben Bernanke have been quite busy.

To understand what’s been done, and how, we need to first understand a bit about how money is created. In a simplified model, the Federal Reserve loans money into existence. The Federal Reserve loans the US Government money and the bonds thereby created are sold on the open market to buyers. These bonds are traded globally, and this is why and how the Japanese and more recently, the Chinese, have come to hold so much US debt. Of course, you can buy bonds too. So can banks. It’s seen as an investment, but with interest rates maintained artificially low, the desirability of the bonds on the market slips dramatically.

We no longer base our money on an objective store of value. Many people reference the end of the Bretton Woods agreement under Nixon, but the truth is that we really came off any reliable, meaningful gold standard under Franklin Roosevelt. Roosevelt arbitrarily set the value of the dollar vs. gold by picking random numbers from within a range, pulling numbers out of a hat, drawing cards, or whatever else he dreamed up at the time. (See: “The Roosevelt Myth” by John T. Flynn)

The Bretton Woods agreement merely formalized the process in 1946, but it continued the basic FDR policy: You, as a person subject to the jurisdiction of the United States, could not redeem your dollars for gold. A foreign bank or government could. By1971, your treasury was emptied and Nixon was forced to announce that we could no longer even redeem dollars held by foreigners with gold. For the period between 1933 and 1971, we functioned on a fake gold standard that was propped up by functioning like a gold standard internationally, but domestically, as pure fiat currency. In short, here at home, what we had was monopoly money, but it looked and spent normally because in the international markets and exchanges, where somebody would quickly notice and complain, the money was backed by gold, until the gold ran out. Most of the gold formerly held by the United States was long gone, to pay foreigners when they presented dollars obtained in trade for redemption. It is literally gone. Only a relative token of that gold survives.

So what gives your money value, if not gold? The answer is simple: It is the confidence of the bond-holders in the debtor’s promise to pay. Imagine you purchase a home. If you were borrowing the money, you would of necessity need to find a bank willing to lend it to you. If they saw you had no job, no business, and no assets, you were a poor credit risk, and you’d not get the mortgage. Mortgage companies trade mortgages, just like bond-traders trade bonds. Debts are basically investments based on the value of the interest due. The investor is betting that inflation will not surpass his earned interest on the mortgage, and therefore, will profit slightly as the mortgage is paid in full. Mortgages with higher interest rates can be better investments, but traditionally, they implied more risk because people tend to get mortgage rates based at least in part on their credit-worthiness.

The value of the US dollar is determined in much the same way. The currency is backed in part by the assets of the people who owe money, and in part by the confidence bond markets have in the probability that as the bonds mature, they will be paid in full, with the expected interest.

Now that we know all of this, and with my apologies to all who already did, let’s get on to the meat of this. Barack Obama, the Congress, and the Federal Reserve have been stealing you blind. Over the last three years, the Fed has lent more money into existence than in all the time since WWII. The Federal Government has been the borrower of record, with the total debt incurred by the Congress and President Obama in that period exceeding four-and-a-half trillion dollars. That’s $4,500,000,000,000.00. It’s a lot of cash. The problem is, the economy in no way produced nearly that amount of additional wealth in that period. The effect is simple: Each and every dollar, the new ones and all the ones that existed beforehand, fell in value. This is engineered inflation, or what the Federal Reserve has taken to calling “Quantitative Easing,” which is a fancy way of saying that they’re digitizing or printing more monopoly-money dollars that will go into circulation with the rest of the dollars, and thereby devalue them all.

Last November, Governor Sarah Palin warned about this practice, telling all who would listen that this would drive inflation, and that it would cause food and energy prices to rise dramatically, and thus stifle the economic recovery until it would be stillborn. We are now reaping that harvest, just as she suggested, and while President Obama releases three days worth of oil from the Strategic Petroleum Reserves to try to hide it, the fact is that the economy is in free-fall. Obama and his crowd planned all of this, because they wanted to commit the largest theft in history. Barack Obama is, himself, an economic buffoon. The man doesn’t know a demand curve from an equilibrium price. His advisors, all of them, are following a script laid out for them by a man who knows how to destroy currency and steal the wealth of nations. He is considered an ‘economic terrorist’ in much of the Pacific rim. I speak of none other than George Soros.

Now, we could delve into the why and how, but it’s much more important, I think, to show you a simplified illustration of how this is being done. I’ve created a few charts here to help illustrate how this works. I’ve simplified it so as to promote understanding, but I am going to explain what you’re looking at, and when you’re done, you can draw your own rational conclusions.

In the first chart, we are starting at day zero. On this day, a dollar is worth a dollar. There are a total of 400 in circulation, and they are distributed as shown. I assume that on day zero, a gallon of gasoline costs $2, and a loaf of ordinary bread costs $1. This is the baseline. You may wonder who is Person 1 , Person 2, Person 3, and Person 4. For the sake of argument, however, we’ll get back to that. Also notice the purchasing power. Notice how many loaves and gallons each person can buy. Take a look at day zero(You can click the image for a slightly larger version:)

Now remembering that there are $400 in total, let’s imagine the Government borrows another $200 from the Federal Reserve, and the Fed must borrow it by issuing bonds. Now there’s a total of $600 in the economy. The Government takes the newly printed/digitized dollars and distributes them, $50 each, to all four persons. There is no new value in the economy. The money’s value has dropped by 50%. Expressed another way, the money is now worth only 2/3s of what it was worth on day zero. Let’s call this day one, and take a look:

As you look at the chart above, you immediately notice that the distribution of wealth has changed. Person 1 and Person 2 have both picked up their share of the wealth. Person 3 has lost a little, and Person 4 has gotten clobbered. Notice that we didn’t ‘tax’ a soul. We merely printed more money into existence, and distributed it differently. Now notice what has happened to the purchasing power of our four persons. Also note that the cost of the gallon and the loaf has risen accordingly. We’re not finished, however. We’re going to come back around and do it again:

Now look at the results. We’ll call this day two, or if your prefer, we can use Federal Reserve Chairman Bernanke’s term, “Quantitative Easing 2.” Notice what has happened. We’ve shifted a good deal of wealth to Person 1, a little bit to Person 2, stolen just a bit from Person 3, and taken Person 4 to the cleaners.

Notice that the price of a loaf and a gallon have doubled. This is because you now have twice as much money in circulation, and no additional material value. Here’s what you need to know, however. Person 1 can be a welfare or other entitlement recipient, or a foreign citizen in a foreign land to whom we’ve gifted money. Person 2 can be a low-skilled, low-wage worker, just below the median income for a family. He’s struggling, and barely getting by. Person 3 is solidly middle class. He either works in a higher-skilled field, or is even self-employed, like Joe the Plumber. He probably barely notices the effect, at first. Person 4 is everybody above that. This is the person that creates almost all the jobs in a free market economy. How do you now expect him to do that?

As Tammy Bruce reminds us, Sarah Palin warned us that this would be the result. Those of us who actually know anything about economics(as opposed to the LameStreamMedia) knew that she was right when she said it. Time has born her thesis. Where was Mitt Romney? He said it was ‘necessary.’ Where were the rest of the Republicans? They were all joining Paul Krugman and Barack Obama in laughing up their sleeves at Mrs. Palin. Most importantly, however, where were you, and what did you believe? Or were you making Thanksgiving plans while they carried out another round of theft?

This is the policy of “spreading the wealth around” that Barack Hussein Obama promised. He’s delivered, but he’s not finished quite yet. Now that he’s thoroughly clobbered the wealth creators by devaluing the dollar, he’s next going to take the rest via taxes, if the Republicans fail to stop him and his cronies in the Senate. If they do, it won’t matter, because he’ll soon announce, through his stooge, Ben Bernanke, perhaps yet another round of Quantitative Easing. They’ll call it “QE3,” and all you will need to know is that another round of theft is underway. It may have worked too well already. Remember when Rush Limbaugh was criticized for saying he hoped Obama would fail? This is what he hoped would fail. It hasn’t. Your wealth and your life are under assault. There is only one answer to this, and it is to send Barack Obama back to Chicago, with the rest of the thugs, and I know just the lady to do it!