Tuesday, June 29, 2010

Links 6/29/2010

Americans will have to answer the question, “Am I my brother’s keeper?” as the depression unfolds. 

If we can take back our government, we can stop the sequence that the ruling elite seems to have in mind:  inevitable deflationary depression –-> war to “get” oil (why can’t we just buy it like everyone else?) –-> corollary benefit of war:  get an inflation or hyperinflation going to inflate out the debt and give the Wall Street banks another opportunity to make a hugely leveraged killing.

Thursday, June 24, 2010

Mish slashes Krugman

http://globaleconomicanalysis.blogspot.com/2010/06/krugman-suffers-foot-in-mouth-disease.html

I need to say (again) that our current problem is not fundamentally one of insufficient aggregate demand or aggregate output, but of its distribution.  Our social contract is broken, our income and wealth distributions are obscene.  There is enough to go around, we are richer than we were twenty years ago, it just isn’t going around.

The Germans and the EU states in general have (1) state subsidized health care for all (2) a livable dole for the unemployed, and (3) a memory only a few generations old of hyperinflation.

Once they decide to discipline their unions, the EU countries will be able to weather a fiscal tightening without catastrophe.  They will hunker down together and drink wine.

The reason the Feds have been paying for the states’ unemployment insurance claims in the US (to the tune of a reported $10 billion a month) is because we don’t have a livable dole, or health care for all, and millions of families, many with children, are entering a humanitarian catastrophe right under the noses of the “sovereign individuals,” Tea Partiers, and members of the Party of “No,” the Republicans.

Krugman, a New Yorker unable to separate himself from the local zeitgeist, is effectively a mouthpiece for a Wall Street that is salivating over the opportunity to lever up with free money from the Fed for a hyperinflation and make a really big killing.  Perhaps this time they can evict the entire bottom 99 percent of the income distribution from their houses, or at least reduce them to penury and an appropriate attitude of servitude.

“Let them live on the streets, it’s a free country.”  The Peter Schiff platform.

.     .     .

Post script:

But I'd also like to point out that large financial centers in certain cities around the planet are certainly going to kill millions of us by destroying our social safety networks in the name of their imaginary financial efficiency. You're a thousand times more likely to die because of what some urban banker did in 2008 than from what some Afghan-based terrorist did in 2001. *Financiers live in small, panicky urban cloisters, severely detached from the rest of mankind. They are living today in rich-guy ghetto cults. They are truly dangerous to our well-being, and they are getting worse and more extremist, not better and more reasonable. You're not gonna realize this havoc till you see your elderly Mom coughing in an emergency ward, but she's going there for a reason.

--Bruce Sterling, in boingboing.com

 

The Global Political Awakening and the New World Order

Tuesday, June 22, 2010

The Greatest Depression has just begun

Via:  www.endoftheamericandream.com   See also “The End of the Growth Era”.  Meanwhile, how about those New Jersey Republicans?  The Dems wanted a two percentage point increase in personal income over $1 million to help balance the budget… would have raised the better part of a billion dollars.  The Republicans in the legislature and the governor shot it down and the Dems couldn’t override the veto.  Can you say greed is good in New Jersey?  Without a sea change in our social values we will descend into the state of Nature, raw in tooth and claw.  This is the expectation of my colleague over at Global Guerillas, who expects gang rule soon.  www.zerohedge.com fingers Corporate Entities As Modern-Day Street Gangs, which has the ring of truth to it.  Nice of the Supremes to give corporations the right to unlimited political spending….

May the Spirit rule!

Most Americans know that the U.S. economy is in bad shape, but what most Americans don't know is how truly desperate the financial situation of the United States really is.  The truth is that what we are experiencing is not simply a "downturn" or a "recession".  What we are witnessing is the beginning of the end for the greatest economic machine that the world has ever seen.  Our greed and our debt are literally eating our economy alive.  Total government, corporate and personal debt has now reached 360 percent of GDP, which is far higher than it ever reached during the Great Depression era.  We have nearly totally dismantled our once colossal manufacturing base, we have shipped millions upon millions of middle class jobs overseas, we have lived far beyond our means for decades and we have created the biggest debt bubble in the history of the world.  A great day of financial reckoning is fast approaching, and the vast majority of Americans are totally oblivious.

But the truth is that you cannot defy the financial laws of the universe forever.  What goes up must come down.  The borrower is the servant of the lender.  Cutting corners always catches up with you in the end.

Sometimes it takes cold, hard numbers for many of us to fully realize the situation that we are facing.

So, the following are 50 very revealing statistics about the U.S. economy that are almost too crazy to believe....

#50) In 2010 the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.

#49) It is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars in 2010.

#48) If you went out and spent one dollar every single second, it would take you more than 31,000 years to spend a trillion dollars.

#47) In fact, if you spent one million dollars every single day since the birth of Christ, you still would not have spent one trillion dollars by now.

#46) Total U.S. government debt is now up to 90 percent of gross domestic product.

#45) Total credit market debt in the United States, including government, corporate and personal debt, has reached 360 percent of GDP.

#44) U.S. corporate income tax receipts were down 55% (to $138 billion) for the year ending September 30th, 2009.

#43) There are now 8 counties in the state of California that have unemployment rates of over 20 percent.

#42) In the area around Sacramento, California there is one closed business for every six that are still open.

#41) In February, there were 5.5 unemployed Americans for every job opening.

#40) According to a Pew Research Center study, approximately 37% of all Americans between the ages of 18 and 29 have either been unemployed or underemployed at some point during the recession.

#39) More than 40% of those employed in the United States are now working in low-wage service jobs.

#38) According to one new survey, 24% of American workers say that they have postponed their planned retirement age in the past year.

#37) Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.  Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005.

#36) Mortgage purchase applications in the United States are down nearly 40 percent from a month ago to their lowest level since April of 1997.

#35) RealtyTrac has announced that foreclosure filings in the U.S. established an all time record for the second consecutive year in 2009.

#34) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in March 2010, an increase of nearly 19 percent from February, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.

#33) In Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases.  Ten years ago, there were only about 4,000.

#32) In California's Central Valley, 1 out of every 16 homes is in some phase of foreclosure.

#31) The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period.  That was a record high and up from 9.1 percent a year ago.

#30) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a 35 percent jump from the first quarter of 2009.

#29) For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.

#28) More than 24% of all homes with mortgages in the United States were underwater as of the end of 2009.

#27) U.S. commercial property values are down approximately 40 percent since 2007 and currently 18 percent of all office space in the United States is sitting vacant.

#26) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010.  That was almost twice the level of a year earlier.

#25) In 2009, U.S. banks posted their sharpest decline in private lending since 1942.

#24) New York state has delayed paying bills totalling $2.5 billion as a short-term way of staying solvent but officials are warning that its cash crunch could soon get even worse.

#23) To make up for a projected 2010 budget shortfall of $280 million, Detroit issued $250 million of 20-year municipal notes in March. The bond issuance followed on the heels of a warning from Detroit officials that if its financial state didn't improve, it could be forced to declare bankruptcy.

#22) The National League of Cities says that municipal governments will probably come up between $56 billion and $83 billion short between now and 2012.

#21) Half a dozen cash-poor U.S. states have announced that they are delaying their tax refund checks.

#20) Two university professors recently calculated that the combined unfunded pension liability for all 50 U.S. states is 3.2 trillion dollars.

#19) According to EconomicPolicyJournal.com, 32 U.S. states have already run out of funds to make unemployment benefit payments and so the federal government has been supplying these states with funds so that they can make their  payments to the unemployed.

#18) This most recession has erased 8 million private sector jobs in the United States.

#17) Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of 2010.

#16) U.S. government-provided benefits (including Social Security, unemployment insurance, food stamps and other programs) rose to a record high during the first three months of 2010.

#15) 39.68 million Americans are now on food stamps, which represents a new all-time record.  But things look like they are going to get even worse.  The U.S. Department of Agriculture is forecasting that enrollment in the food stamp program will exceed 43 million Americans in 2011.

#14) Phoenix, Arizona features an astounding annual car theft rate of 57,000 vehicles and has become the new "Car Theft Capital of the World".

#13) U.S. law enforcement authorities claim that there are now over 1 million members of criminal gangs inside the country. These 1 million gang members are responsible for up to 80% of the crimes committed in the United States each year.

#12) The U.S. health care system was already facing a shortage of approximately 150,000 doctors in the next decade or so, but thanks to the health care "reform" bill passed by Congress, that number could swell by several hundred thousand more.

#11) According to an analysis by the Congressional Joint Committee on Taxation the health care "reform" bill will generate $409.2 billion in additional taxes on the American people by 2019.

#10) The Dow Jones Industrial Average just experienced the worst May it has seen since 1940.

#9) In 1950, the ratio of the average executive's paycheck to the average worker's paycheck was about 30 to 1.  Since the year 2000, that ratio has exploded to between 300 to 500 to one.

#8) Approximately 40% of all retail spending currently comes from the 20% of American households that have the highest incomes.

#7) According to economists Thomas Piketty and Emmanuel Saez, two-thirds of income increases in the U.S. between 2002 and 2007 went to the wealthiest 1% of all Americans.

#6) The bottom 40 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.

#5) If you only make the minimum payment each and every time, a $6,000 credit card bill can end up costing you over $30,000 (depending on the interest rate).

#4) According to a new report based on U.S. Census Bureau data, only 26 percent of American teens between the ages of 16 and 19 had jobs in late 2009 which represents a record low since statistics began to be kept back in 1948.

#3) According to a National Foundation for Credit Counseling survey, only 58% of those in "Generation Y" pay their monthly bills on time.

#2) During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

#1) According to the Tax Foundation’s Microsimulation Model, to erase the 2010 U.S. budget deficit, the U.S. Congress would have to multiply each tax rate by 2.4.  Thus, the 10 percent rate would be 24 percent, the 15 percent rate would be 36 percent, and the 35 percent rate would have to be 85 percent.

Friday, June 18, 2010

The Sun and human behavior

We’re currently in a period of low solar flare activity, but a new solar maximum is coming.

Sunspots and Human Behavior

Nasa’s prediction for the next solar maximum.

Friday, June 11, 2010

War and inflation

Via:  www.mises.org

As I continue to read snippets from the central bankers of the world indicating that the dream of a debt jubilee via “global, coordinated inflation” lives on in their fundament-inserted noggins, I googled “war inflation” and found this piece from www.mises.org.  While I think a lot of greedy hedgies (such as Peter Schiff) use the Misean analysis to justify winner-take-all, all-government-is-bad, keep-taxes-low-on-rich-people nonsense, the historical connection between war and inflation is strong.  (For similar reasons, I trust Reinhart and Rogoff more on the outcomes of financial crises and deficits than Krugman.) 

Keynes provided a brilliant set of insights regarding monetary flows in the economy.  With fiat banking and the attendant temptations to direct leverage to the benefit of ruling elites (as nothing is more like a secret society of the ruling elite than a central bank—they might as well put a skull and bones over the doorway), the currency is continuously depreciated to fund debts that cannot be repaid. 

Human beings get along better when things are good.  Hard times exacerbate religious and tribal conflicts.  The Balkans saw this when the Seventies’ inflation crashed.  Every couple of generations it would appear, in recent Western history, that the debt load gets so great that disinflation gives way to deflation, in spite of the best efforts of the central bank to inflate its way out of its self-created mess.

When the fiscal authority steps in and tries to solve the problem of too much debt—unrepayable bad debt—by funding it with more debt instead of letting the losses fall upon the banks that deserve them, deflation becomes almost inevitable.  Debts are magnified in value.  War is a great distraction, and reliably generates the required inflation through its forced rationing of resources.

N.B.  Some of the debt numbers in this article from just two years ago now seem quaintly small.

War and Inflation

Mises Daily: Monday, June 09, 2008 by Llewellyn H. Rockwell Jr.

[This talk was delivered at the Future of Freedom Foundation's conference on "Restoring the Republic: Foreign Policy and Civil Liberties," on June 6, 2008, in Reston, Virginia.]

"This institution is the very mechanism by which the dreams of both the fanatical Right and the fanatical Left come true."

The US central bank, called the Federal Reserve, was created in 1913. No one promoted this institution with the slogan that it would make wars more likely and guarantee that nearly half a million Americans will die in battle in foreign lands, along with millions of foreign soldiers and civilians.

No one pointed out that this institution would permit Americans to fund, without taxes, the destruction of cities abroad and overthrow governments at will. No one said that the central bank would make it possible for the United States to be at large-scale war in one of every four years for a full century. It was never pointed out that this institution would make it possible for the US government to establish a global empire that would make imperial Rome and Britain look benign by comparison.

You can line up 100 professional war historians and political scientists to talk about the 20th century, and not one is likely to mention the role of the Fed in funding US militarism. And yet it is true: the Fed is the institution that has created the money to fund the wars. In this role, it has solved a major problem that the state has confronted for all of human history. A state without money or a state that must tax its citizens to raise money for its wars is necessarily limited in its imperial ambitions. Keep in mind that this is only a problem for the state. It is not a problem for the people. The inability of the state to fund its unlimited ambitions is worth more for the people than every kind of legal check and balance. It is more valuable than all the constitutions every devised.

The state has no wealth that is its own. It is not a profitable enterprise. Everything it possesses it must take from society in a zero-sum game. That usually means taxes, but taxes annoy people. They can destabilize the state and threaten its legitimacy. They inspire anger, revolt, and even revolution. Rather than risk that result, the state from the Middle Ages to the dawn of the central-banking age was somewhat cautious in its global ambitions simply because it was cautious in its need to steal openly and directly from the people in order to pay its bills.

To be sure, it doesn't require a central bank for a state to choose inflation over taxes as a means of funding itself. All it really requires is a monopoly on the production of money. Once acquired, the monopoly on money production leads to a systematic process of depreciating the currency, whether by coin clipping or debasement or the introduction of paper money, which can then be printed without limit. The central bank assists in this process in a critical sense: it cartelizes the banking system, the essential conduit by which money is lent to the public and to the government itself. The banking system thereby becomes a primary funding agency to the state, and, in exchange for its services, the banking system is guaranteed against insolvency and business failure as it profits from inflation. If the goal of the state is the complete monopolization of money under an infinitely flexible paper-money system, there is no better path for the state than the creation of a central bank. This is the greatest achievement for the victory of power over liberty.

The connection between war and inflation, then, dates long before the creation of the Federal Reserve. In fact, it dates to the founding itself. The fate of the Continental currency during and after the Revolutionary War, for example, was a very bad omen for our future, and the whole country paid a very serious price. It was this experience that later led to the gold clause in the US Constitution. Except for the Hamiltonians, that entire generation of political activists saw the unity of freedom and sound money, and regarded paper money as the fuel of tyranny.

Consider Thomas Paine:

Paper money is like dram-drinking, it relieves for a moment by deceitful sensation, but gradually diminishes the natural heat, and leaves the body worse than it found it. Were not this the case, and could money be made of paper at pleasure, every sovereign in Europe would be as rich as he pleased…. Paper money appears at first sight to be a great saving, or rather that it costs nothing; but it is the dearest money there is. The ease with which it is emitted by an assembly at first serves as a trap to catch people in at last. It operates as an anticipation of the next year's taxes.

But the wisdom of this generation, attacked by Lincoln, was finally thrown out during the Progressive Era. It was believed that an age of scientific public policy needed a scientific money machinery that could be controlled by powerful elites. The dawn of the age of central banking was also the dawn of the age of central planning, for there can be no government control over the nation's commercial life without first controlling the money. And once the state has the money and the banking system, its ambitions can be realized.

Before the creation of the Federal Reserve, the idea of American entry into the conflict that became World War I would have been inconceivable. In fact, it was a highly unpopular idea, and Woodrow Wilson himself campaigned on a platform that promised to keep us out of war. But with a money monopoly, all things seem possible. It was a mere four years after the Fed was invented under the guise of scientific policy planning that the real agenda became obvious. The Fed would fund the US entry into World War I.

It was not only entry alone that was made possible. World War I was the first total war. It involved nearly the whole of the civilized world, and not only their governments but also the civilian populations, both as combatants and as targets. It has been described as the war that ended civilization in the 19th-century sense in which we understand that term. That is to say, it was the war that ended liberty as we knew it. What made it possible was the Federal Reserve. And not only the US central bank; it was also its European counterparts. This was a war funded under the guise of scientific monetary policy.

Reflecting on the calamity of this war, Ludwig von Mises wrote in 1919

One can say without exaggeration that inflation is an indispensable means of militarism. Without it, the repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier.

There is always a price to be paid for funding war through the central bank. The postwar situation in America was a classic case. There was inflation. There were massive dislocations. There was recession or what was then called depression, a direct result of capital dislocation that masked itself as an economic boom, but which was then followed by a bust. The depression hit in 1920, but it is not a famous event in United States economic history. Why is that? Because the Federal Reserve had not yet acquired the tools to manufacture an attempt to save the economy. Instead, neither the Fed nor Congress nor the president did much of anything about it — a wholly praiseworthy response! As a result, the depression was brief and became a footnote to history. The same would have happened in 1930, had Hoover not attempted to use the government as the means of resuscitation.

"The dawn of the age of central banking was also the dawn of the age of central planning, for there can be no government control over the nation's commercial life without first controlling the money."

Sadly, the easy recovery of 1920–1922 tempted the central bank to get back into the business of inflation, with the eventual result of a stock market boom that led to bust, then depression, and finally the destruction of the gold standard itself. FDR found that even fascist-style economic planning and inflation could not restore prosperity, so he turned to the ancient method of looking for a war to enter. Here is where the history of the United States and the Fed intersects with the tragic role of the German central bank.

The German government also funded its Great War through inflation. By war's end, money in circulation had risen fourfold. Prices were up 140%. Yet, on international exchange, the German mark had not suffered as much as one might expect. The German government looked at this with encouragement and promptly attempted to manufacture a complete economic recovery through inflation. Incredibly, by 1923, the mark had fallen to one-trillionth of its 1914 gold value. The US dollar was then equal to 4.2 trillion marks. It was an example of currency destruction that remains legendary in the history of the world — all made possible by a central bank that obliged the government and monetized its war debt.

But did people blame the printing press? No. The popular explanation dealt directly with the Treaty of Versailles. It was the harsh peace imposed by the allies that had brought Germany to the brink of total destruction — or so it was believed. Mises himself had written a full book that he hoped would explain that Germany owed its suffering to war and socialism, not Versailles as such. He urged the German people to look at the real cause and establish free markets, lest imperial dictatorship be the next stage in political development. But he was ignored.

The result, we all know, was Hitler.

Turning to Russia, the untold truth about the Bolshevik revolution is that Lenin's greatest propaganda tool involved the suffering of the Russian people during World War I. Men were drafted and killed at a horrific level. Lenin called this capitalist exploitation, based on his view that the war resulted from capitalist motives. In fact, it was a foreshadowing of the world that socialism would bring about, a world in which all people and all property are treated as means to statist ends. And what made the prolongation of the Russian role in World War I possible was an institution created in 1860 called the State Bank of the Russian Empire — the Russian version of the Fed.

The Russian war itself was funded through money creation, which also led to massive price increases and controls and shortages during the war. I'm not of the opinion, unlike the neocons, that the Russian monarchy was a particularly evil regime, but the temptation that the money machine provided the regime proved too inviting. It turned a relatively benign monarchy into a war machine. A country that had long been integrated into the worldwide division of labor and was under a gold standard became a killing machine. And as horrific and catastrophic as the war dead were for Russian morale, the inflation affected every last person and inspired massive unrest that led to the triumph of Communism.

At this juncture in history, we can see what central banking had brought to us. It was not an end to the business cycle. It was not merely more liquidity for the banking system. It was not an end to bank runs and bank panics. It certainly wasn't scientific public policy. The world's major economies were being lorded over by money monopolies, and the front men had become some of the worst despots in the history of the world. Now they were preparing to fight each other with all the resources they had at their disposal. The resources they did not have at their disposal they would pay for with their beloved machinery of central banking.

In wartime, the printing presses ran overtime, but with a totalitarian level of rationing, price controls, and all-around socialization of resources in the whole of the Western world, the result of inflation was not merely rising prices. It was vast suffering and shortages in Britain, Russia, Germany, Italy, France, Austria-Hungary, the United States, and pretty much the entire planet.

"One can say without exaggeration that inflation is an indispensable means of militarism."

– Ludwig von Mises

So we can see here the amazing irony of central banking at work. The institution that was promoted by economists working with bankers, in the name of bringing rationality and science to bear on monetary matters, had given birth to the most evil political trends in the history of the world: Communism, socialism, Fascism, Nazism, and the despotism of economic planning in the capitalist West. The story of central banking is one step removed from the story of atom bombs and death camps. There is a reason the state has been unrestrained in the last 100 years, and that reason is the precise one that many people think of as a purely technical issue that is too complicated for mere mortals.

Fast-forward to the Iraq War, which has all the features of a conflict born of the power to print money. There was a time when the decision to go to war involved real debate in the House of Commons or the US House of Representatives. And what was this debate about? It was about resources and the power to tax. But once the executive state was unhinged from the need to rely on tax dollars and did not have to worry about finding willing buyers for its unbacked debt instruments, the political debate about war was silenced.

In the entire run-up to war, George Bush just assumed as a matter of policy that it was his decision alone whether to invade Iraq. The objections by Ron Paul and some other members of Congress and vast numbers of the American population were reduced to little more than white noise in the background. Imagine if he had to raise the money for the war through taxes. It never would have happened. But he didn't have to. He knew the money would be there. So despite a $200 billion deficit, a $9 trillion debt, $5 trillion in outstanding debt instruments held by the public, a federal budget of $3 trillion, and falling tax receipts in 2001, Bush contemplated a war that has cost $525 billion dollars — or $4,681 per household. Imagine if he had gone to the American people to request that. What would have happened? I think we know the answer to that question. And those are government figures; the actual cost of this war will be far higher — perhaps $20,000 per household.

Now, when left-liberals talk about these figures, they like to compare them with what the state might have done with these resources in terms of funding health care, public schools, Head Start centers, or food stamps. This is a mistake because it demonstrates that the Left isn't really providing an alternative to the Right. It merely has a different set of priorities in how it would use the resources raised by the inflation machine. It's true that public schools are less costly in terms of lives and property than war itself. But the inflation-funded welfare state also has a corrosive effect on society. The pipe dream that the inflation monster can be used to promote good instead of evil illustrates a certain naïveté about the nature of the state itself. If the state has the power and is asked to choose between doing good and waging war, what will it choose? Certainly in the American context, the choice has always been for war.

"The story of central banking is one step removed from the story of atom bombs and death camps."

It is equally naïve for the Right to talk about restraining the government while wishing for global war. So long as the state has unlimited access to the printing press, it can ignore the pleas of ideological groups concerning how the money will be spent. It is also very silly for the Right to believe that it can have its wars, its militarism, its nationalism and belligerence, without depending on the power of the Federal Reserve. This institution is the very mechanism by which the dreams of both the fanatical Right and the fanatical Left come true.

The effect of the money machine goes well beyond funding undesirable government programs. The Fed creates financial bubbles that lead to economic dislocation. Think of the technology bubble of the late 1990s or the housing bubble. Or the boom that preceded the current bust. These are all a result of the monopolization of money.

These days, the American consumer has been hit very hard with rising prices in oil, clothing, food, and much else. For the first time in decades, people are feeling this and feeling it hard. And just as in every other inflation in world history, people are looking for the culprit and finding all the wrong ones. They believe it is the oil companies who are gouging us, or that foreign oil dealers are restricting supply, or that gas station owners are abusing a crisis to profit at our expense.

I wouldn't entirely rule out the possibility that price controls are around the corner. When Nixon imposed them in 1971, neither he nor his advisors believed that they would actually result in controlling inflation. Rather, the purpose was to redirect the target of public anger from the government and its bank over to retailers, who would become scapegoats. In this sense, price controls do work. They make people believe that the government is trying to lower prices while the private sector is attempting to raise them. This is the real political dynamic at work with price controls.

The question is whether you will be taken in by these tactics. It is long past time for us to take note that the cause of the real trouble here is not the manufacturers, or even the war as such, but the agency that has been granted a legal right to counterfeit at will and lower the value of the currency while fueling every manner of statist scheme, whether welfare or warfare. We need to look at the Fed and say, this is the enemy.

Note that the Federal Reserve is not a political party. It is not a recognized interest group. It is not a famed lobby in Washington. It is not really even a sector of public opinion. It seems completely shielded from vigorous public debate. If we truly believe in liberty and decry the leviathan state, this situation cannot be tolerated.

"So long as the state has unlimited access to the printing press, it can ignore the pleas of ideological groups concerning how the money will be spent."

I say to the sincere Right, if you really want to limit the state, you will have to give up your dreams of remaking the world at the point of a gun. Wars and limited government are impossible. Moreover, you must stop ignoring the role of monetary policy. It is a technical subject, to be sure, but one that we must all look into and understand if we expect to restore something that resembles the American liberty of the founders.

I say to the sincere Left, if you really want to stop war and stop the spying state, and put an end to the persecution of political dissidents and the Guantánamo camps for foreign peoples, and put a stop to the culture of nationalism and militarism, you must join us in turning attention to the role of monetary policy. The printing presses must be unplugged. It's true that this will also hit programs that are beloved by the Left, such as socialized health care and federalized education programs. But so long as you expect the state to fund your dreams, you cannot expect that the state will not also fund the dreams of people you hate.

And let me say a few words to libertarians, who dream of a world with limited government under the rule of law, a world in which free enterprise reigns and where the state has no power to interfere in our lives so long as we behave peacefully. It is completely absurd to believe that this can be achieved without fundamental monetary reform. And yet, until the most recent Ron Paul campaign — and aside from Murray Rothbard and the 26-year-long work of the Mises Institute — I don't recall that libertarians themselves have cared much about this issue at all.

In 1983, the Mises Institute held a large academic conference on the gold standard, and we held it in Washington, D.C. (There were scholarly papers and Ron Paul debated a Fed governor. Ron won.) Even back then, I recall that D.C. libertarians ridiculed us for holding such a meeting to talk about the Fed and its replacement with sound money. They said that this would make the Mises Institute look ridiculous, that we would be tarred with the brush of gold bugs and crazies. We did it anyway. And all these years later, the book that came out of that conference remains a main source for understanding the role of money in the advance of despotism or resistance to it, and a blueprint for the future.

Of course the Austrian tradition fought paper money and central banking from the beginning. Menger was an advocate of the gold standard. Böhm-Bawerk actually established it as finance minister to the Habsburg monarchy. Mises's book on the topic from 1912 was the first to show the role of money in the business cycle, and he issued dire warnings about central banking. Hayek wrote powerfully against the abandonment of gold in the 1930s. Hazlitt warned of the inevitable breakdown of Bretton Woods and advocated a real gold standard instead. And Rothbard was a champion of sound money and the greatest enemy the Fed has ever had.

But generally, I've long detected a tendency in libertarian circles to ignore this issue, in part for precisely the reasons cited above: it is not respectable.

Well, I will tell you why this issue is not considered respectable: it is the most important priority of the state to keep its money machine hidden behind a curtain. Anyone who dares pull the curtain back is accused of every manner of intellectual crime. This is precisely the reason we must talk about it at every occasion. We must end the conspiracy of silence on this issue.

I was intrigued at how Ron Paul, during his campaign, would constantly bring up the subject. Most politicians are out to play up to their audiences, so they say things that people want to hear. I promise you that early in the campaign, no one wanted to hear him talk about the Federal Reserve. But he did it anyway. He worked to educate his audiences about the need for monetary reform. And it worked. For the first time in my life, there is a large and very public movement in this country to take this topic seriously.

Salerno on 
C-SPAN

Monetary economist Joseph Salerno was called the other day by C-Span, which wanted to interview him on television on the need to restore gold as the basis of our currency. As I watched this excellent interview, I was struck by what a great triumph it truly is for liberty that this topic is again part of the national debate. In the 19th-century, this was a topic on everybody's mind. It can be again today, provided we do not eschew the truth in the formation of our message.

It might be said that advocating privatization is politically unrealistic, and therefore a waste of time. What's more, we might say that by continuing to harp on the issue, we only marginalize ourselves, proving that we are on the fringe. I submit that there is no better way to ensure that an issue will always be off the table than to stop talking about it.

Far from being an arcane and anachronistic issue, then, the gold standard and the issues it raises get right to the heart of the current debate concerning the future of war and the world economy. Why do the government and its partisans dislike the gold standard? It removes the discretionary power of the Fed by placing severe limits on the ability of the central bank to inflate the money supply. Without that discretionary power, the government has far fewer tools of central planning at its disposal. Government can regulate, which is a function of the police power. It can tax, which involves taking people's property. And it can spend, which means redistributing other people's property. But its activities in the financial area are radically curbed.

Think of your local and state governments. They tax and spend. They manipulate and intervene. As with all governments from the beginning of time, they generally retard social progress and muck things up as much as possible. What they do not do, however, is wage massive global wars, run huge deficits, accumulate trillions in debt, reduce the value of money, bail out foreign governments, provide endless credit to failing enterprises, administer hugely expensive and destructive social insurance schemes, or bring about immense swings in business activity.

State and local governments are awful and they must be relentlessly checked, but they are not anything like the threat of the federal government. Neither are they as arrogant and convinced of their own infallibility and indispensability. They lack the aura of invincibility that the central government enjoys.

It is the central bank, and only the central bank, that works as the government's money machine, and this makes all the difference. Now, it is not impossible that a central bank can exist alongside a gold standard, a lender of last resort that avoids the temptation to destroy that which restrains it. In the same way, it is possible for someone with an insatiable appetite for wine to sit at a banquet table of delicious vintages and not take a sip. Let's just say that the existence of a central bank introduces an occasion of sin for the government. That is why under the best gold standard, there would be no central bank, gold coins would circulate as freely as their substitutes, and rules against fraud and theft would prohibit banks from pyramiding credit on top of demand deposits.

$21 $18

"Until the most recent Ron Paul campaign, I don't recall that libertarians themselves have cared much about this issue at all."

So long as we are constructing the perfect system, all coinage would be private. Banks would be treated as businesses: no special privileges, no promises of bailout, no subsidized insurance, and no connection to government at any level.

This is the free-market system of monetary management, which means turning over the institution of money entirely to the market economy. As with any institution in a free society, it is not imposed from above and dictated by a group of experts, but is the de facto result that comes about in a society that consistently respects private-property rights, encourages enterprise, and promotes peace.

It comes down to this. If you hate war, oppose the Fed. If you hate violations of your liberties, oppose the Fed. If you want to restrain despotism, restrain the Fed. If you want to secure freedom for yourself and your descendants, abolish the Fed.

Thursday, June 10, 2010

Banking reform update

Is there any doubt about which way the Appeaser-in-Chief will go? Oh, and by the way, thanks Robert Rubin for screwing up the best fiscal management of any president in two generations by dumping Glass-Steagall, slipping in derivatives deregulation and loosening leverage for your friends on Wall Street.  Good work!

Via:  www.baselinescenario.com

Decision Time: Has the President Abandoned Paul Volcker’s Ideas On Financial Reform?

Wednesday, June 9, 2010

Disinformation from those who should know better…

…but are behaving suspiciously like members of the MSM, AKA the propaganda arm of the ruling class….

Via:  angry bear  

Americans want to Soak the Rich MMCCLXXVII

Posted by Robert | 6/08/2010 08:02:00 PM

Robert Waldmann

Jeff Sachs proposed higher taxes on the rich.

Felix Salmon wrote

I don't think this is possible, politically, in either the US or the UK. In the US, the middle classes are implacably opposed to tax hikes on people making more money than they themselves will ever make.


Kevin Drum agrees with Salmon about US public opinion and asks.
"Why are Americans so unsympathetic to higher taxes on zillionaires?"

The answer is that Americans are sympathetic to higher taxes on the rich, as has been demonstrated by every poll on the question in the past two decades.

Matt Yglesias noted one recent poll which shows majority support for higher taxes on the rich. I just add that I know of no poll in US history which doesn’t show majority support for higher taxes on the rich.

Somehow this absolutely striking, dramatic, undeniable feature of US public opinion has been overlooked. I think the reason is that policy makers and pundits agree that soaking the rich is un-American, and the fact that most citizens disagree must therefore not be conceded.

In the elite debate it is definitely agreed that Americans hate class warfare and are not willing to soak the rich. I firmly believe that this is agreed, because it serves the group interest of the elite. I don’t think Drum, Salmon or many others are influenced by their personal self interest (Drum and Salmon clearly wish things were as they really are). I think the fact that the US public want to raise taxes on the rich isn’t transmitted from pundit to pundit the way the alleged fact that Americans want Obama to show more anger at BP is transmitted, because critical links are broken by people who just hate the fact and won’t accept it.

I add that admitting that Marx had a point makes me feel ill.

Kevin Drum and Felix Salmon ignore not only massive evidence but also my many posts pointing to that massive evidence. My feelings are hurt. Not to boast, but just to boast, I have actually corresponded by e-mail with Drum and by some kind of instant messenger with Salmon.

As I mentioned before the jump, Matthew Yglesias pointed out that their perception of public opinion is totally inconsistent with public opinion. Here’s the link again. The very best fact is that 64 % of polled American adults with annual household income over $250,000 think that “raising income taxes on households making more than $250,000 should … be a main part of any government approach to the deficit”*.

Drum and Salmon’s amazing disconnect from reality is not based on the inflation of the concept of “middle class” which now seems to mean “upper class but not super rich” and goes from the 50th percentile up to the 99th or something. By that definition, most middle class respondents agree with rich respondents that taxes on the rich should be increased (perhaps conditional on there being spending cuts and other tax increases).


*In plain numbers this would seem to be 16 out of 25 rich respondents favor increasing their own taxes. That gives a standard error of the estimate of 9.6% so the two standard deviations interval would be from 44.8 % to 83.2%. This calculation makes no sense with such a tiny sample. The null that 50% or less of the rich support higher taxes on the rich is not rejected at the 5% level, p = 8%. The null that 40% or fewer of the rich support higher taxes on the rich is rejected at the 5% level the p level for the null of 45% is almost exactly 5%.

The rich want to soak the rich.

Friday, June 4, 2010

Labor market remains very weak

 image

www.calculatedrisk.com offers the following:

Mean duration of unemployment continues to shoot up.  At this point it is almost irrelevant whether someone is in the labor force or not, as we know that income inequality is at record highs, asset prices have collapsed, so that those at the bottom of the pecking order are likely in need of work whether they’re counted in the labor force or not.  Employment/population is near 25-year lows.

Thursday, June 3, 2010

Perspective on the manufacturing recovery

Industrial production is at levels first achieved more than ten years ago, and capacity utilization is close to record postwar lows. 

The EU and US are debt-strapped; only the solvent developing world has the purchasing power to increase manufacturing demand significantly, but they have been dependent on the EU and US as final markets.

A second round of deflationary contraction in the US and EU will probably result in the formation of a head-and-shoulders pattern in Industrial Production in the US, and probably globally.