Category Archives: Federal Reserve Bank

Update II: The French Revolution Revived

Conservatism, Debt, Economy, Europe, Federal Reserve Bank, Founding Fathers, Inflation, Liberty, Political Philosophy

“Everything human and divine sacrificed to the idol of public credit,” is how the Brilliant Edmund Burke, supporter of the American colonists, described the illiberal, irreligious, intolerant French Revolution. In return, the punk Thomas Paine spat worthless venom at Burke for his devastating critique of that blood-drenched Revolution. Like contemporary Americans, Paine’s fealty was to the Jacobins, who, for his troubles, almost had him guillotined. The Rights of Man, in particular, is intended as a refutation of Edmund Burke’s critique. Naturally, it does nothing of the sort.

There is no affinity between the French and American founding ideas. And Paine’s proto-socialism—he advocated welfare financed by taxes—is quintessentially unAmerican. Yet Paine is beloved of Americans; of Burke I seldom hear. I intend to change that here on BAB.

Let me begin with an excerpt from Reflections on the Revolution in France, where Burke speaks about the proliferation of fiat money (“fictitious representation”). He does so a great deal in this magnificent tract. Burke hammering on about “current circulating credit,” “defiance of economical principles,” and “bankruptcy” could not be more germane in fin de siècle America:

“At present the state of their treasury sinks every day more and more in cash, and swells more and more in fictitious representation. When so little within or without is now found but paper, the representative not of opulence but of want, the creature not of credit but of power, they imagine that our flourishing state in England is owing to that bank-paper, and not the bank-paper to the flourishing condition of our commerce, to the solidity of our credit, and to the total exclusion of all idea of power from any part of the transaction. They forget that, in England, not one shilling of paper money of any description is received but of choice; that the whole has had its origin in cash actually deposited; and that it is convertible at pleasure, in an instant and without the smallest loss, into cash again. Our paper is of value in commerce, because in law it is of none. It is powerful on ‘Change, because in Westminster Hall it is impotent. In payment of a debt of twenty shillings, a creditor may refuse all the paper of the Bank of England. Nor is there amongst us a single public security, of any quality or nature whatsoever, that is enforced by authority. In fact, it might be easily shown that our paper wealth, instead of lessening the real coin, has a tendency to increase it; instead of being a substitute for money, it only facilitates its entry, its exit, and its circulation; that it is the symbol of prosperity, and not the badge of distress. Never was a scarcity of cash and an exuberance of paper a subject of complaint in this nation.”

[SNIP]

Readers: search the online volume, posted on Bartleby.com, and post comments excerpting your favorite tracts.

Update I (August 26): Prof. Dennis O’keeffe is the author of Burke, due out in October of this year.

Update II: Russell Kirk on Burke:

“Written at white heat, the “Reflections” burns with all the wrath and anguish of a prophet who saw the traditions of Christendom and the fabric of civil society dissolving before his eyes. Yet his words are suffused with a keenness of observation, the mark of a practical statesman. This book is polemic at its most magnificent, and one of the most influential political treatises in the history of the world.” (The Essential Russel Kirk, 2007, p. 144)

“In The Eye Of The [Economic] Storm”

Debt, Economy, Federal Reserve Bank, Inflation

The Wall Street Journal has a dilemma. How does an anti-Obama, Keynesian outfit treat the putative economic recovery. Here’s the compromise: “We’re not going to have a strong recovery … It’s likely going to be a pretty sluggish affair.”

The truth is much worse. But you already knew it. A couple of weeks back I warned against accepting the media-congressional-presidential complex’s contention that slight upticks in the GDP were indicators of a recovery. In “…Like A Housewarming For The Homeless” I explained that,

the GDP statistic is consumption-driven: it measures the kind of economic Brownian motion of which less is required. ‘This statistic is constructed in accordance with the view that what drives an economy is not the production of wealth but rather its consumption,’ confirms (Austrian) economist Frank Shostak. ‘What matters here is demand for final goods and services. Since consumer outlays are the largest part of overall demand, it is commonly held that consumer demand sets in motion economic growth.’

The temporary bump in the economy is due to the halcyon stimulative high—the effects of all the fiat funny-money floating around and further distorting production patterns.

Says Peter Schiff, the Austrian economics wizard who has yet to be wrong: We are now in an even deeper hole than when the crisis began. Rather than wrapping up a recession, we are actually sinking into a depression. If things look better now, it’s just because we are in the eye of the storm“:

By interfering with the unpleasant forces of the recession, we simply trade short-term gain for long-term pain. By propping up inefficient companies that should fail, we deprive more effective companies of the capital they need to grow. By holding up over-valued asset prices, we prevent the prudent or less well-off from snatching them up and, in doing so, creating a new price equilibrium based upon reality. By maintaining artificially low interest rates, we discourage the very savings that are so critical to capital formation and future economic growth. In addition, the false economic signals the Fed sends the market prevent a more efficient re-allocation of resources from taking place and leads to even more bad economic decision being made. By running such huge deficits, we further crowd-out private enterprise by making it harder for businesses to invest or hire

The verbose Donny Deutsch, a lefty business-cum-mediaman, who’s proving too much of a rightist for the front fems who anchor MSNBC programs, declared the “Clunkers for Cash” give-away, wealth-distribution initiative an example of economic innovation. Inoculate yourselves:

The recently passed “cash for clunkers” program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don’t they realize that is precisely the behavior that got us into this mess?

Think about it this way. If your friend were in trouble because he had too much debt, would you encourage him to take on even more? Wouldn’t a real sign of progress be a reduction of debt, even if he had to cut back on his everyday expenses? What is true for an individual is also true for a collection of individuals, even if they call themselves a ‘government.’ If, as a country, we are even deeper into debt now than we were before, we are worse off. Period. The fact that the additional debt enabled better short-term GDP numbers is a long-term negative.

"In The Eye Of The [Economic] Storm"

Debt, Federal Reserve Bank, Inflation

The Wall Street Journal has a dilemma. How does an anti-Obama, Keynesian outfit treat the putative economic recovery. Here’s the compromise: “We’re not going to have a strong recovery … It’s likely going to be a pretty sluggish affair.”

The truth is much worse. But you already knew it. A couple of weeks back I warned against accepting the media-congressional-presidential complex’s contention that slight upticks in the GDP were indicators of a recovery. In “…Like A Housewarming For The Homeless” I explained that,

the GDP statistic is consumption-driven: it measures the kind of economic Brownian motion of which less is required. ‘This statistic is constructed in accordance with the view that what drives an economy is not the production of wealth but rather its consumption,’ confirms (Austrian) economist Frank Shostak. ‘What matters here is demand for final goods and services. Since consumer outlays are the largest part of overall demand, it is commonly held that consumer demand sets in motion economic growth.’

The temporary bump in the economy is due to the halcyon stimulative high—the effects of all the fiat funny-money floating around and further distorting production patterns.

Says Peter Schiff, the Austrian economics wizard who has yet to be wrong: We are now in an even deeper hole than when the crisis began. Rather than wrapping up a recession, we are actually sinking into a depression. If things look better now, it’s just because we are in the eye of the storm“:

By interfering with the unpleasant forces of the recession, we simply trade short-term gain for long-term pain. By propping up inefficient companies that should fail, we deprive more effective companies of the capital they need to grow. By holding up over-valued asset prices, we prevent the prudent or less well-off from snatching them up and, in doing so, creating a new price equilibrium based upon reality. By maintaining artificially low interest rates, we discourage the very savings that are so critical to capital formation and future economic growth. In addition, the false economic signals the Fed sends the market prevent a more efficient re-allocation of resources from taking place and leads to even more bad economic decision being made. By running such huge deficits, we further crowd-out private enterprise by making it harder for businesses to invest or hire

The verbose Donny Deutsch, a lefty business-cum-mediaman, who’s proving too much of a rightist for the front fems who anchor MSNBC programs, declared the “Clunkers for Cash” give-away, wealth-distribution initiative an example of economic innovation. Inoculate yourselves:

The recently passed “cash for clunkers” program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don’t they realize that is precisely the behavior that got us into this mess?

Think about it this way. If your friend were in trouble because he had too much debt, would you encourage him to take on even more? Wouldn’t a real sign of progress be a reduction of debt, even if he had to cut back on his everyday expenses? What is true for an individual is also true for a collection of individuals, even if they call themselves a ‘government.’ If, as a country, we are even deeper into debt now than we were before, we are worse off. Period. The fact that the additional debt enabled better short-term GDP numbers is a long-term negative.

Updated: Stocks Or Savings?

Debt, Economy, Federal Reserve Bank, Inflation

Is America back and are the statists out? If only, says the one-and-only Peter Schiff. “The statists aren’t out; they’re here, they’re in control.” The Fed has yet to raise interest rates as it ought to. Americans have yet to begin saving in earnest. The government’s sticky paws are all over the place, prices are not being allowed to fall to reflect reality. We’re still a broke and bankrupt consumer economy.

Peter Morici, on the other hand, smells the recovery—a fourth-quarter recovery, to be precise. I wonder whether he’ll be asked back on the “Kudlow Report” when his prediction turns out to be false? Who am I kidding. Being a commentator on the “idiot’s lantern” means never having to say you’re sorry.

Update (July 21): Schiff said nothing about saving dollars. Anyone who follows his advice knows he recommends divesting of US assets. And he’s big on gold. We discussed strategizing in “Survival On the Road To serfdom.”