Category Archives: Inflation

Update II: ‘Monetary Freedom and Its Opposite’

Economy, EU, Federal Reserve Bank, Inflation, Political Economy, The State

Writes Mark Thornton of the Ludwig von Mises Institute:

“As we enter the era of decline for the dollar all sorts of reforms will be used to address this decline and the economic instability it causes. However, reforms designed on Wall Street or in Washington will not work and will amount to nothing more than rear guard action by the moneyed interests that control the government.

The only true path to reform is monetary freedom. We have gone from a situation where money was entirely free from government intervention to one that is completely dominated by government. Instead of privately minted coins made from precious metals we now have a system of government-printed paper fiat currency. We have gone from a system of private banking that provided bank notes and checks for demand deposits to one where banks are completely regulated by the central bank and a host of other regulatory bodies. The idea that our current financial mess resulted from a lack of regulation is truly laughable. Of course this process has taken centuries to complete. By giving up our monetary freedom—particularly over the last one hundred years—we have given government the ability to grow in size and scope and to achieve unthinkable levels of power. Every step forward towards government control of money has resulted in social chaos and economic destruction. The real economy only grows in the interludes when monetary mischief is at a minimum.”

[Snip]

Pay attention to the section, “What do we need to do as individuals?”

Update I: As always, Pat Buchanan delves well into the history of events–in this case The Bretton Woods Agreements, and the ongoing, current attempt to recreate a second Bretton Woods by unseating the US and its fallen currency. What I don’t get is why is Pat so confident that a “global central bank, the Fed of the world economy,” will not come to pass. He claims “Americans are not going to fund such a bank, nor cede it authority, nor abide by its dictates. We are not yet a Third World nation dependent on the IMF.”

Why Not? Whence comes the confidence? Pat’s courage and convictions are not shared in Washington and on Wall Street. (Or on “Main Street,” for that matter.)

Update II (Nov. 15): The G-20 Summit, where G stands for Golem, has concluded. Some humor has been injected into this solemn affair, as the central planners’ affirmed “their commitment to free market principles.” Another thing to tickle the funny bone: the commitment these counterfeiters made to “promoting integrity in financial markets.” Nothing about integrity in government. I guess that’s a contradiction in terms.

Updated: Ron Paul: He Just Gets Better and Better

Economy, Federal Reserve Bank, Inflation, Ron Paul

As the economic situation worsens, Ron Paul just gets better and better at shedding light where all shed darkness, and in speaking truth to power.

This here is classic Paul.

Updated (October 7): Particularly brilliant in its simplicity and clarity is Paul’s assertion that those who have a good credit rating can still buy and borrow no problem. Anyone who pays his bills and has money in the bank knows this to be immutably true; he’s getting inundated with offers from credit cards as we speak.

Updated: Quick-Fix Quacks

Bush, Economy, Federal Reserve Bank, Inflation, Socialism

“The subprime mortgage cesspool is the latest acquisition in the government’s growing disinvestment portfolio.

If you’re working from the right set of first principles, you’ll understand that the State should not have an investment portfolio.

When one works from solid first principles, predicting what will happen upon their violation is easy. What isn’t easy is arriving at the correct principles in the first place.

Holding immutably true, principled positions is both politically unpopular and intellectually unintuitive to the mindless multitudes.

But not for one very clever economist—Bob Higgs—who, like another very clever statesman—Ron Paul—predicted the mortgage miasma into which the country has slid.”

That’s an excerpt from my new WND column, “Quick-Fix Quacks.”

Update: This apt comment from Bob Higgs, whose commentary I quote extensively in “Quick-Fix Quacks”:

“People seem to be especially receptive to this message right now, perhaps because the cannibals in Washington are consuming their substance right down to the bone. Of course, the House just passed the bailout bill–the worse-than-original one–after the appropriate items had been added to assist formerly resistant members in further plunder. Democracy in action.”

Bob

Hydra-Headed Commie Talking Heads

Business, Capitalism, Communism, Debt, Economy, Federal Reserve Bank, Inflation, Israel, Journalism, Media, Republicans

Last night I watched one of the many performances Stephen Moore and John Fund give on Glenn Beck’s show, talking up the bailout while making the obligatory noises about their free market credentials.

I wonder why Glenn Beck, whose instincts are generally good, and who disagreed with them, tolerates such obfuscation. Has Glenn done no research? Stephen Moore authored a book paradoxically titled Bullish on Bush: How the Ownership Society Is Making America Richer.

Here’s my truism, excerpted from “Bush & The Bailout Bandits”: “Bush’s ownership society, built as it was on quicksand, has metamorphosed into the bailout society.”

Is America ever going to fire its failed philosopher kings when they fail to predict anything?

Here is an excellent antidote (via LRC.Com) to the hydra-headed talking heads, exposing them for the philosophical commies they are. It’s written by the Canadian Austro-libertarian Martin Masse:

KARL’S COMEBACK

Martin Masse
Financial Post, September 30, 2008, FP13

In his Communist Manifesto published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes over power, with the aim of centralizing all instruments of production in the hands of the state. Proposal #5 was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”

If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.

Indeed, analysts at the Heritage Foundation and Cato Institute, and commentators in the Wall Street Journal and in this very page, have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled $700-billion bailout package. Some of the same voices were calling for similar interventions following the burst of the dotcom bubble in 2001.

“Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.

At first glance, anyone who understands economics can see that there is something wrong with this picture. The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs and make businesses less productive elsewhere. Increasing the money supply is no different. It is an invisible tax that redistributes resources to debtors and those who made unwise investments.

So why throw this sound free-market analysis overboard as soon as there is some downturn in the markets?

The rationale for intervening always seems to centre on the fear of reliving the Great Depression. If we let too many institutions fail because of insolvency, we are being told, there is a risk of a general collapse of financial markets, with the subsequent drying out of credit and the catastrophic effects this would have on all sectors of production. This opinion, shared by Ben Bernanke, Henry Paulson and most of the right-wing political and financial establishments, is based on Milton Friedman’s thesis that the Fed aggravated the Depression by not pumping enough money into the financial system following the market crash of 1929.

It sounds libertarian enough. The misguided policies of the Fed, a government creature, and bad government regulation are held responsible for the crisis. The need to respond to this emergency and keep markets running overrides concerns about taxing and inflating the money supply. This is supposed to contrast with the left-wing Keynesian approach, whose solutions are strangely very similar despite a different view of the causes.

But there is another approach that doesn’t compromise with free-market principles and coherently explains why we constantly get into these bubble situations followed by a crash. It is centered on Marx’s Proposal # 5: government control of capital.

For decades, Austrian School economists have warned against the dire consequences of having a central banking system based on fiat money, money that is not grounded on any commodity like gold and can easily be manipulated. In addition to its obvious disadvantages (price inflation, debasement of the currency, etc.), easy credit and artificially low interest rates send wrong signals to investors and exacerbate business cycles.

Not only is the central bank constantly creating money out of thin air, but the fractional reserve system allows financial institutions to increase credit many times over. When money creation is sustained, a financial bubble begins to feed on itself, higher prices allowing the owners of inflated titles to spend and borrow more, leading to more credit creation and to even higher prices.

As prices get distorted, malinvestments, or investments that should not have been made under normal market conditions, accumulate. Despite this, financial institutions have an incentive to join this frenzy of irresponsible lending, or else they will lose market shares to competitors. With “liquidities” in overabundance, more and more risky decisions are made to increase yields and leveraging reaches dangerous levels.

During that mania phase, everybody seems to believe that the boom will go on. Only the Austrians warn that it cannot last forever, as Friedrich Hayek and Ludwig von Mises did before the 1929 crash, and as their followers have done for the past several years.

Now, what should be done when that pyramidal scheme starts crashing to the floor, because of a series of cascading failures or concern from the central bank that inflation is getting out of control? It’s obvious that credit will shrink, because everyone will want to get out of risky businesses, to call back loans and to put their money in safe places. Malinvestments have to be liquidated; prices have to come down to realistic levels; and resources stuck in unproductive uses have to be freed and moved to sectors that have real demand. Only then will capital again become available for productive investments.

Friedmanites, who have no conception of malinvestments and never raise any issue with the boom, also cannot understand why it inevitably leads to a crash. They only see the drying up of credit and blame the Fed for not injecting massive enough amounts of liquidities to prevent it.

But central banks and governments cannot transform unprofitable investments into profitable ones. They cannot force institutions to increase lending when they are so exposed. This is why calls for throwing more money at the problem are so totally misguided. Injections of liquidities started more than a year ago and have had no effect in preventing the situation from getting worse. Such measures can only delay the market correction and turn what should be a quick recession into a prolonged one.

Friedman – who, contrary to popular perception, was not a foe of monetary inflation, but simply wanted to keep it under better control in normal circumstances – was wrong about the Fed not intervening during the Depression. It tried repeatedly to inflate but credit still went down for various reasons. This is a key difference in interpretation between the Austrian and Chicago schools.

As Friedrich Hayek wrote in 1932, “Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. … To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about…”

The confusion of Chicago school economics on monetary issues is so profound as to lead its adherents today to support the largest government grab of private capital in world history. By adding their voices to those on the left, these confused free-marketeers are not helping to “save capitalism”, but contributing to its destruction.

*Martin Masse is publisher of the libertarian webzine Le Québécois Libre and a former advisor to Industry minister Maxime Bernier

[Further recommended reading is here, scroll down, please.]