Now that Greenspan is no longer working for the government, he's once again turned into a capitalist.
In a rant he recently wrote for the WSJ, he said “The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy ... Incremental change will not be adequate.”
He went on to say that “Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt problem. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80.
“The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. “[The] very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”
He also says that yields on U.S. Treasuries have decreased in recent months (demand has increased) because of the European debt crisis--a situation that is likely only temporary. This is of course directly contradicting Bernanke's latest tirade against the Gold Rally in which he suggested that the low yields on US Treasuries in recent months were a sign of long-term stability (a pack of lies Latewire immediately called out).
10-year Treasury notes yielded 3.20 percent as of 12:11 p.m. in Tokyo on June 17th, down from the year’s high of 4.01 percent in April and compared with as high as 5.32 percent in June 2007, before the recession began. Yields continue to be low “despite the surge in federal debt to the public during the past 18 months to $8.6 trillion from $5.5 trillion". Greenspan says this shift in demand from European into American Bonds is “temporary.”
“Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis,” Greenspan said. “Our policy focus must therefore err significantly on the side of restraint.”
I couldn't have said it better myself. Can you please tell your former underlings that?
UPDATE: Peter Schiff just released a VLOG where he said almost exactly the same thing. (22,786)
Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, ... Gold is seen by many investors as a hedge against inflation risk.
Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes.
That's because the CPI is complete BS, and everyone knows it (with the possible exception of Bernanke). Of course he's also leaving out such asset classes as "Food" and "Energy" (apart from Oil). Plus his whole "reflation" strategy is keeping prices high as household income declines (fewer hours, worse wages, unemployment), plunging everyone but the super-rich into horrible poverty (worse than we would've had even with just the recession).
Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently.
1) People are fleeing the Euro 2) The fed is BUYING THE FREAKIN BONDS IN RECORD NUMBERS ON THE SECONDARY MARKET
Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low.
Again...
And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.
Demand for copper, now that the housing market is on its last legs, is going to be reduced from the highs the federal reserve and other government agencies artificially raised them. The copper bubble popped with the housing bubble, and as of yet Bernanke hasn't been able to inflate your way out of it. Not to mention the fact that China is no longer stockpiling all the copper on the planet. (17,947)
The epitome of the Fat-cat is back, and his name rhymes with "sacks." This is appropriate, considering that not since Lincoln's prostitution to the Railroad companies have we seen such shameless and unapologetic chrome-plated balls in our corporate governance.
A few days ago Sachs was sued by the SEC, ostensibly out of nowhere (they weren't even given the customary prior-notice to prepare). This is an unquantifiable mountain of horse-shit. I'm not saying they haven't done anything wrong, I'm saying that everybody knows it's a show-trial and nothing will come of it... well, everybody but the average American, that is.
The average American will see this as a fresh reminder of why we "need" financial reform. When Obama gets up on stage and finally signs this shit into law, most Americans will be watching it live on TV--clapping their sausage-digitted mits together, resulting an enormous orange plume of Dorito-dust which will likely be the 3rd of man's creations that will be visible from space.
Make no mistake: This isn't being done to penalize Goldman Sachs. This fact is so obvious that even the GOP is calling them out on it.
It's not just about the financial reform bill, either. What makes this particular moment in time the most strategic for distraction is that the SEC was finally forced to acknowledge 13 years of epic failure. Long story short: A guy ran a $7 billion ponzi scheme, was investigated by the SEC for 13 years and found to be extremely dirty. Four Times. They never prosecuted--that is, until now. This whole Goldman Shit-fit is almost certainly related. (27,252)
I'm ill as hell today. Still managed to finish it though!
Rough Transcript: Remember the movie back to the future 2? The villain uses a time machine to go back 30 years and change the timeline.
In the alternate timeline, the good guys are either dead or subjugated by the villain, who is so powerful he can essentially do whatever he wants.
The people of the alternate timeline are oblivious to how they ended up in that mess and just assume it's the way things are meant to be.
This is kind of the same thing we see with government stimulus. Essentially, our future could go one of two ways: with stimulus, or without. When stimulus is applied, the result is that people are in worse shape, and don't recognize what they've lost by government altering the timeline.
Let me first say that I'm talking mostly in terms of fiscal stimulus here, like the TARP, Obama's $700b stimulus, and the upcoming $15B jobs bill. However, many of the things I'm about to say could be applied to monetary stimulus as well.
Let's pretend first that you're an investor in 2008 after the stocks, housing, and other asset prices have fallen dramatically. Things are uncertain, and you want to be very careful in reinvesting your money. You're going to choose businesses that look like they have a healthy outlook. You're going to research, and you're going to pick your next investment solely based on the profit it will yield.
Government, on the other hand, does the opposite: Stimulus projects are chosen not based on what will be the biggest wealth producer in the future, but by a myriad of other factors including: - Who paid what in campaign contributions - Is the business located in my district where it will employ my constituents - What the most influential lobbyists are saying - What the politician is currently invested in*
*I bet you didn't know that it's actually legal for politicians or their friends to invest in a business they know will benefit from an upcoming piece of legislation. They can therefore use your tax dollars to bolster a stock and enrich themselves.
A lot of economists reply to this and say: "So what? It doesn't matter what the money is spent on. As long as the money is being spent, it will create jobs and help the crisis." This is what the Keynesians call boosting "aggregate demand."
The problem with this is two fold 1) Jobs are not about babysitting people or generally killing their time and handing them a paycheck, they're about creating wealth. 2) The money comes from somewhere, and invariably is shunting money away from legitimate long-term investments
Let's talk about jobs. Like I said, jobs are about creating wealth. I'm going to use a quick example of how wealth is created, so you can understand how it is our standard of living rises.
Say I save up and buy an empty plot of land and some saplings for $1,000 dollars. I spend another $1,000 on labor and grow the trees for lumber. I sell the rights to the trees to a lumber company for $5,000. Did you see that? I just created $3,000 of wealth. It doesn't end there, either. The lumber company cuts the trees down and processes them into planks and blocks at a cost of $1,000 in labor, $1,000 in machinery costs, and resells all that wood for $10,000. They have just created a net of $3,000. The company they sold the wood to makes furniture in a factory at a cost of $2,000 for the labor, $1,000 for the machinery, and resells the pieces for $20,000. Another $7,000 is created.
The laborers and capital investors of this scenario added $13,000 in value. That value is reintroduced into the economy either through consumption or yet even more capital investment. Using my profits from my tree farm, I can now choose to spend another $2,000 and double the size of my business. Then I could put the other $1,000 in the bank and they might loan that money out to someone else who might start their own businesses.
When government ties up labor for its own purposes, that labor never creates as much wealth as it would in the private sector. This can be due to the laziness of government contractors or employees, but it's also due to the fact that the investor chooses projects based on yield whereas the government does not. Essentially, government money is primarily either paying people to work less productively or paying people not to work at all.
Therefore, the biggest problem with government spending is not the taxes, it's actually the loss of the fruits of the labor we would've gotten in the alternate scenario where government was smaller and employed fewer people.
Now let's talk about the money. 100% of these stimulus packages have essentially been lumped into the national debt. People know that debt is simply deferred taxation--that we're syphoning off our children's future in exchange for a better standard of living today. What you probably didn't count on is that even in the present, large deficits have repercussions.
The national debt is composed of bonds. Bonds can be bought by anyone, and in fact despite what you may have heard, most US bonds are held domestically by Americans and American institutions. The biggest foreign bondholder is Japan, followed by China.
The question that you need to ask is: where is the money for the bonds coming from? People invest in US treasury bonds because they're perceived as a secure investment. In fact, until recently, most investors wouldn't even fathom a future where US Bonds wouldn't be the most secure investment out there.
In spite of the ballooning debt, people are still buying these bonds. The question is, as an investor, if in an alternate timeline, the government weren't issuing bonds, where would your money be?
Unless these people are inclined to keep their money under their mattress, their money would either be in other, carefully-chosen investments or in a bank. What does a bank do with deposit money? It also carefully invests.
So basically, by issuing government bonds, the government ensures that those monies are not put into the wealth-producing private sector, but instead into the wealth-draining public sector.
Not only that, but there's the obvious problem with having to pay back those bondholders in the future, which is paradoxically better for the economy than the stimulus the debt was used to fund. (60,005)
Dr Roe has explained the dire state of the economy so fluently that I've been putting off publishing anything on the subject. But since we're getting near th' end zone in our collective run for a doomsday touchdown, I might as well just drop a note to explain why it is that some of the most educated economists and business experts in th' US made decisions that are, on their face, bound to destroy the value of the US dollar.
Currency values, even those of modern fiat currency, are pretty simple. They're really controlled by just two fundamental factors. The first, confidence in the government which issues the currency, is important because money that's not backed by a hard asset (like, say, gold, or lima beans) is only backed by the solvency and integrity of the government itself. If the issuing government is not going to be around or if it's going to default on its obligations, its currency isn't worth much. The second basic thing is the same factor that controls the price of all commodities - scarcity.
Scarcity means, simply, that the less of a commodity there is, the higher its price will be. And likewise, the more of that commodity there is, the cheaper it will be. This is a basic and immutable fact of commodity trading.
The government-chartered private bank that controls our money, the Federal Reserve, explicitly told us some time ago that it would print "as much [money] as necessary" during the current crisis. Current estimates are that it has printed, that is, created out of thin air, over three trillion dollars since 2008.
IMPORTANT : THE INTRODUCTION OF MORE SUPPLY OF A COMMODITY RESULTS IN ONLY ONE THING : THE DECREASE OF PRICE
This is basic high school econ stuff. You don't need a degree in econ or finance to know this stuff. So, when econ whiz kids Ben Bernanke and Henry Paulson cooked up this scheme, they knew that printing dollars willy-nilly could have no other effect than the dilution of the dollar's value due to oversupply. That's what we call '%^&*ing massive inflation.' [Incidentally, they also would have known that eroded international confidence in the dollar would cause our big creditors -- like, say, China -- to get skittish about buying our debt, further depressing the currency]. So, knowing this and being employed by th' government -- that is, by taxpayers -- to save and not damn our economic posterior, why did they do it?
To quote Stimpy, the answer's simple, really. Just like Mark Hart made a killing betting against the housing market and Greek debt [ http://bit.ly/cIaFyO ], Bernanke and buddies are going to make a killing because they've bet against the dollar they swore to protect. That's right. I'm saying that the treasonous slaves Ben Bernanke, Timothy Geithner, Henry Paulson, and all their pals made bets against the value of the dollar and then intentionally torpedoed it with their insane monetary policy and general bailout $%#&ery. I'm not kidding. When the jig is finally up and all that extra supply coupled with a tanking economy makes your Benjamins worth less than Zig-Zags, the bald buggerers will make a quick stop at the bookmakers', pick up the vast sums of cash they've made on the bet against your future, and take their NetJets to Aruba where they will sip pina coladas whilst your neighborhood burns.
This is not like your standard conspiracy hypothesis because it is very likely to be true. Use your %^&*ing head. These people aren't stupid. They know exactly what they're doing. And what they're doing is placing bets against US currency while making decisions that they know cannot other but adversely affect it.
Got cash? Get rid of it. Sooner rather than later, you'll be better off with a wallet full of 'Bazooka Joe' comics. At least those smell good. (37,232)
There's a thundering hailstorm in Phoenix today, sending drops of frozen hate clattering across the skylight and beating the life out of weak trees. On the outskirts of my peripheral vision, I caught a glimpse of something white and jagged -- the future.
Life as a human right now is akin to having woken up inside the chute of a woodchipper. We may not even recall how we got inside the woodchipper in the first place. The one thing that is clear : the inevitability of the blades.
A feeling like saws chewing into my neck. The sounds of weeping just outside my door. And a cold light knife into my pupil reminds me : This is a world divorced from hope.
When facing a suffocated reality of nonexistent future, what do you do? Here are some options :
1) Lie down and wait quietly for the ice weasels to come. 2) Cry until you're too tired to cry any longer, then die. 3) Fight until death. 4) Put on heavy metal records and rock out for as long as possible.
Now, I don't know which of these sounds most attractive, or which you, the reader, may already be doing. I choose option #4. Here's why :
* Metal music is brain floss. * Metal music improves blood flow to the face. * Metal music is not a norm. * Metal music has no sympathy for your suffering. * Metal music remembers when you were only an animal. * Metal music hasn't heard about your regrets, but it can drench them in molten @#$%^& * Metal music will survive long after the Universe is toast. * Metal music recognizes your true form and can restore it if lost. * Metal music connects you with that aspect of youself that you forgot about. * Metal music is truth erupting from a sea of lies.
There's no future. But with metal music, the present can be made to rock. In these bleak and doomed days, everybody looks for help. Some go to shrinks, some watch TV, and some try in futility to numb the pain with drugs. Well, you all are welcome to your 'cheese' heroin, 'lean,' and amphetamines. I'm an Earache man myself. (17,442)
I normally shy away from talking about monetary policy. To me it's self-explanatory that falling/rising prices are either caused naturally and innocuously by the market or forced up/down by the government's intentional/unintentional detrimental manipulation of the market.
To me, that's where the subject ends. Obviously, most economists these days have a different view. Modern economic theory states that prices fall during recessions and thinks therefore falling prices cause recessions. It's akin to saying people with the flu have fever, therefore the fever must cause the flu. Fever can cause its own problems, but your body does it for a reason.
The "exit strategy" talk is spawned by the economic enigma I call the "Chinese Finger Trap". Essentially, the Fed is printing tons of money to stimulate the economy as it's both fun and entertaining (similar to sticking your fingers in the finger trap). However, if they keep doing that, eventually life's going to really suck (due to inflation, speculation on inflation, and all manner of evil). Therefore, at some point, they have to take their fingers out.
The problem is, of course, the deeper they get themselves into the trap, the harder it is to pull out without doing some damage. In the event Bernanke stops printing money, those pitiful, beleaguered financial institutions will have no source of funds for their poor investments, demand (and therefore prices) for those investments will fall, and the balance sheets for these companies will look like Bernanke's afterbirth.
The "Exit Strategy" is a myth--that somehow there's a way out of the trap other than tearing your own fingers off. Of course the metaphor ends there, as the toy is fairly harmless, this game is not.
This video specifically attacks the myth and pretty well beats this dead horse until tender and delicious. It's also a meager 25 minutes long, which is pretty amazing considering it totally eviscerates modern pop-econ.
We are trying out the economics of fascism without having suffered all the social and political ravages. - George Soule (famous writer for The New Republic) on the New Deal
George Soule was an influential writer in the early 20th century progressive movement and proponent of the New Deal. (55,658)
I recently completed Bob Murphy's Politically Incorrect Guide to The New Deal. Subsequently, I found out that the advocates for monetary intervention (eg Krugman, Bernanke, and yes, Milton Friedman) have twisted history and that I had been unwittingly duped by it. They would have you believe that The Fed did essentially nothing to correct the massive monetary contraction at the beginning of the Great Depression. In fact, the Fed of 1929 and the 1930's expanded the money supply more than any American central bank ever (until Greenspan/Bernanke). Krugman, Bernanke, and Friedman basically either deny this or pretend like the actions of the Fed at the time were "too little, too late." The facts, however, speak for themselves.
Though my article about The Great Depression contains this error, I left it in there for simplicity's sake and included this correction as a footnote.
(excuse this boring personal note) I was extremely lucky to be taught economics by a monetarist. My economics textbook subtly jabbed at Keynesianism throughout the book, and compartmentalized Keynes and his balderdash in a single chapter called "Chapter 11--John Maynard Keynes" (I'm almost positive that was on purpose). At the time, I would chat with my friends, some of whom had taken Econ101 taught by a Keynesian. My Friends were always talking about Aggregate Demand and Animal Spirits. I thought that maybe I'd missed that lecture and always wondered what the heck they were talking about. I later rediscovered economics and chuckled my way though a rundown of Keynes' theories and fallacious supporting arguments.
Unfortunately, monetarism was also wrong in many ways. While being unabashedly free-market in most things, I followed what I was taught for a long time and balked at the idea that the Fed could do any wrong. I was a huge fan of Alan Greenspan and even posted a couple favorable articles on this site about him. I now see these essays as akin to the innocent inhabitants of Russian gulags, convinced that "Uncle Stalin" was unaware of their predicament, sneaking letters out of the camp to him for help, apparently thinking that he loved the people so much he would close the camp immediately if he only knew (when, of course, it was he and his goons that built the gulags put them there in the first place). It was actually a lecture by Tom Woods (an Austrian Economist) I watched in 2008 that floored me and ended up changing my mind.
Nowadays, looking at the world of economics through this new lens, it's actually a lot scarier to think that not even Friedman was truly laissez faire. The only well-known anti-Fed advocate seems to be Ron Paul. Obviously this movement is gaining steam. However, the Federal Reserve is now more powerful than the US Government, and with basically the entire economics profession vying to keep it that way, it seems like it's really going to take something big to even introduce the concept of sound money back into the public mind-set. (45,755)
[slide 1]Spending, Printing, and Debt are all interrelated. As I illustrated in part one, poor fiscal policy can lead to a inflation and even hyperinflation. I will briefly review this again.
[slide 2] Everybody knows that the more our government spends, the more indebted it becomes. This is because tax revenue doesn't come close to our spending. [slide 3] What most people don't know however, is that some of the fiscal shortfall is paid for by printing money. The government does not do this directly, as I will explain later, [slide 4]however the net effect is identical, and that is inflation.
[slide 5] Inflation decreases the value of currency, including the currency loaned out by lenders. [slide 6] The interest on bonds and loans then increase to entice the lenders back into lending. [slide 7] Higher interest rates mean higher service must be paid on any future debt. Since government bonds are mostly short term nowadays, this effects spending within a matter of months.
[slide 8] More spending leads to more debt, [slide 9] more debt leads to more interest payments, and [slide 10] you can see we're trapped in a vicious cycle.
[slide 11]You're probably wondering why, if this is going on, are we seeing some of the lowest interest rates ever.
[slide 12]Interest rates are determined by 3 things: The supply of loans, demand for loans, and inflation.
[slide 13] In an effort to stabilize the economy, The Federal Reserve is currently printing trillions of dollars and pumping it directly into the banks. [slide 14] In the short term, this will reduce interest rates. [slide 15] In the long term, however, all this newly printed money will lead to MASSIVE inflation. Eventually, interest rates will rise to an equilibrium with infaltion. At this point, we will be in a state of stagflation. [slide 16] The only way to get us out of [slide 17]it will be to do what we did the last time,[slide 18] and that's to stop printing money. This will lead to a record increase in interest rates, far greater than those we saw in the 1980's.
[slide 19] The high interest rates will lead initially to fewer people being able to take out loans to buy homes and cars. This will lead to a sharp and dramatic fall in home prices--possibly the lowest home prices ever. Since banks have tens of thousands of homes on their balance sheet, this will lead to massive mark-to-market losses. This, combined with the inability to loan money, will lead to massive bank failures and recession.
In addition, the government will be forced to raise interest rates on treasury bonds. You should know where it goes from here: The more debt service, the more spending, and therefore the more borrowing and printing. This will lead to a viscous cycle further exacerbating the situation.
[slide 20]To give you some perspective on the fiscal situation, the debt service for 2009 will be under $300 billion. The deficit will be about $2 thousand-billions. Keep in mind the current deficits include defense, social security, medicare, those enormous bailouts, as well as lots of other things.
After 2009 ends, the national debt will be at around $13 thousand-billion.
Interest rates will easily reach 15% at some point within the next few years, but let's be optimistic and say it happens in 2010. 15% of 13 trillion dollars is nearly $2 thousand-billion. Keep in mind, the deficit for 2010 would have to include all the other fiscal shortfalls we had in 2009.
[slide 11] Because of the nature of the relationship between these forces, many believe that a high rate of inflation and maybe even hyperinflation could occur quickly and without much warning from the economic numbers.
[slide 12] Unlike the stagflation that occurred during the late 1970's and early 1980's, we will not be able to escape from the inflation by borrowing money instead of printing it. Instead, the only option will be to do what many have suggested for years and just [slide 13]cut spending.
[slide 14a] As I explained in part 2, cutting spending has always been unpopular, which is why the government budget rarely does anything but grow. Americans overwhelmingly agree that they want to keep expanding [slide 14a-ss]social security, [slide 14a-med]medicare, and [slide 14a-sd]a strong defense--all while paying low taxes.[slide 14b] It is undeniable that this situation is unsustainable. What's scary is imagining what it will take for this cycle to meet its end.
[slide 15] During the Great Depression, many unusual laws and regulations were enacted in an attempt to restore our economy. This is likely to be repeated in our current crisis, however, like then it will be disastrous.
[slide 16]In the 1930's under presidents Hoover and Roosevelt, government grew enormous and struggled to find revenue. [slide 18a - US import tax w/hoover face] Herbert Hoover enacted record tax increases on income and imports. The Smoot-Hawley Tariff passed in 1930 was the largest peacetime tax increase on imports in American history. [slide 18b - foreign import tax] This lead to a retaliation in the form of import taxes in other countries and therefore ultimately meant a reduction in US exports. In 1932, Hoover doubled the income tax, raising the tax rate on the wealthy especially.
[slide 17a-'it all started with tires'] Already, we can see that our current president is following the historical example set by Hoover. Obama has increased income taxes on those he deems 'wealthy' and recently, he sparked an international trade dispute by placing a 35% import tax on tires. [slide 17b-retaliation] Like the Smoot-Hawley tariff, this assault on free trade was met with threats of reciprocation in tariffs. If these countries follow through, this would have a devastating effect on our already vulnerable economy.
[slide 18] When FDR took office in 1933, he continued to increase taxes and spending, but not before he issued an executive order to confiscate all privately owned Gold. In total, 500 tons of gold were taken from private United States citizens.
[slide 19] Based on these facts, it's logical to assume that when facing a severe enough recession, government may again attempt to seize property in order to fund the ever-expanding government without having to inflate the currency.
[slide 20] Historically, countries that have attempted to seize the wealth from the wealthy end up experiencing what is referred to as "capital flight." This is where rich people lead a mass-exodus out of the country in an attempt to evade persecution. [slide 21] To prevent the wealthy from simply leaving, laws may be enacted to keep their fortunes here, and possibly to prevent the sale of certain types of property like large homes and to forestall high-volume stock trades.
------------------------- [slide 23] It should be noted, however, that our current crisis is very different from the one in the 1930's. Back then, the dollar was still on the Gold standard and therefore the government was limited in its ability to print money, that is no longer the case today.
[slide 25]I believe that eventually the rate and cause of inflation will be recognized by the media, political candidates, and most importantly, the American people.[slide 26] As Reagan identified the stagflation in the 1970's and ran on a platform to shrink government and curtail inflation, I believe that so too will the candidates of 2012 or 2016.
[slide 27]Of course, the sacrifice endured by people participating in the 1980's economy will pale in comparison to the sacrifices of our generation. [slide 28] In the 1980's, Reagan's government was cowardly and irresponsible. Instead of cutting spending and suffering the consequences, he was able to issue a record amount of debt to therefore defer his fiscal crisis to another generation. [slide 29] Unlike the 1980's, our current government will not have the credit rating to issue as many bonds.
[slide 31]Unfortunately, the elderly who rely on the government for support will suffer the most during this transition. After decades of politicians telling them not to save for retirement, America will finally wake up one morning to find no government check in the mail box. This will be devastating for these retirees who are no longer able to earn a decent wage. If we acted today on a campaign to taper-off the citizenry from these programs before they disappear, it would drastically reduce the suffering of these people. [slide 32] I do not, however, feel this is possible under the current mindset.
[slide 30]Regardless of our history, I think it will be politically possible for the necessary spending cuts to take place after we slam into the tip of the inflation iceberg. (74,379)
We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong . . . somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. . . . I say after eight years of this Administration we have just as much unemployment as when we started. ...And an enormous debt to boot. - Henry Morgenthau, Jr. (1939) Secretary of The Treasury for FDR Speaking to the Ways and Means Committee
About 6 months ago, while watching every video on the Ludwig Von Mises youtube channel, I stumbled across a meandering, rambling, unscripted, incendiary, merciless rant by some dude named Peter Schiff.
He is the CEO of Euro-Pacific Capital which, as the name suggests, makes investments anywhere but the USA (heavily in Canada though).
Schiff is born-and-bred libertarian, with his dad (Irwin Schiff) being so awesomely looney that he's actually been in and out of jail for the past 60 years for civil disobedience in the form of not paying federal income taxes. He recently was sent to jail once again, at age 84. He will be there until 2016.
Schiff is far more pragmatic than his father. He reluctantly bows to governmental and social pressures by following laws and recognizing social mores (like not being an aging jailbird struggling hopelessly to slay goliath using a couple books and the constitution).
The latter, in my opinion, is evidenced by him running as a Republican in the Connecticut senate race instead of the obvious and more applicable "Libertarian" moniker.
I. Euro-Pacific Capital
My current mutual fund has adopted a rather unorthodox strategy of measuring a prospective investments growth in terms of the size of the fire that could be stimulated by shoveling my money directly into it. I've decided, therefore, to shift the few dollars I have left to another company and possibly owning stocks directly. I've been following Schiff's public statements on Youtube for the past few months, and was highly entertained by his entrance into the Republican senatorial primary, so I looked up Euro-Pac and found there was a branch office nearby... "Well... why not?"
EPC is a smaller company, so I expected some moderate-rent digs, even though this was the 'rich' side of town.
So I walked into this beautiful, lavish office building with this ultra-hot receptionist at the front desk (and an idle secondary receptionist just adjacent to the primary one, in case one surpassed thermal tolerances and needed to be swapped out). They called the representative down to meet me and as he escorted me through the labyrinth of people and cubicles, I finally asked, "is this all Europac?" "No," he replied "just this part up here." He gestured towards this bundle of much smaller, windowless closet-esque offices ahead of us. I'm down with minimalism, but it was ironic given the lobby with the fembots and whatnot
What first jumped out at me were the items on the desk which were obviously permanent fixtures: calendar, plant, computer, and a copy of Peter Schiff's new book. In fact, though there were not many 'personal items' in the office, among the few were FIVE different books by Peter Schiff, including two duplicate copies. There were no other books on the shelves of the office, as if to say no other book authored by man or ape need be read.
In fact, the first words out of the guy's mouth were "So, where did you hear about Peter?" My reply was "Wait, why would you guess I heard about this place through him?" We kind of chuckled and he responded with "Well that's kind of 'our thing'." ... or something to that effect.
I knew Schiff was a walking advertisement for his own company, but I didn't actually realize his company was his company. It's almost like being a EPC client is like being granted membership into the Peter Schiff Fan Club or maybe even the Cult of Peter.
At several points in the discussion when poking around for different investment ideas, the broker introduced a stock by saying "This is what Peter likes" or "Peter's real big into..."
It was a little aggravating, as you can imagine. Is Peter handling my account personally? Will he call me every month with suggestions and updates? Will he blow me if he accidentally co-mingles my money with his Thai Hooker fund?
Schiff's employees bear striking resemblance to the Oompa Loompas, who practically worshiped the eccentric Willy Wonka and labored as slaves, catering to his every whim... Okay maybe it's not that bad, but if his reps all had orange skin and green hair I think I'd be morally obligated to give him all my money.
All that said, their rates seemed very reasonable apart from their first-ever mutual fund which was hatched about 2 months ago. Said fund is exclusively Chinese stocks, so their excuse was naturally something along the lines of "there are a bunch of fees and exchange difficulties yadda yadda It's freakin China--literally". I suppose that's reasonable explanation, but the fund would have to yield roughly 6% just to overcome the fees.
I have some real trepidations about China. I mean, it's freakin China. I don't know anything about China, and I'm willing to bet a lot of white investors don't either. For the time being I'll wait until it actually has a past-performance to look at.
Euro-Pac does specialize in a lot of strategies I'm leaning towards. They're able to purchase currencies, stocks in essential goods and services, commodities and do it all in foreign denominations immune to American inflation. They don't just do Asia, either; they're big into Australia, New Zealand, Europe, and Canada. The MERK hard currency fund (symbol MERKX) can be accessed through there and it does extremely well.
Even though I have some misgivings, this firm is still my top candidate for my next investment firm. I mean, even if Schiff takes his antics to their logical conclusion and he and his company go all Heaven's Gate on me, I'll still own the stocks so it won't leave me broke.
Update: Apparently Fidelity has some really good international common stock mutual funds as well.
II. Irwin Schiff
I was going to start off trying to persuade you to respect this True American Patriot™ (forgive the hackneyed language, but I use this term sparingly). However, that's really not the way I feel about Irwin Schiff.
Here's the deal as I see it: If you don't think Irwin Schiff is a terrific bad-ass, you're an idiot.
There's really no way around it. This guy recognized that the income tax violates a HANDFUL of the amendments known as "The Bill of Rights." He then devoted his whole life proving not only that to be true, but also that even in the weighty tome that is the personal income tax code, there exists no line that says you actually have to pay it.
Of course, as a practical matter, since everyone believes this to be true, the government doesn't even have to be right.
In one of the many cases against Irwin Schiff, the prosecution and even the judge (carefully selected by the government to see this case) told the jury essentially that even if no particular statute could be found, Irwin Schiff could still be held in violation of it. And they won with that. Because that's how it works.
So to sum up: You may think Irwin is a cooky libertarian nut who has a fetish for prison. However, he's been in and out of jail for DECADES defending the Bill of Rights (albeit futilely). He sacrificed greatly for something he believes in, and that's something that will almost certainly never be said about any of us. By anyone. Ever.
Unless the next recession occurs before the Republican primary, He's F$cked.
I'm not saying it's impossible. I'm saying (again, forgive the cliche) the paradigm has not shifted... yet.
Some are still confused as to whether or not we're out of the woods economically speaking. The economy is THE ONLY issue Schiff could be potentially popular on. When (or if) it becomes well known that we are actually in the middle of a depression, Schiff's record will be a tremendous boon and could propel him to the front.
The problem is time: We had this first recession and the next one is sure to follow. However, will it be deep and alarming enough for people to actually drastically reconsider their political approach? Will it be in time for Schiff to win the Primary? Who knows?
Happy Note
On a happier note, I'm going to talk about prostate cancer.
Prostate cancer is one of many cancers that is actually fairly preventable through changes in lifestyle and such.
Who do you think are least likely to get prostate cancer (other than women, smartass)?
Prostate cancer survivors.
After years of tear-jerking pleas from doctors, cheeseburger binges, and pretending to be an obese couch-ornament, they all at once change their ways. Men who survive prostate cancer tend to change their whole lifestyle after their little 'brush with death', now realizing the full consequences of their actions.
I believe this depression--this 'brush with death'--may actually purge the notions of keynesianism and monetarism from the minds of short-sighted, self-indulgent, opportunistic politicians (and the people that elect them). After decades of printing and borrowing trillions to support decadence and irresponsible non-investments, America will "go on a diet." Either that or we'll meet a horrible f$ckin end; how should I know? Someone call that soothsayer Schiff. (62,129)
There are a lot of theories about what caused the current recession. The prevailing theory, unfortunately, is that the sole cause of the recession is that businesses were deregulated, left to their own devices, and ended up destroying themselves.
This is wrong.
This video explains why the housing bubble would not have happened if it weren't for the Federal Reserve.
This lecture is presented by Tom Woods, author of the NYT Bestseller "Meltdown." He does a really good job of making it fun and understandable for people who aren't familiar with economic terminology.
I don't start my next rotation until tomorrow, so I decided to do another one:
Rough Transcript:
[slide 1] This box right here represents the yearly federal budget.
We're going to divide it up into 2 parts: [slide2] the part paid for by tax dollars, [slide3] and the part paid for by everything else. For the purposes of this video, we'll say about [slide 4] 2/3 of the budget is paid for with tax dollars, but you should know that in this year, 2009, taxes account for much less.
[slide 5]Now we're going to divide this up further and look at just the portion paid for by using money outside of taxes. [slide 6] On the left, we'll put the part paid for by privately purchased treasury bonds. [slide 7] This will contribute to the infamous national debt, which is currently approaching $11.7 trillion dollars.
[slide 8] The other part is paid for by printing money. This is done by an institution known as the federal reserve, also known as The Fed.
The Federal Reserve is NOT officially part of the government. Theoretically, the reason for this is to make sure that the government cannot print money directly to pay its bills. The Fed is supposed to act independently and not print money unless it is in the interest of the economy. However, the end result of this is that the government gets all the printed money it asks for, regardless of the effect it may have on inflation and the economy.
Whenever a government or central bank prints money, it causes inflation.
Inflation is a classic double-edge sword. [slide 10] By making the currency worth less, people who owe money in that currency OWE less. This includes the US Government.
Many shortsighted economists see this as a Godsend to quell the ever-expanding national debt. However, there are many downsides to inflation as well.
[slide11]Stocks and property tend to rise in price along with everything else. Therefore, people who have their savings in stocks or hard assets aren't as affected by inflation. However, the less wealthy the individual, the more they deal in cash. It is in this way that inflation affects the poor more than the rich.
[slide12]In addition, by helping debtors, you are by definition hurting lenders. This includes those who own treasury bonds. Generally speaking, these lenders are not in the business of losing money. [slide13] Some lenders will therefore choose to put their money elsewhere.
[slide14]In order to try and entice the lenders into coming back, interest rates on the loans will have to increase.
[slide15]The problem with both of these outcomes is that they lead directly to even MORE inflation.
This type of thing has happened in numerous other countries in the past. It happened to Germany after World War I, and it's happening to Zimbabwe now.
[slide16]As this is happening,[slide17] the budget will be growing exponentially as interest payments on the national debt balloon.[slide 18] This will compound the problem.
[slide19]This cycle of printing and lending will continue until [slide20] the treasury is no longer able to find any lenders to buy the bonds at all. [slide21]At that point, inflation will get out of control. This is known as Hyperinflation.
[slide22]This is where the economy really starts to suffer. People will start losing their jobs or quitting because their paychecks aren't worth the paper they're printed on. That, combined with higher prices, will lead to people saving less and spending more. Taking money out of savings increases the money in circulation. This will further contribute to inflation.
[slide 23]More unemployment leads to LESS revenue. [slide 24] With the budget remaining the same or even growing, [slide 25] this leads to yet even more inflation.
Eventually, people will lose faith in the dollar and stop using it. [slide26] This is known as a currency collapse.[slide 27]
The question is: where is the United States in this cycle? [graph1] The answer is quite complicated. As you can see from the graph of the money supply, over the past 40 years, we have done everything we could to destroy our currency. Even still, our GDP is so strong, the world still sees our treasury bonds as a good investment. [graph2] It's only been recently, with the Fed printing more money than it ever has before, has the world started to grow wary of our position.
This is the reason people like [pic]Ron Paul ,[pic] Jim Rogers,[pic] and Peter Schiff all come out strongly against our current monetary policy. (91,377)
In a totally unlikely and unforseen turn of events, markets are not responding favorably to government bailouts and inflation.
NEW YORK (AP) - The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market.
But this and other big government spending programs are turning out to have the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation.
That's the Catch-22 threatening to make an awful housing market potentially worse and keep the economy stuck in a funk. Kick-starting the economy requires higher spending, but rising rates mean fewer Americans will be able to refinance their home loans. And some potential buyers will be shut out of the market by higher monthly payments they won't be able to afford.
To understand how this is all connected, you have to think like a bond trader. Inflation is their enemy because it means the purchasing power of the dollars they receive when bonds eventually are paid off will be diminished. The only question is by how much.
I had about 30 minutes and wanted to write an article about why government bailouts are inherently stupid, but I didn't have time to write it in language for people who didn't already know economics to understand. Instead, with the aid of Google Image Search™, I came up with this series of incoherent drawings which I've now wasted too much time on to throw away. Enjoy!
I hate politics. I happen to believe that whenever someone writes about political issues they actually care about, their IQ drops at least 35 points before they put the first word on the page. This is why most comments on political YouTube videos are fragmented and incoherent: Someone with an IQ of 110 decided to jot down a thoughtful political opinion, and was temporarily deprived of the ability to form sentences. This is simple emotion clouding over reason and intellect. It's just human nature.
To therefore write effectively about politics, you've got to either not care at all, or just not have human emotion to begin with. This is why most professional political pundits are actually sociopaths. The pundit's ability to look apocalypse in the face and say "Fuck it." is the secret to readable copy. It's not that these people are especially smart, it's that they're emotionally distant enough to keep their heads on straight when writing about the metaphorical rape of all their espoused beliefs.
I, on the other hand, can't even be in the same room with a TV with a talking head on it without getting acid reflux and foaming at the mouth. I had to stop watching televised news years ago for the sake of my physical health. And that is the reason why this article is going to suck. I did it anyway though, and I may never know the reason why.
The problem with the vast majority of voters is that they know a sum total of "dick" about history. This is one of the many reasons it's totally pointless for any intelligent person to vote (less intelligent people may enjoy the free stickers, so it's a good deal for them). In the case of economics, the US has made so many ridiculously idiotic mistakes that we have plenty of past experiences to draw wisdom from, provided we look at history through the right lens. The Great Depression should have been the end of economic intervention. Unfortunately it's apparently become the beginning. Part of this stems from the total distortion of the history of the Great Depression, which is what will be addressed here.
Popular History
The popular view of the Great Depression is as follows: It started with the crash of 1929 and lasted up until World War II. According to the history books, our economy was "unequally distributed" to rich people and the crash of 1929 was the culmination of the inequity of the "bubble" in markets such as luxury goods (think dot com era). Moreover, our president at the time, Herbert Hoover, was against interference in the markets and therefore passed up his opportunity to save the day through intervention, which lead to the deep depression that lasted "over a decade." After Hoover's beleaguered term ended, idle government gave way to FDR's promises of interventionism and reform. FDR's activities, combined with that of the Federal Reserve and the seemingly fortuitous entrance of the US into WWII lead to the end of the depression.
To be clear: The above paragraph is total bullshit, with a few spacklings of horseshit and "WTF".
Pseudo-Austrian Theory on What Went Wrong
First of all, the Great Depression didn't start in 1929, it started in the credit bubble of the 1920's. A "credit bubble" is where lenders, on a massive scale, lend too much money without taking proper care to see that the borrower can pay it back. Giving more money to people who are going to waste it means that the useless goods that these people buy are going to have an "increase in demand" (DEMAND = more will be sold, and they will be sold at a higher price). Investors will see this rise in prices (caused by the artificially-inflated demand) and think this is an exploding market and haphazardly stuff their money in as fast as they can, maybe even borrowing to do so. This will further drive up demand until such time as the supply of credit goes away. 1) Lower supply of (inflated) credit -> 2) Higher interest rates ---> 3) less borrowing -----> 4) less money for buying (overvalued) crap -------> 5) less demand for crap ---------> 6) price of crap declines -----------> 7) investors cash-in to avoid losses -------------> 8) Go to 5 and repeat for a while ---------------> 9) investors go bankrupt, can't pay back loans -----------------> 10) Lenders lose money -------------------> 11) Go to 1 and repeat until prices are normalized.
This violent return to normalcy is referred to as a "crash." As you can see, interest rates are a key component of normalization, and that's exactly what the Fed messes with.
The stock market crash of 1929 was not what started the Great Depression, it simply signaled the start of a market correction. The crash of 1929 was the solution to the bubble. The falling prices and the deflation were necessary forces in stabilization of the economy. These forces were fought tooth and nail by the Hoover and FDR administrations (I'll talk about this later), because they meant a decline in economic activity over the short term.
Where did this credit bubble come from? Well something happened during the 1920's that had never happened before in American history. A massive, mismanaged lending force came into play that would haunt the American economy the next 90 years (and counting). Of course I'm talking about the Federal Reserve. Though the Federal Reserve was founded in 1913, they did not participate in open market operations until 1922. The stated objective of "The Fed" is to stabilize the economy by injecting money when markets are down, and deflating when markets are up. They do this by printing money that doesn't exist and loaning it to banks, which it trickles down in a massive, cascading manner (through loan after loan after loan) to consumers who use it to buy crap with. This sounds simple enough, except that in doing this, they flatten out the market corrections which are necessary for normalization. It also makes the arrogant assumption that a handful overeducated academics can make God-like pontifications based on whatever criteria they feel like. All The Fed seems to be able to do is create credit bubbles, which lead to bubbles in everything else. This is exactly what happened in the years prior to the market crash of 1929.
Think about it: It's true, by 1929, the US had seen a few depressions and recessions over its ~150 year history. However, just 7 short years after the Fed starts tinkering with the money supply, we see the largest and deepest depression ever...?? That's coincidence in the same sense that 90% of lung cancers being found in the bodies of smokers is coincidence. What's also not coincidental is the biggest economic intervention in US history (at the time) occurred right at the beginning of this--the longest depression in US history. [Did you see that segue? Was that not awesome?]
Herbert Hoover: The Interventionist
The next myth I'mbout-ta-bust about the Great Mf'ing Depression is that President Herbert Hoover was some kind of coward who refused to intervene. This is almost certainly a case of politics totally f'ing up history. Pay attention boys and girls: this is what it looks like. These 'Court Historians' [*cough* Paul Krugman *cough*] want to blame the "free market" for the Great Depression, and to do that, they have to paint Hoover as a slimy, good-for-nothing, free market Republican (to be fair, he was a Republican, and he looked pretty slimy). Presumably, they're distorting history so they can blame the depression on Hoover and also so they can attribute this country's salvation to FDR's "economic reform." This lends credence to the government power-grab ("bailout") that's going on right now, since conceptually FDR's stimulus was the same thing. Luckily, the claims about Hoover's "non-interventionism" are so ridiculously false that the debate ends in the 2 seconds it takes to load the Wikipedia article.
One thing the pop-historians like to point out (apparently to further this myth) is that the chairman of the fed at time (Andrew Mellon) was pushing to let the recession run its course. Can you imagine? After years of tinkering with the economy, the Fed acknowledges it had 'screwed the pooch' and clamors for natural free market correction. Amazingly, that's totally true. At first, the fed was quite reluctant to intervene*. In fact, according to Hoover's memoirs, Mellon (Fed guy) strongly suggested to Hoover that he stay out of it. Not to be swayed by little things like reality, Hoover ignored Mellon and promptly embarked on the largest ever peacetime increase in government spending. He even brags about it in a speech he made near the end of his term:
We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action. - Herbert "Give Me a Kiss, Krugman" Hoover
Convinced yet? Too bad, I'm not done! To pay for this "fiscal stimulus," Hoover ran huge deficits until 1932, at which point he doubled the income tax (Revenue Act of 1932) and instituted a tax on checks (this is a lot worse than it sounds, by the way). He even pushed forward a bill to force the Fed to inflate the money supply. Finally, not content to leave it alone, Hoover rammed through congress the largest import tax of the 1900's, the infamous "Smoot-Hawley Tariff." Non-interventionist my ass! Hoover's plans were basically slightly less ambitious versions of "The New Deal" (which would occur later, under President Roosevelt).
If you want to place some blame on Hoover for the Great Depression, you can't blame him for doing too little.
Franklin Delano Roosevelt: The Non-Interventionist ... What?
Sort of a fun facet of the whole Hoover Vs FDR thing is that history remembers it as a standard run-of-the-mill socialist Vs free-market debate. The reality, of course, is slightly more complicated.
By the end of Hoover's presidency, it seemed that voters were pretty fed up with all this progressive interventionist hogwash. They knew what Hoover did, they knew it didn't work, they wanted "change," and they wanted it in the form of economic freedom. It seems strange then that they elected FDR--probably the most "progressive" president of all time, according to the history books.
How we explain these ostensibly contradicting facts is not actually all that complicated: FDR was a liar.
FDR ran on a platform of economic non-interventionism. During his 1932 campaign, he berated Hoover for his stimulus actions. FDR's own running mate in 1932 (and later Veep), John Nance Garner said that Hoover was "taking the country down the path of socialism." In fact, the stated Democratic party platform of 1932 was to reduce federal spending by an astounding 25%. No wonder FDR won by such an enormous landslide (57% to 39%)!
Heck, I would've voted for him. Did you know FDR publicly referred to Hoover as a "fat, timid, capon" (a capon is a castrated rooster which is fattened up and raised for eating)? How awesome is that!?
Naturally, the first thing he did was ignore his campaign promises. Starting the very same year he was inaugurated (1933), FDR started creating hundreds of different massive government programs designed to 1) extend government's control over the economy and 2) stimulate it back to health at the same time. Only one of those goals ended up coming true, can you guess which? Hint: the depression continued for 13 years after that, so that leaves...
This package of economic clusterfuck is what is commonly referred to as "The New Deal."
As an aside: In a particularly despicable "dick move," a disproportionately larger amount of the New Deal money was poured into the swing states, which kept them relatively fat and happy while the depression trotted along. FDR effectively bought his first two re-elections this manner. As the New Deal raged on, FDR lost some control over it (legislators found their balls and got in on the money train), which directly correlated with a wider distribution among the other states. Funny how that all works.
Yeah, These Clowns Raped the Free Market, but... Did it Work?
Of course it worked! Why wouldn't it? It's so brilliant: I'm going to inflate the currency through printing, suck tons of money out of the economy through taxes, pour it into wealth-destroying projects, and I'm going to do it all while we're in the heat of a freakin depression!... I mean, where's the problem, am I right guys? WHAT COULD GO WRONG?
Well, what ended up going wrong is that our depression lasted roughly from 1929 to 1946. Popular history says our numbers were turned around at the start of WWII (1941), but that's totally ignoring the fact that you can't ship 11 million unemployed men out of the country and call the ensuing fall in the unemployment rate a "turn-around."
By that notion, Obama could just wait until midnight tonight, use his Santa Claus magic, jump in his reindeer-driven Escalade, and do a drive-by on every unemployed household in America, killing at least half the unemployed in one fell swoop. Wouldn't it be great if it were just that easy? Too bad it isn't (though that may not stop him from trying...). Yeah, it'd make that particular economic indicator jump back into the green, but the smell would be horrendous after a few weeks, plus it wouldn't exactly restore consumer confidence.
No, by most relevant measures, our economy did not reach pre 1929 numbers again until 1946, and this was due to one reason and one reason only: Our shit didn't get fucked up during the war.
Imagine: all of europe and lots of Asia, even including some of the shitty little islands (England), had planes flying over it for YEARS bombing factories used to make war toys as well as necessary consumer goods. What happens after the war when trade barriers are lifted and everyone needs to buy shit? They turn to the one country who still has factories all clean and shiny with no unexploded munitions lodged in the roofs: America. We exploited the living crap out of these countries who needed stuff they couldn't build, it was awesome.
There's a reason why the US forgave most of the loans they made to Europe to rebuild: They made out like bandits.
The production capacity of Europe was shot to shit by the end of the war. By the time everyone had caught up to speed, the United States had become an economic superpower. They would remain that way until idiotic politicians of latter half of the 20th century (and 21st, it seems) could mess all that up. Way to go!
Good Thing This is All Ancient History... Right?
If you accidently leave your TV on for any length of time these days, you probably know that what they did back then to try and "fix the problem" are the exact same types of things they're doing now. You hear about a new Bailout plan just about every month now, and every idea they have isn't exactly new.
You'd think that maybe they would've learned something.
* UPDATE/CORRECTION [Dec. '09]: I left this passage as it was originally for simplicity's sake. I recently completed Bob Murphy's Politically Incorrect Guide to The New Deal (which, btw, can be used as a source/reference for all the material in this article). Subsequently, I found out that the advocates for monetary intervention (eg Krugman, Bernanke, and yes, Milton Friedman) have twisted history and I had been unwittingly duped by it. They would have you believe that The Fed did essentially nothing to correct the MASSIVE monetary contraction at the beginning of the Great Depression. In fact, the Fed of 1929 and the 1930's expanded the money supply more than any American central bank ever (until Greenspan/Bernanke). Krugman, Bernanke, and Friedman basically either deny this or pretend like the actions of the Fed at the time were "too little, too late." The facts, however, speak for themselves. (150,380)
This video introduces Austrian Business cycle theory--which accurately predicted the Great Depression, the dot com bust, and the housing bubble burst. When everyone in 2006 was predicting a rebound, people like Peter Schiff and the speaker here were seeing a recession. It's presented by the NYT bestselling author of "Meltdown," Tom Woods Jr. He does a great job of keeping it simple and entertaining.
This video is half economic theory, and half history (starts w/history). It has a lot about the "depression" of 1920 [sic]. 1920 was actually far worse than the first year of the Great Depression (faster rate of unemployment, etc), but somehow the economy turned around in only 18 months (the Great Depression lasted for over a decade). This was not due to government intervention by the fed or spending, but by an intentional reduction in the size of government.
We're told the government must act through bailouts and whatnot to end the depression, but by doing so they are lengthening and deepening it, just like they did in the 1930's under Presidents Hoover and Roosevelt. We're also told that if we don't bail these banks out, the depression will last decades. This is wrong, and in fact the opposite is true. Enjoy!
There's a scene early in last year's blockbuster flick "No Country for Old Men" when Josh Brolin comes home after plundering the bloody scene of a botched drug deal with a gleaming .45 tucked into his waistband. His wife, with whom he lives in a crummy apartment, asks where he'd obtained the thing. Brolin curtly responds, "At the gettin' place."
Now, anybody who saw that movie will know that in fact, the enviable chrome had not come from 'the gettin' place,' but had been stolen from a corpse shortly after Brolin had left another homie to die by thirst, wounds, and 'el lobo.'
When foreign banks open their email to find a fresh infusion of US Dollars, US depositors find that their account insurance has more than doubled, holders of bad debts are relieved of those 'troubled assets,' and US taxpayers open up their mail next year to find a meager 'stimulus check,' these beneficiaries might ask their benefactor where all this money came from. After all, much like Brolin's character in the movie, the US government has fallen on tough times and is very, very hard up for cash. In fact, like Brolin, it has little but war memories, a moustache, and a gun. So where are the dollars in the firehose coming from?
To hear Bernanke and Paulson, the architects of the current situation, tell it, this vast pile of dollars -- trillions of them now -- came from the gettin' place.
In fact, Bernanke and Paulson's gettin' place isn't much different from Brolin's. Nor does their motivation or depth of thought differ a whole lot from that character's. As the desperate cowboy steals the Colt and suitcase from a dead man, Bernanke and Paulson steal these dollars from the corpse of American liberty. At the scene, the injured taxpayers warn about the coming wolves of statism and rampant inflation; they're coldly told that 'there ain't no lobo.' After all, Bernanke and Paulson know better than anyone about these things.
It has been revealed this week that the incredible, unprecedented, criminal Wall Street bailout was merely the first step in a treacherous and macabre dance of doom. When that move failed to 'unfreeze' the credit markets and Wall Street wasn't impressed, Bernanke promised 'unlimited' -- unlimited -- dollars to foreign banks to help their 'liquidity problems.' Soon after, we started to hear the fiendish candidates for President start talking about direct debt relief for individual homeowners, using public dollars. And then, when all these feints and ruses did not have the desired effect, yet another 'stimulus package' -- more dollars -- was fielded in a hopeless attempt to stanch our 'financial system's' very mortal wound.
Public liability for private debt is an abomination, and would be so under under any conditions. Our present conditions of record public debt, to the tune of ten trillion dollars, make the actions of Paulson and Bernanke monstrous to the maximum. When someone is deep in debt, with a seriously negative net worth, we call that person a fool and irresponsible. When that 'someone' is the government, and their debt spending in fact puts the public in the hole while squandering tax dollars, we call that criminal and treasonous as well as foolhardy.
The people at large, and these crazy actors of policy in particular, need to get a handle on a simple, incontrovertible fact : the government has no money. The government has no money! The government is in debt, and any money that it plans to spend it will confiscate from you; any debt obligations it incurs will be collected from you, and your successors.
Even the most fatalistic, 'FTW' types must confront the immediate and dire consequence of the evils perpetrated by Paulson, Bernanke and their accomplices. That is : rampant, uncontrolled inflation. No matter what you may hear from apologists, no matter what gibberish is vented by pseudo-economists, no matter what your so-called 'conservative' friends may say, the result of these terrible decisions shall be a profoundly accelerated inflation and debasement of the dollar.
The reason that this is true is because of a basic, simple, factual truth about economic activity : when the supply of a commodity increases, its price decreases. Money is a commodity that is used to purchase other commodities. Its price is called its purchasing power. When the price of money is high, that means that you can buy a relatively large amount of other items with it. When its price is low, you can buy less. When the price of money falls, it is called 'inflation,' a misleading term that really means that the average prices of other goods appear to be rising -- inflating -- relative to the price of money. In other words, inflation is really a way to describe the falling price of money relative to other goods, and it is caused by one thing and one thing only : increases in the money supply.
When Bernanke, Paulson, and their buddies 'spend' billions of dollars they don't have, and give 'unlimited' new dollars to foreign and domestic banks, and guarantee innumerable private debts, they are, in short, printing money. They are adding vast, nigh-incalculable amounts to the money supply. This is the fact of the matter, and it is starkly true.
There is only one possible result of creating a supply glut : falling prices. When the price of the dollar falls, we call it inflation. To quote John Pugsley in "The Alpha Strategy :"
"An increase in the money supply is the only cause of inflation in the long run. Money is created by fractional-reserve banking, and by the Federal Reserve as it monetizes federal defecits. The future rate of inflation is primarily a function of the size of deficits, since the Federal Reserve is duty-bound to monetize them."
In summary : the cause of inflation is debt spending and the attendant increase in the money supply. There is no other cause. And when the government mounts debt and prints money at unprecedented rates, we should expect nothing else but unprecedented inflation.
This is, as Pugsley would say, the plunder of America. It is also a trespass on our freedom and an assault on our future, as it is our hard-earned dollars along with the security of our future with which these people are toying. Whether they are short-sighted and stupid, or plotting and evil, the result is the same : there certainly is a doggone lobo, and it will be at the door much sooner than they expect.
So what do we do about it? It has been widely suggested that the institutional wheels of theft have been turning for far too long, and the people 'in power' so firmly entrenched or hidden, that we have no choice but to suffer and endure as our future and rights erode and our currency becomes less valuable than kindling. I say that this is a ridiculous and wimpy attitude. There is really only one way to save our freedoms and country from oblivion.
Like the woman-haired killer in "No Country," we know where the politicans are. But that's not where we're going. The politicians are both desperate and foolhardy; we few cannot make them change directly because they fear the public. We must 'get to' those that ultimately control the politicians. We must approach the public directly, for it is the cry of the public for wealth redistribution via taxes that is the engine of government in the long run. The reason we are being sold down the river is because voters and taxpayers are demanding to be sold down the river to protect their short-term interests. Every time that an industry leader requests a subsidy, every time a private individual wants an entitlement, every time a banker wants a loan guarantee from the public, the crisis gets worse. These are the folks that need to be approached, so that they can stop demanding public money from the politicians and start protecting their real interests. But unlike the strange assassin, we visit not with a weapon, but with knowledge and hope.
What a daunting task! How are we to go about educating the public on the serious need to put short-term interests on hold in favor of the preservation of the value of their money, the integrity of their freedom, and the viability of their future? Start by talking to people you know, your friends and family, and point out the basic facts about inflation and debt first, then address the wrongness of public liability for private risk. Let them know that there is no time for complacency, depressive fatalism, or myopia. Things are in motion right now, and only direct action by taxpayers can accomplish what is needed. The public must be made to see that, whatever temporary benefit they may individually receive from public funds, that benefit pales when compared to the grave erosive dangers of inflation, which causes everybody to lose buying power, and debt, which sells our childrens' future.
If you ask people if they generally favor higher or lower taxes, they will usually say 'lower.' Ask them why that is, and they will say it is because they want to keep more of the money they earn. When it is explained to them that they would be able to keep more of that money if they didn't have to pay for some of the 'benefits' they receive from public funding, along with the institutions that administer those 'benefits,' they are forced to confront the true issue. When the inflationary nature of debt spending is included in the conversation, it becomes evident that a preference for these 'benefits' at the expense of a stable currency and a viable future is irresponsible. Fold into this theo the idea of freedom and the integrity of personal property, and the situation becomes even more clear to the person considering the long-term meaning of our choice.
The reason that the people have stood for the theft so far is that we have become so used to having our property violated, supposedly for 'the public good,' that we no longer thing twice about it. We place much faith in the ability of actors like Paulson and Bernanke to know more than we can about our situation, and to make the right decisions for us, because we can't decide for ourselves. This is error. We can see plainly that, despite the wizard-like image that these people project, the facts and correct course are plain. Increased money supply and public debt causes inflation. Massive doses of either are bound to cause inflation that is massive. We don't need ex-industry CEOs turned public administrators to navigate our interests when we can see them so clearly.
As we become aware of our reality and the true nature of the 'crisis,' it's is not less than our duty to tell our fellow citizens about it. Start right now, and don't be discouraged nor intimidated by those who tell you it is either a lost cause or that they know better than you. Our nation was founded by people who would not stand to be plundered and would not be silent. When we stand up for reason, for frugality, and for liberty, when we publicly and privately promote these values, we stand up for the whole of America. We stand up and tell our neighbors that we the people are not, and will not permit ourselves to be, the government's gettin' place. (63,432)
He went on to say that “Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt problem. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80.
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The epitome of the 
I'm not talking about the fact that most of the commissars and stooges in our government's interventionary nightmare have either 
The "exit strategy" talk is spawned by the economic enigma I call the "Chinese Finger Trap". Essentially, the Fed is printing tons of money to stimulate the economy as it's both fun and entertaining (similar to sticking your fingers in the finger trap). However, if they keep doing that, eventually life's going to really suck (due to inflation, speculation on inflation, and all manner of evil). Therefore, at some point, they have to take their fingers out.
(excuse this boring personal note) I was extremely lucky to be taught economics by a monetarist. My economics textbook subtly jabbed at Keynesianism throughout the book, and compartmentalized Keynes and his balderdash in a single chapter called "Chapter 11--John Maynard Keynes" (I'm almost positive that was on purpose). At the time, I would chat with my friends, some of whom had taken Econ101 taught by a Keynesian. My Friends were always talking about 
To therefore write effectively about politics, you've got to either not care at all, or just not have human emotion to begin with. This is why most professional political pundits are actually sociopaths. The pundit's ability to look apocalypse in the face and say "Fuck it." is the secret to readable copy. It's not that these people are especially smart, it's that they're emotionally distant enough to keep their heads on straight when writing about the metaphorical rape of all their espoused beliefs.
The next myth I'mbout-ta-bust about the Great Mf'ing Depression is that President Herbert Hoover was some kind of coward who refused to intervene. This is almost certainly a case of politics totally f'ing up history. Pay attention boys and girls: this is what it looks like. These 'Court Historians' [*cough* Paul Krugman *cough*] want to blame the "free market" for the Great Depression, and to do that, they have to paint Hoover as a slimy, good-for-nothing, free market Republican (to be fair, he was a Republican, and he looked pretty slimy). Presumably, they're distorting history so they can blame the depression on Hoover and also so they can attribute this country's salvation to FDR's "economic reform." This lends credence to the government power-grab ("bailout") that's going on right now, since conceptually FDR's stimulus was the same thing. Luckily, the claims about Hoover's "non-interventionism" are so ridiculously false that the debate ends in the 2 seconds it takes to load the Wikipedia article. 
By the end of Hoover's presidency, it seemed that voters were pretty fed up with all this progressive interventionist hogwash. They knew what Hoover did, they knew it didn't work, they wanted "change," and they wanted it in the form of economic freedom. It seems strange then that they elected FDR--probably the most "progressive" president of all time, according to the history books.
By that notion, Obama could just wait until midnight tonight, use his Santa Claus magic, jump in his reindeer-driven Escalade, and do a drive-by on every unemployed household in America, killing at least half the unemployed in one fell swoop. Wouldn't it be great if it were just that easy? Too bad it isn't (though that may not stop him from trying...). Yeah, it'd make that particular economic indicator jump back into the green, but the smell would be horrendous after a few weeks, plus it wouldn't exactly restore consumer confidence.
If you accidently leave your TV on for any length of time these days, you probably know that what they did back then to try and "fix the problem" are the exact same types of things they're doing now. You hear about a new Bailout plan just about every month now, and every idea they have isn't exactly new.
