Liberty Forged

the State has no money of its own, so it has no power of its own. ` Nock

Posts Tagged ‘deficit’

Why were most people wrong about the economy?

Posted by Jesse on November 14, 2008

Posted in america, anarcho capitalism, antiwar, barack obama, business, campaignforliberty, capitalism, central banking, congress, Constitution, Current Events, democrat, economics, economy, Education, federal reserve, free market, Gold, government, history, iran, iraq, Libertarian, life, Politics, Rights, Ron Paul, technology | Tagged: , , , , , , , , , , , , , | Leave a Comment »

Economy? People are still fighting and Dying! The matter is one of War or Peace.

Posted by Jesse on October 23, 2008

I know more than enough to be skeptical of the actions taken, or accepted as necessary, by our “leaders” that I feel like I can safely assume the worst.

Sure the economy is a big issue for people. Not so much because the vast majority of americans are concerned about the Nation being bankrupt, or because the US military spending adds up to more than all the nations combined, but because they themselves, individuals and families, are concerned about their own well-being first and foremost. As it should be.

But the fact remains that tensions are high and the consequences of this governments military actions are much greater. Our fearful leaders would have the populace believe that this nation will ever remain righteous in this fight, and that those, like me, who oppose these aggressive actions are not only unpatriotic but are unworthy of any voice in the national media. Because, as the “neocon death-squad” logic concedes, War is Peace, and Occupation is Liberation.

Only individuals have the power. Until enough people come together and make a stand, peace will continue to be out of reach and war waged in the people’s name. Unfortunately, this is how the system currently works, legal or illegal. People have to take responsibility for themselves and demand a change. It’s supposed to be a two-way street. Right now, it’s one way by decree, and that is unjust and tyrannical.

“The defense policy of the United States is based on a simple premise: The United States does not start fights. We will never be an aggressor. – Ronald Reagan” (Liar)

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Why costs are being driven upward. What can be done.

Posted by Jesse on March 15, 2008

What the Price of Gold is Telling Us
The financial press, and even the network news shows, have begun reporting the price of gold regularly. For twenty years, between 1980 and 2000, the price of gold was rarely mentioned. There was little interest, and the price was either falling or remaining steady.
A Foreign Policy of FreedomA ManifestoThe Pillars of Prosperity
……….The rise in gold prices from $250 per ounce in 2001 to over $1000 today has drawn investors and speculators into the precious metals market. Though many already have made handsome profits, buying gold per se should not be touted as a good investment. After all, gold earns no interest and its quality never changes. It’s static, and does not grow as sound investments should.

……….Buying gold and holding it is somewhat analogous to converting one’s savings into one hundred dollar bills and hiding them under the mattress – yet not exactly the same. Both gold and dollars are considered money, and holding money does not qualify as an investment. There’s a big difference between the two however, since by holding paper money one loses purchasing power. The purchasing power of commodity money, i.e. gold, however, goes up if the government devalues the circulating fiat currency.

Holding gold is protection or insurance against government’s proclivity to debase its currency. The purchasing power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency goes down in value. In our current situation, that means the dollar.

………..One of the characteristics of commodity money – one that originated naturally in the marketplace – is that it must serve as a store of value. Gold and silver meet that test – paper does not. Because of this profound difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when earning some nominal interest. The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.

The point is that most who buy gold do so to protect against a depreciating currency rather than as an investment in the classical sense. Americans understand this less than citizens of other countries; some nations have suffered from severe monetary inflation that literally led to the destruction of their national currency. Though our inflation – i.e., the depreciation of the U.S. dollar – has been insidious, average Americans are unaware of how this occurs. For instance, few Americans know nor seem concerned that the 1913 pre-Federal Reserve dollar is now worth only four cents. Officially, our central bankers and our politicians express no fear that the course on which we are set is fraught with great danger to our economy and our political system. The belief that money created out of thin air can work economic miracles, if only properly “managed,” is pervasive in D.C.

In many ways we shouldn’t be surprised about this trust in such an unsound system. For at least four generations our government-run universities have systematically preached a monetary doctrine justifying the so-called wisdom of paper money over the “foolishness” of sound money. Not only that, paper money has worked surprisingly well in the past 35 years – the years the world has accepted pure paper money as currency. Alan Greenspan bragged that central bankers in these several decades have gained the knowledge necessary to make paper money respond as if it were gold. This removes the problem of obtaining gold to back currency, and hence frees politicians from the rigid discipline a gold standard imposes.

………..Today no one in Washington believes for a minute that runaway deficits are going to be curtailed. In March alone, the federal government created an historic $85 billion deficit. The current supplemental bill going through Congress has grown from $92 billion to over $106 billion, and everyone knows it will not draw President Bush’s first veto. Most knowledgeable people therefore assume that inflation of the money supply is not only going to continue, but accelerate. This anticipation, plus the fact that many new dollars have been created over the past 15 years that have not yet been fully discounted, guarantees the further depreciation of the dollar in terms of gold.

There’s no single measurement that reveals what the Fed has done in the recent past or tells us exactly what it’s about to do in the future. Forget about the lip service given to transparency by new Fed Chairman Bernanke. Not only is this administration one of the most secretive across the board in our history, the current Fed firmly supports denying the most important measurement of current monetary policy to Congress, the financial community, and the American public. Because of a lack of interest and poor understanding of monetary policy, Congress has expressed essentially no concern about the significant change in reporting statistics on the money supply.

Beginning in March, though planned before Bernanke arrived at the Fed, the central bank discontinued compiling and reporting the monetary aggregate known as M3. M3 is the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation. Yet this report is no longer available to us and Congress makes no demands to receive it.

……….A soaring gold price is a vote of “no confidence” in the central bank and the dollar. This certainly was the case in 1979 and 1980. Today, gold prices reflect a growing restlessness with the increasing money supply, our budgetary and trade deficits, our unfunded liabilities, and the inability of Congress and the administration to rein in runaway spending.

Denying us statistical information, manipulating interest rates, and artificially trying to keep gold prices in check won’t help in the long run. If the markets are fooled short term, it only means the adjustments will be much more dramatic later on. And in the meantime, other market imbalances develop.

………..Though everyone decries inflation, trade imbalances, economic downturns, and federal deficits, few attempt a closer study of our monetary system and how these events are interrelated. Even if it were recognized that a gold standard without monetary inflation would be advantageous, few in Washington would accept the political disadvantages of living with the discipline of gold – since it serves as a check on government size and power. This is a sad commentary on the politics of today. The best analogy to our affinity for government spending, borrowing, and inflating is that of a drug addict who knows if he doesn’t quit he’ll die; yet he can’t quit because of the heavy price required to overcome the dependency. The right choice is very difficult, but remaining addicted to drugs guarantees the death of the patient, while our addiction to deficit spending, debt, and inflation guarantees the collapse of our economy.

………..Special interest groups, who vigorously compete for federal dollars, want to perpetuate the system rather than admit to a dangerous addiction. Those who champion welfare for the poor, entitlements for the middle class, or war contracts for the military industrial corporations, all agree on the so-called benefits bestowed by the Fed’s power to counterfeit fiat money. Bankers, who benefit from our fractional reserve system, likewise never criticize the Fed, especially since it’s the lender of last resort that bails out financial institutions when crises arise. And it’s true, special interests and bankers do benefit from the Fed, and may well get bailed out – just as we saw with the Long-Term Capital Management fund crisis a few years ago. In the past, companies like Lockheed and Chrysler benefited as well. But what the Fed cannot do is guarantee the market will maintain trust in the worthiness of the dollar. Current policy guarantees that the integrity of the dollar will be undermined. Exactly when this will occur, and the extent of the resulting damage to the financial system, cannot be known for sure – but it is coming. There are plenty of indications already on the horizon.

Foreign policy plays a significant role in the economy and the value of the dollar. A foreign policy of militarism and empire building cannot be supported through direct taxation. The American people would never tolerate the taxes required to pay immediately for overseas wars, under the discipline of a gold standard. Borrowing and creating new money is much more politically palatable. It hides and delays the real costs of war, and the people are lulled into complacency – especially since the wars we fight are couched in terms of patriotism, spreading the ideas of freedom, and stamping out terrorism. Unnecessary wars and fiat currencies go hand-in-hand, while a gold standard encourages a sensible foreign policy.

……….Foreign policy contributes to the crisis when the spending to maintain our worldwide military commitments becomes prohibitive, and inflationary pressures accelerate. But the real crisis hits when the world realizes the king has no clothes, in that the dollar has no backing, and we face a military setback even greater than we already are experiencing in Iraq. Our token friends may quickly transform into vocal enemies once the attack on the dollar begins.

False trust placed in the dollar once was helpful to us, but panic and rejection of the dollar will develop into a real financial crisis. Then we will have no other option but to tighten our belts, go back to work, stop borrowing, start saving, and rebuild our industrial base, while adjusting to a lower standard of living for most Americans.

Counterfeiting the nation’s money is a serious offense. The founders were especially adamant about avoiding the chaos, inflation, and destruction associated with the Continental dollar. That’s why the Constitution is clear that only gold and silver should be legal tender in the United States. In 1792 the Coinage Act authorized the death penalty for any private citizen who counterfeited the currency. Too bad they weren’t explicit that counterfeiting by government officials is just as detrimental to the economy and the value of the dollar.

In wartime, many nations actually operated counterfeiting programs to undermine our dollar, but never to a disastrous level. The enemy knew how harmful excessive creation of new money could be to the dollar and our economy. But it seems we never learned the dangers of creating new money out of thin air. We don’t need an Arab nation or the Chinese to undermine our system with a counterfeiting operation. We do it ourselves, with all the disadvantages that would occur if others did it to us. Today we hear threats from some Arab, Muslim, and far Eastern countries about undermining the dollar system- not by dishonest counterfeiting, but by initiating an alternative monetary system based on gold. Wouldn’t that be ironic? Such an event theoretically could do great harm to us. This day may well come, not so much as a direct political attack on the dollar system but out of necessity to restore confidence in money once again.

……….The economic harm done by a fiat monetary system is pervasive, dangerous, and unfair. Though runaway inflation is injurious to almost everyone, it is more insidious for certain groups. Once inflation is recognized as a tax, it becomes clear the tax is regressive: penalizing the poor and middle class more than the rich and politically privileged. Price inflation, a consequence of inflating the money supply by the central bank, hits poor and marginal workers first and foremost. It especially penalizes savers, retirees, those on fixed incomes, and anyone who trusts government promises. Small businesses and individual enterprises suffer more than the financial elite, who borrow large sums before the money loses value. Those who are on the receiving end of government contracts – especially in the military industrial complex during wartime – receive undeserved benefits.

It’s a mistake to blame high gasoline and oil prices on price gouging. If we impose new taxes or fix prices, while ignoring monetary inflation, corporate subsidies, and excessive regulations, shortages will result. The market is the only way to determine the best price for any commodity. The law of supply and demand cannot be repealed. The real problems arise when government planners give subsidies to energy companies and favor one form of energy over another.

Energy prices are rising for many reasons: Inflation; increased demand from China and India; decreased supply resulting from our invasion of Iraq; anticipated disruption of supply as we push regime change in Iran; regulatory restrictions on gasoline production; government interference in the free market development of alternative fuels; and subsidies to big oil such as free leases and grants for research and development.

Interestingly, the cost of oil and gas is actually much higher than we pay at the retail level. Much of the DOD budget is spent protecting “our” oil supplies, and if such spending is factored in, gasoline probably costs us more than $5 a gallon. The sad irony is that this military effort to secure cheap oil supplies inevitably backfires, and actually curtails supplies and boosts prices at the pump. The waste and fraud in issuing contracts to large corporations for work in Iraq only add to price increases.

………When the free market is allowed to work, it’s the consumer who ultimately determines price and quality, with labor and business accommodating consumer choices. Once this process is distorted by government, prices rise excessively, labor costs and profits are negatively affected, and problems emerge. Instead of fixing the problem, politicians and demagogues respond by demanding windfall profits taxes and price controls, while never questioning how previous government interference caused the whole mess in the first place. Never let it be said that higher oil prices and profits cause inflation; inflation of the money supply causes higher prices!

……….Since keeping interest rates below market levels is synonymous with new money creation by the Fed, the resulting business cycle, higher cost of living, and job losses all can be laid at the doorstep of the Fed. This burden hits the poor the most, making Fed taxation by inflation the worst of all regressive taxes. Statistics about revenues generated by the income tax are grossly misleading; in reality much harm is done by our welfare/warfare system supposedly designed to help the poor and tax the rich. Only sound money can rectify the blatant injustice of this destructive system.

The Founders understood this great danger, and voted overwhelmingly to reject “emitting bills of credit,” the term they used for paper or fiat money. It’s too bad the knowledge and advice of our founders, and their mandate in the Constitution, are ignored today at our great peril. The current surge in gold prices – which reflects our dollar’s devaluation – is warning us to pay closer attention to our fiscal, monetary, entitlement, and foreign policy.

Meaning of the Gold Price – Summation

A recent headline in the financial press announced that gold prices surged over concern that confrontation with Iran will further push oil prices higher. This may well reflect the current situation, but higher gold prices mainly reflect monetary expansion by the Federal Reserve. Dwelling on current events and their effect on gold prices reflects concern for symptoms rather than an understanding of the actual cause of these price increases. Without an enormous increase in the money supply over the past 35 years and a worldwide paper monetary system, this increase in the price of gold would not have occurred.

………...Since 2001 the dollar has been devalued by 60%.
In 1934 FDR devalued the dollar by 41%.
In 1971 Nixon devalued the dollar by 7.9%.
In 1973 Nixon devalued the dollar by 10%.

These were momentous monetary events, and every knowledgeable person worldwide paid close attention. Major changes were endured in 1979 and 1980 to save the dollar from disintegration. This involved a severe recession, interest rates over 21%, and general price inflation of 15%.

Today we face a 60% devaluation and counting, yet no one seems to care. It’s of greater significance than the three events mentioned above. And yet the one measurement that best reflects the degree of inflation, the Fed and our government deny us. Since March, M3 reporting has been discontinued. For starters, I’d like to see Congress demand that this report be resumed. I fully believe the American people and Congress are entitled to this information. Will we one day complain about false intelligence, as we have with the Iraq war? Will we complain about not having enough information to address monetary policy after it’s too late?

If ever there was a time to get a handle on what sound money is and what it means, that time is today.

Inflation, as exposed by high gold prices, transfers wealth from the middle class to the rich, as real wages decline while the salaries of CEOs, movie stars, and athletes skyrocket – along with the profits of the military industrial complex, the oil industry, and other special interests.

A sharply rising gold price is a vote of “no confidence” in Congress’ ability to control the budget, the Fed’s ability to control the money supply, and the administration’s ability to bring stability to the Middle East.

Ultimately, the gold price is a measurement of trust in the currency and the politicians who run the country. It’s been that way for a long time, and is not about to change.

If we care about the financial system, the tax system, and the monumental debt we’re accumulating, we must start talking about the benefits and discipline that come only with a commodity standard of money – money the government and central banks absolutely cannot create out of thin air.

Economic law dictates reform at some point. But should we wait until the dollar is 1/1,000 of an ounce of gold or 1/2,000 of an ounce of gold? The longer we wait, the more people suffer and the more difficult reforms become. Runaway inflation inevitably leads to political chaos, something numerous countries have suffered throughout the 20th century. The worst example of course was the German inflation of the 1920s that led to the rise of Hitler. Even the communist takeover of China was associated with runaway inflation brought on by Chinese Nationalists. The time for action is now, and it is up to the American people and the U.S. Congress to demand it.

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Chalmers Johnson: “Blowback” “covert activity” and US liabilities

Posted by Jesse on January 18, 2008

Blowback is a term that refers to unintended consequences through covert actions by governments.
Listen to a great interview here.

Chalmers Johnson is president of the Japan Policy Research Institute, a non-profit research and public affairs organization devoted to public education concerning Japan and international relations in the Pacific. He taught for thirty years, 1962-1992, at the Berkeley and San Diego campuses of the University of California and held endowed chairs in Asian politics at both of them. At Berkeley he served as chairman of the Center for Chinese Studies and as chairman of the Department of Political Science. His B.A., M.A., and Ph.D. degrees in economics and political science are all from the University of California, Berkeley. He first visited Japan in 1953 as a U.S. Navy officer and has lived and worked there with his wife, the anthropologist Sheila K. Johnson, every year between 1961 and 1998.

Johnson has been honored with fellowships from the Ford Foundation, the Social Science Research Council, and the Guggenheim Foundation; and in 1976 he was elected a fellow of the American Academy of Arts and Sciences. He has written numerous articles and reviews and some sixteen books, including Peasant Nationalism and Communist Power on the Chinese revolution, An Instance of Treason on Japan’s most famous spy, Revolutionary Change on the theory of violent protest movements, and MITI and the Japanese Miracle on Japanese economic development. This last-named book laid the foundation for the “revisionist” school of writers on Japan, and because of it the Japanese press dubbed him the “Godfather of revisionism.”

He was chairman of the academic advisory committee for the PBS television series “The Pacific Century,” and he played a prominent role in the PBS “Frontline” documentary “Losing the War with Japan.” Both won Emmy awards. His most recent books are Blowback: The Costs and Consequences of American Empire (New York: Metropolitan Books, 2000) and The Sorrows of Empire: Militarism, Secrecy, and the End of the Republic, which was published by Metropolitan in January 2004. Blowback won the 2001 American Book Award of the Before Columbus Foundation.

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Recession or Depression? by Rockwell

Posted by Jesse on January 18, 2008

You can find the article here.

Many people are finally saying the R word: Recession. The fundamentals don’t look good. The externals are even scarier: dollar and stocks skidding, gold and other prices (particularly producer prices) rising. But what has tipped the psychological scales is the statistic no one has cared much about in many years: unemployment.

The actual rate is very low by any historical standard: 5%. What matters here is the direction of change. It jumped from 4.7%. In the old days, unemployment rates of 5% and 6% were considered “full employment” in the Keynesian models. If government attempted to push employment below that level (and it is absurd to think that anyone in Washington can control the economy in that way), it would risk setting off inflation, or so it was believed.

If the actual unemployment rate is low, why this wave of pessimism? All data in the postwar period of American economic history consistently show that an increase in the rate has coincided with the onset of recession. The parallel between the two is the most consistent feature of the business cycle. See the NBER list: 2001, 1990–91, 1981–82, 1980, 1973–75, 1970, 1960–61, 1957–58, 1953–54, and so on. In each case, unemployment begins to rise at the onset.

Now, keep in mind that the link between rising unemployment and recession is largely true by definition only. In other words, those charged with defining what is and what isn’t a recession put a huge weight on rising unemployment. So of course it appears that weak labor markets are what push an economy into recession.

This is sheer fallacy, and a particularly dangerous one. Rising unemployment is a symptom of a recession, not its cause. If the critical problem of recession is unemployment, policy makers are tempted to address this one area to the exclusion of everything else.

Already, Bush administration spokesmen are talking about a “fiscal stimulus” to counter this trend. But why isn’t this laughable on its face? Perhaps if Bush had been a famed penny pincher, you could see how a stimulus would make some sense on the surface. But it is hard to imagine a more fiscally profligate regime than the Bush administration. We can confidently say that more spending is not the answer.

The view that unemployment causes recession was one of the great errors of the New Deal and the Great Depression. The government looted the private sector and transferred it to visible jobs programs. It forced business to maintain high wages precisely when the market was attempting to equilibrate them downward. It increased the costs of hiring just when the costs needed to be lower.

None of it did any good; in fact, it delayed recovery for many years. Lionel Robbins, in his classic book The Great Depression, wrote this in 1934: “If it had not been for the prevalence of the view that wage rates must at all costs be maintained in order to maintain the purchasing power of the consumer, the violence of the present depression and the magnitude of the unemployment which has accompanied it would have been considerably less…. A policy which holds wage rates rigid when the equilibrium rate has altered, is a policy which creates unemployment.”

Writing in 1931, in his book Causes of the Economic Crisis, Ludwig von Mises explained that there would be no involuntary unemployment in a free market. There will always be some unemployment in a market in the same way that there are houses that are empty and not selling and resources that are not being used for production. This isn’t due to market failure but to individuals who have the freedom to lower their asking price, provided they are permitted by policy to do so and businesses are free to negotiate wages freely.

What, then, is the solution to unemployment? “The determination of wage rates must become free once again. The formation of wage rates should be hampered neither by the clubs of striking pickets nor by government’s apparatus of force. Only if the determination of wage rates is free, will they be able to fulfill their function of bringing demand and supply into balance on the labor market.”

There is an error even more fundamental than seeking an interventionist solution to the problem of unemployment. It is the attempt to seek a solution to the recession itself, as if it were the critical problem. Writing all throughout the 1930s, both Mises and F.A. Hayek tried to explain that the recession itself served a market purpose, in the same way a correction to an inflated stock market serves a purpose. It re-coordinates economic structures that have grown seriously out of balance.

In other words, they urged that we look back before the recession, to the good old days of economic boom, and realize the prosperity of the past was a partial illusion. The recession is the way that the economy tells the truth about the fundamentals. The illusion itself is caused by errors in monetary policy. Interest rates are driven down by the Fed, and this causes widespread errors in the investment sector. These investments are unsustainable over the long term. The recession is the time of cleansing out errors and reestablishing economic soundness.

The housing boom and bust is only a symptom of a wider problem. If the economy has indeed fallen into recession, we can know with certainty that recession is precisely what the economy needs the most. It is the equivalent of the drunk who needs time on the wagon.

The rap on the Austrian School of the 1930s is that they counseled a do-nothing policy on the depression. That is not true. There are many things that government can do but they all amount to doing less, which is a positive action of sorts. It must not attempt to prop up and raise wages. It must stop taxing business so heavily and raising the costs of investment. It must cut regulations that are hampering recovery. It can cut spending dramatically as a way of returning resources to the private sector where they can do some good.

What government cannot do without causing even more problems is take positive action against symptoms, such as falling stocks or housing prices, rising unemployment, business failures, and falling incomes. This is precisely what caused the Great Depression to get its name instead of being called what it might have been called: the recession of 1929–1931.

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