Archive | December, 2013

Our Time Is Now

29 Dec

Mises Daily: Friday, December 27, 2013 by 


Forty years ago, Ludwig von Mises passed away. I believe he would be happy with what you have helped the Mises Institute accomplish.

Looking back on his career, we find so much that deserves comment. His work in Austria that helped avert hyperinflation. His flight from Europe just ahead of the Nazis, who confiscated his papers in Vienna. His struggles within a statist academia. His total reconstruction of economics. His brilliant defense of liberty. And so much more.

This year is also the 100th anniversary of the Federal Reserve’s founding in 1913. But one year earlier, when only 31 years old, Mises was already developing what would become the Austrian theory of the business cycle, which explains how government intervention and central banks like the Federal Reserve cause the boom-bust cycle.

Mises’s theory earned a respectful hearing in European circles before the Keynesian revolution of the 1930s swept the academic boards, but was all but forgotten in the Depression-fueled stampede to blame the free market for economic convulsions.

Even some of his own students surrendered to the Keynesian onslaught. From that moment on, someone like Mises would be forever an outsider.

The status of Keynesianism itself affords an interesting comparison between 1973, the year of Mises’s death, and today. After the boom of the 1960s, Washington’s central planners claimed to have used the Fed and spending to create permanent prosperity, and to have abolished the business cycle. That seemed plausible to some people in 1970.

It didn’t seem plausible in 1973. Recession had hit the United States. The Keynesian intellectuals had rather a difficult time accounting for the stagflation of the 1970s. High inflation and high unemployment were not supposed to occur simultaneously.

The Keynesians held that high price inflation called for cutting government spending and the money supply. High unemployment, by contrast, called for the opposite: more government spending and more money-printing.

But what was the Keynesian policymaker to do when faced with high price inflation and high unemployment? It was obviously impossible to do both at the same time. Keynesianism had suffered a terrible blow. The decline in Keynesian influence became evident in the economics textbooks that appeared over the next several decades.

Fast forward to the Panic of 2008, and Keynesianism was suddenly back. The economics profession had been blindsided by the financial crisis, and lacking any answers or solutions, fell back on the crudest forms of Keynesian “stimulus.”

The return of Keynesianism is one area in which conditions have worsened since Mises’s death, when it seemed Keynes had been defeated. But there is ample reason for hope. The word “Keynesian” is now used as a term of abuse by a great many informed people, and the rising generation of young scholars are looking with skepticism at the Keynesianism of their professors.

Moreover, Keynesianism is visibly failing. The unprecedented fiscal and monetary expansion that has taken place around the world should have been followed by rapid and robust recovery. It wasn’t. Unemployment remains high across the Western world. If the Keynesians are right, this should not be happening.

They have their excuses, to be sure. The stimulus hasn’t been big enough, they say. But as time goes on and recovery remains elusive, who will believe them? More and more voices will be heard suggesting that an inadequate dose of the proposed medicine is not the problem. The problem is the medicine itself.

In Mises’s day, the central bank was not the subject of debate. Americans were hardly aware of the existence of the Federal Reserve; much less did they understand how it operated, or what its effects on the economy might be.

Today it has become almost chic to oppose the Fed, both from the left and the right. The Fed’s defenders increasingly sound like the crony apologists for the old order that they are.

Much of the history of the Mises Institute, I might note, took place during the Fed chairmanship of Alan Greenspan and the period some economists called the Great Moderation. Greenspan, they said, had shown that well-considered Fed intervention would yield robust growth, low price inflation, and overall economic stability.

At that time, you could have counted on one hand, with fingers to spare, how many organizations were actively opposed to central banking. If libertarians had once opposed central banking, the vast bulk of them had long since made their peace with the creature from Jekyll Island. They gave awards to Fed officials. We were being unreasonable, they said: why, the results speak for themselves!

Indeed they do, though not in the way our erstwhile critics supposed. With our criticism of the Fed now vindicated many times over, it’s become fashionable again to oppose the central bank.

Although it is his scholarship that distinguishes Mises above all, we should also admire and attempt to emulate his tenacity in standing behind the free market and the gold standard, at a time when nothing could have been less fashionable, and when so many other defenders of the market wound up compromising or apologizing.

Today we hear people who say that the unvarnished libertarian message is too radical, too extreme for public consumption. We need to temper our statements so we will be more likely to win converts, they say.

Yet Mises was always direct, and everyone knew where he stood. And today, Mises’s influence is greater than ever, with a new generation of rising Austrian scholars eager to make use of his enormous scholarly output.

The same goes for Murray Rothbard. While the libertarians of the Beltway urge students to study and imitate economists who supported the Fed, or who proposed various programs designed to make government more efficient, the army of young libertarians that has grown up since the Ron Paul revolution wants the real thing.

They want Rothbard: his cutting analysis, his vast knowledge, his devastating prose. And, of course, the more they’re told to avoid Rothbard in favor of economists more in fashion in DC, the more they want to read him.

Mises said the causes of freedom and Austrian economics had to be advanced by a dual program. On the one hand, we need advanced scholarly work in defense of our position. Thus our work with professors, and students, too.

On the other hand, we can’t neglect business and professional leaders, indeed everyone interested, to whom we also must convey the compelling case for the Austrian School. The Mises Institute has been doing both for more than 30 years.

Many people know us for the popular work we do: our Daily Articles applying Austrian economics to the news of the day, our Mises View video series, our large social media presence, and our seminars and conferences for the general public.

But in our scholarly publishing, as with many of our books as well as our Quarterly Journal of Austrian Economics, we are advancing and developing the Austrian School itself. Our annual Austrian Economics Research Conference brings together hundreds of scholars from around the world who are working in the Austrian tradition.

Our Mises University and Rothbard Graduate Seminar for summer students continue to produce some of the brightest lights in the ever-expanding Austrian world. Our Mises Circles reach out to supporters and students.

When I started the Mises Institute more than three decades ago, I promised Mises’s widow, Margit, that I would devote the rest of my life to this important work. What I didn’t know then was that we would one day have the ability to spread the work of the Austrian School throughout the U.S. and around the world on an undreamed-of scale.

Anyone who has visited knows what we’re doing: not only are the great Austrian classics now available to the world for free, but we also have hundreds of other books, the entire print runs of important scholarly journals, many thousands of articles applying Austrian theory to a great many important issues, and the audio and video of all the seminars and conferences we conduct at the Institute and around the world.

With the Mises Academy, we offer online teaching in a host of areas. I see it as the model for future, free-market higher education amidst the ruins of the old ways.

But we need your help to keep going.

Mises lived his most academically productive years in relative obscurity, as an unpaid visiting professor at NYU. Had he been willing to please the establishment, a man of his intellect could have chaired the department at Harvard. But he considered the cause of truth more important than the cause of his own career. The same can be said for Rothbard, and for a great many of the Austrian professors working today.

Mises was a great scholar, but he was also a great man. On the 40th anniversary of his passing, I hope you will join me in helping to carry on his legacy, thus ensuring that his sacrifices were not in vain. His work grows more significant every day, as the state continues to make inroads on our prosperity and on our liberty.

We live at a historic moment. The state’s lies are believed by a smaller percentage of the public than ever before. The Mises Institute, with our technological know-how, an unbeatable network of scholars, and the great body of work that constitutes the Austrian School, is uniquely poised to take advantage of this crucial opportunity.

I hope you will commit to help us spread the message of Mises, and train the next generations to carry forth the great edifice of truth that is Austrian economics.

Note: The views expressed in Daily Articles on are not necessarily those of the Mises Institute.

Comment on this article. When commenting, please post a concise, civil, and informative comment.
Llewellyn H. Rockwell Jr. is chairman and CEO of the Ludwig von Mises Institute in Auburn, Alabama, editor of, and author of Fascism versus Capitalism. Send him mail. See Llewellyn H. Rockwell Jr.’s article archives.

Same Old Neocons

29 Dec

by Taki 

December 24, 2013

Same Old Neocons

During these holidays we should take a second and send our best wishes to the neocons, poor dears, who are having a bad time during this holy season because their plans have gone awry—for at least the next six months.

Ten years ago they were sitting pretty. Saddam had fallen, his chemical and nuclear weapons were about to be discovered, and a new, improved Middle East loomed on the horizon. Well, we all know what a con that was—one that not only cost thousands of American lives, hundreds of thousands of Iraqi ones, and millions of refugees, but also one that turned Uncle Sam from a rich “have” into a heavily indebted “have-not” looking at a Chinese laundryman friend for a loan.

The neocons got away with it. They kept their jobs and the roles they play in the media as American patriots, and now they want to repeat the exercise. They’ve only changed one letter, from q to n, from Iraq to Iran. And—amazingly—they have gone one better: This time they want Uncle Sam to be on the side of the bad guys and rain bombs on the good ones. Have they gone completely bonkers, or has someone been putting LSD in the DC water supply?

“The Christian faith is under attack by the very people who are painted in the West as freedom fighters.”

The greatest bribers and influence-peddlers in DC are the Israeli and Saudi lobbies. Overthrowing Assad has been a Saudi/Sunni master plan since donkey’s years, and I’m surprised the wily Israelis have gone along with it—if they have, that is. For the Saudis, the Iranian nuclear program and the Syrian war are parts of a single conflict. (That’s where the Israel/Saudi alliance comes in.) The militant jihadists fighting the secular Assad forces are financed by Saudi Arabia and Qatar, the money controlled by gangs who call themselves royals and who have stolen their countries’ oil and mineral wealth from their people to finance their hookers and palaces where they can drink their whiskey in peace. Al-Qaeda, that nice group who gave us 9/11, is the main beneficiary. Its aim is to get rid of Christianity in the Holy Land.

Which brings me to the new persecution—that of Christians.

In Baghdad, Sunni terrorists have bombed dozens of Christian churches; an estimated million Christians have fled Iraq. A huge quotient of Syria’s Christian population has fled their villages and towns for Assad-controlled areas. In Egypt, where Copts have lived since Christ’s time, millions have been intimidated or murdered during the brief time the Muslim Brotherhood held sway. They are now treated as third-class citizens and confined to squalid quarters. Priests are regularly murdered and churches are routinely bombed. Saudi Arabia, of course, does not tolerate Christianity or any other religion for that matter, but Saudi interests are given priority in the West because money talks and Saudi money talks louder than most.

So the Christian faith is under attack by the very people who are painted in the West as freedom fighters, financed by the Saudi-Qatari gang that hopes to establish a Sunni zone across Syria and Iraq and bottle up the snake, as the so-called Saudi King called Iran.

Which brings me back to the neocons.

To keep Uncle Sam’s war machine whirring, they are ready to sit down with the Devil himself in his white robes and sandals and sitting in his golden Cadillac. The bad guys right now are Obama and Kerry, who gave Iran a six-month hiatus to get rid of its plan for a nuke. The fact that Iran will never be allowed to produce one is immaterial. The neocons want war and thus turned Iran into another Iraq. The fact that Seymour Hersh exposed the lie about last September’s sarin chemical gas attack being a terrorist act caused by anti-Assad forces never saw the light of day in the always subversive New York Times. (It was published by the London Review of Books.)

Both Obama and Kerry lied when they said they had proof that Assad’s forces were responsible. Yet now that they have finally seen the light, our neocons are fighting mad and not enjoying their holidays in the same spirit they did ten years ago. And they are very impatient. Six months is a mere bagatelle, but there you have it.

In the meantime, our fellow Christians are under attack and the only man protecting them is the secular Bashar al-Assad, the neocons’ worst nightmare.

Have a merry Christmas.

The Fed is not a Conspiracy

29 Dec

Imagine you know  somebody who claims:

I have found a machine to make all the money I want. The bills are perfect, completely undetectable; in fact they are the real thing. So therefore I can live the great life from now on, never to worry again, ha, ha, ha.

Now what would you think if this guy instead gives the machine to his neighbor so the he (the neighbor) can lend me (the machine owner) some money to live the good life? And what if I agree to pay the interest on the loan by robbing my other neighbors?

Well, that’s what Larken Rose explains in his short video (only 4:32 minutes. He also explains that the owner of the money machine is the US government and the neighbor is the Federal Reserve.  If you want to see the vide click on  and search for “ the Fed is not a Conspiracy”.

And finally, what should we think about the mainstream media? Can they be as ignorant as they pretend, or maybe Rotschild was right when he publicly acknowledged his debt in his memoirs?


The Meanest of Mankind: The Brutality of American Fascist Police Goons

29 Dec
By John Fleming

December 27, 2013

Severity breedeth fear, but roughness breedeth hate. Even reproofs from authority ought  to be grave and not taunting.-Lord Bacon

The American police are not only above the law, but they make up the law as they go along-and then proceed to violate their own “laws” as it suits them. As a category or group the American police are the meanest pricks ever to descend on God’s green earth. No group in the world today is meaner. It is not just that the American police are not prosecuted for their routine epidemic criminal behavior. It is not just that they singlehandedly annihilate the vaunted but unenforced “Bill of Rights,” making it not worth the paper it is written on. It is not just that they are sorely undereducated and uneducated. It is not just that they are trigger-happy and get away with gunning down innocent people time after time. And it is not just that the Fascist creeps, some of them, are secret illegal members of the NSA and CIA.

Instead, what is most outrageous is that they terrorize the very people they are supposed to serve, and that noone but powerful politicians-unresponsive to the taxpayers and part of the ruling class-have any control over them, which they refuse to exercise for the common welfare.

The meanness of the American cop defies description. He gets off on redirected aggression. He takes an instant hatred of you upon deciding, without benefit of due process of law, that you are guilty. Their use of force is legendary and infamous. The American police are devoid of humanity and have no compassion whatsoever. They approach their job as one of “law and order” against middle-class and working class belligerents who have pesky rights. It is clear that the police are the masters of the people they are supposed to serve with woefully excessive authority and that the people are powerless against them. Once arbitrarily charged by the coppers with a crime, the American citizen faces a corrupt system of courts and judges and magistrates and prosecutors and jails and prisons that stack the deck against the “defendant.,” who is simply railroaded. Unlike in Europe, fines and court costs are not prorated and progressive according to one’s ability to pay; the poor are simply discriminated against (in reality, oppressed and devastated), by the injustice system. Especially victimized are minorities like blacks, who disproportionately stock the jails and prisons. The system crushes the poor, and rich men rule the system.

One police tactic that nobody is opposing-not even the idiotic ACLU-is the practice of the prick cop playing judge, jury and executioner on the street and ordering a person, upon instantly deciding that he is guilty, not to return to a locale, business or shopping mall. In reality, the police have no such authority, it constitutes a truculent violation of the Constitutional promise of due process of law, and the victim is found “guilty” without benefit of a trial, a judge or jury of his peers, the right to speak in his own defense and call witnesses on his own behalf, the right to benefit of a lawyer, and so forth. The tactic is extraordinarily common and is part of the annihilation of the First Ten Amendments to the Constitution (“The Bill of Rights”). The police simply relish being the man and the law out on the streets and  administering “justice” as they see fit. The fact that there are a liberal Constitution, Bill of Rights and formal laws is completely beside the point. The unwritten rule with the police hoodlums is guilty until and unless proven innocent. You are powerless to debate with a man who is armed with a handgun, a shotgun, a billy club, Taser, and perhaps most importantly who can call for “backup” that can instantly clog an entire street with squad cars. You do not give him attitude or “lip.” He can threaten you with a beating, citation, arrest and processing at the county seat or jail-that would be six or eight hours of bureaucratic processing that you would never recover as long as you lived. But should you threaten him-say with a lawsuit or official complaint-and you would be lucky to have your head in tact afterwards!

The very worst of the Fascists are the LAPD-notorious around the world for human rights abuse. The ambivalence of American society towards authority figures was demonstrated when the police who beat Rodney King were formally acquitted in court of beating Rodney King. Fascism is its own excuse and raison d’etre. When stopped by a cop on the road, it is clear that you must be all deference and the officer has carte blanche to do anything to you as he pleases.

Fortified with a police academy education-an atrocity of the intellect that does not exactly make him an Oxford man-the cop has learned the blue code of silence (do not inform against fellow officers), how to lie on police reports, deflecting complaints against police at Internal Affairs (I.A.)-that is, the police judging the police, more than a little incestuous-and the veteran boys at IA, using every art known to the Sophists (but with none of their philosophy), never met a complaint they could not derail or give the royal run around. What abuse he can get away with, the use of the Taser, the threat to use the Taser, being a stickler for the law and tacking on every little misdemeanor and felony that comes to mind. And they do it all with a psychotic hatred of their victims that was unknown even to the Geheimstaatspolizei.

One favorite torture technique of the police is to tighten the handcuffs on a prisoner to the maximum extent. The cuffs are so tight that they dig into the wrists of the victim as it is, but the policeman makes a point of jerking your arms and hands around, to intensify the pain, calling it resisting arrest as you stand there motionless. Then he adds “resisting arrest” to the litany of bullshit against the hapless nominal employer of the police.

The double-standard of the police is notorious. He who calls the police first is usually in the right. The police approach their jobs with mindless truculent belligerence-as if that were the only way to get things done. They regularly lie (perjure themselves) on police reports but get away with it. They are notorious liars, and, supposedly trained to observe the surroundings and take notes, instead they do no such thing, but ignore some laws, as it pleases them, and viciously enforce others, as it pleases them. The American police are brutal, highly unintelligent, trigger-happy, murderous, petty, full of authority hubris, hypocritical, Janus-faced, inarticulate, coarse, philistine, devoid of all academic knowledge, devoid of compassion, inhumane, provincial, illiberal, intolerant, and psychotic. They have no fellow feeling for others. They mindlessly charge half-cocked and arrest someone if only to justify the call to the police. Their humor is insensitive, truculent and obscene; they sit around at the police station listlessly exchanging obscenities. Their estrangement from the common decency of humanity could not be more complete. They refuse to take “attitude” because they have woefully excessive authority. They are in fact above the law.

Why do the American people tolerate police abuse? The ultimate answer is that rule by Schreck of the system and the fact that the fact that the people-like the workers in regard to the ruling class-are unorganized and their power dissipated and fractionated. American propagandists endlessly refer to alleged human rights abuse in Russia and China: But if it is human rights violations you want, I suggest the LAPD and St. Louis County Police.

The Gestapo inspired fear too, as do the American police, but at least the former did not psychotically despise their victims.

Reprinted from

Copyright © 2013

Is Maureen Dowd Obsolete?

29 Dec

December 23, 2013

“Without men, civilization would last until the oil needed changing”–Federicius Aurelius Superomnem, 345 B.C.

Oh god, oh god. Death, taxes, migraine, sinus drainage, beriberi, and Maureen Dowd, the resentment columnist at the New York Times. On the web I find her at some feminist bitch-in, called Are Men Obsolete? She has this to say to men:

“So now that women don’t need men to reproduce and refinance, the question is, will we keep you around? And the answer is, ‘You know we need you in the way we need ice cream….you’ll be more ornamental.”

I was delighted to think that I might be ornamental, no one having suggested the concept until now.  I could have used it in high school. Maureen herself is beyond being ornamental, having that injection-molded look that follows the seventh face-lift, probably accomplished by the surgical use of a construction crane.

But I will say this to her:

Listen, Corn Flower. Let’s think over this business of obsolete men. Reflect. You live in New York, in which every building was designed and built by men.  You perhaps use the subway, designed, built, and maintained by men. You travel in a car, invented, designed, and built by men—a vehicle that you don’t understand (what is a cam lobe?) and couldn’t maintain (have you ever changed a tire? Could you even find the tires?), and you do this on roads designed, built, and maintained by men. You fly in aircraft designed, built, and maintained by men, which you do not understand (what, Moon Pie, is a high-bypass turbofan?).

In short, as you run from convention to convention, peeing on hydrants, you depend utterly on men to keep you fed (via tractors designed by men, guided by GPS invented, designed, and launched by men, on farms run by men), and comfy (air conditioning invented…but need I repeat myself?).

I do not want to be unjust. It is not in my nature. While men may be obsolete (unless you want to eat) I cannot say, Apple Cheeks, that feminists are obsolete. They are not. Obsoleteness implies having passed through a period of usefulness.

I do get tired of your hissing and fizzing about the noble sex to which I belong. Mercy, I cry. It is not my fault that Michael Douglas didn’t marry you. He didn’t marry me either, but I don’t hate men because of it. (In fact I am grateful to him, and doubtless he to me).

Don’t misunderstand me. I have nothing against ill-bred viragos—feminism has its place, though I’m not sure where. But let me be clear, Buttercup. I don’t want to seem rude—nothing could be more alien to my character—but I do think that you and your littermates might essay a civility exceeding that of menopausing catamounts. In fact, Sweet Potato, if it were not for my innate courtesy I might say that being at once useless and insupportable is stretching things.

A jot—an iota, a tittle, a scintilla—of gratitude might be in order. Should you look around you, you will note that everything that keeps you and the sisterhood from squatting in caves and picking lice from each other’s hair was provided for you by—the horror—men.

Is it not so, Rose Bud? Can you name one thing, with a moving part, that was invented by a feminist?

It seems to me that you gals are like African bushmen, but without their dignity. A bushman looks at a television (Invented by Men: IBM) in astonishment, and says, “Wah! Bad juju! Spirits inside!” He knows he doesn’t understand it and does not presume. His degree of understanding, I suspect, is exactly yours.

But I suppose the shrewery are so busy honking and blowing about socially-constructed this and gender-roles that and patriarchal the-other-thing that you don’t understand that there is anything to understand. Is it not so? When you sit at your computer spewing bile like a legged gall-bladder, are you aware of 2500 years of mathematics, chemistry, solid-state physics, engineering, information theory—all invented by men, the bastards—that go into the blinking screen?  Your vituperative ingratitude, Sugar Britches, is undignified.

But perhaps, you might say, I am being ungentlemanly—though I would hardly know how.  Perhaps, as we said in Alabama, you ain’t got the sense God give a crabapple.

Maybe, Petunia, you and your frothing friends could profitably come to terms with realty. Women make perfectly good dentists, surgeons, reporters, lawyers, musicians, editors, and all sorts of things. They can do some things better than men can (Dentistry: smaller hands, better fine-muscle control). In Latin countries they do these things civilly (consult your dictionary). And I applaud anyone making headway in this world on his, her, or its merits.

Yet as a matter of observable fact (a category apparently having no place in feminism), we men—patriarchal, capitalistic, macho, immature, savage, testosterone- poisoned, et cetera—seem to come up with everything important that comes up. (I won’t touch that one with a pole.) (Wait, I meant….) For example: The transistor, William Shockley and his group.  Microsoft, Bill Gates. Intel, Gordon Moore and Robert Noyce. Apple, Steve Jobs and Steve Wozniak. Dell Computer, Michael Dell. Public-key encryption, James Ellis, Clifford Cookis, and Malcom Williamson at GCHQ in England and later Rivest, Shamir, and Adelman of RSA Security. The World Wide Web, Tim Berners-Lee, a Brit at CERN. Google, Larry Page and Sergey Brin. Yahoo, Jerry Yang and David Filo. Facebook, Mark Zuckerberg. The list could go on for another yard or so.

It will stay that way, Lotus Blossom, for the same reason that women will never be offensive linemen in the NFL. They can’t. If they could, they would have. If you disagree, I suggest you apply to the Redskins. They need any talent they can get.

Now, if I were left alone, I would say none of this, having no desire to make women feel bad. But you and yours will not leave me alone, Maureen.  I am perfectly happy in a world of female doctors and techs and what have you. When women act like what used to be called “ladies,” I act like what used to be called “a gentleman.” It used to be that if at the airport I saw a woman struggling with too much suitcase, I would say, “May I give you a hand?,” and put the suitcase where it needed to be. The woman would say, “Thanks,” to which I would respond, “Happy to help.” And that would be that. It should have nothing to do with machismo, and much to do with a suitcase. Now, I’m not sure I would do it.

OK, I’m bluffing. I would do it. But, Sweet Pea, I hope you have mastered parthenogenesis. It is your only hope.

Fred Reed is author of Nekkid in Austin: Drop Your Inner Child Down a WellA Brass Pole in Bangkok: A Thing I Aspire to BeCurmudgeing Through Paradise: Reports from a Fractal Dung BeetleAu Phuc Dup and Nowhere to Go: The Only Really True Book About VietNam, and A Grand Adventure: Wisdom’s Price-Along with Bits and Pieces about Mexico. Visit his blog.

Copyright © 2013 Fred Reed

Previous article by Fred Reed: Wet-Lipped Psychopaths

200 Years Of Dollar Debasement

29 Dec

Submitted by Tyler Durden on 12/12/2013 16:58 -0500

Everyone has seen the 100-year US Dollar destruction chart; so here is the 200-year… a century without The Fed and a century with… which would you prefer?

Via Ralph Dillon of Global Financial Data,

Newton’s 3rd law states: To every action there is always an equal and opposite reaction. Sounds pretty simple right?

Except in Government, where for every action, the reaction seems to produce catastrophic consequences for such action. Yet inexplicably, the answer these days to everything seems to be more Government intervention and meddling. You would think that at this point we would have learned from our prior mistakes. Yet the meddling goes on and on and on….because it works so well.

Have you ever considered the true cost of all of this intervention? Think about it. Since the creation of the Federal Reserve in 1913, we have been in perpetual warfare, we introduced the New Deal which birthed Government programs, we eliminated the gold standard, we flooded the market with massive credit expansion, we accumulated massive amounts of debt and have now seen the Government take over 20% of our economy through healthcare. As if all of the prior interventions were not enough, in just the last 5 years, we have had shovel ready, bank bailouts, trillion dollar stimulus, QE 1,2,3,4, operation twist, unemployment benefits extended, car bailouts and crony capitalism that threw good money after bad. What we have gotten is more of the same. More debt, more political posturing and the complete destruction of the dollar and the purchasing power of it. With it, no one is accountable. Not the Government, not the banks, not the private companies but the citizens whose burden it has become to fund all of this intervention.

With the backdrop of other Governement ventures like the USPS and Social Security Administration, what can possibly go wrong with our latest intervention Obamacare? Whether you are for or against it, you have to recognize that this is and will be the mother of all Government interventions. With a horrific rollout, low enthusiasm and a general public that is either unaware or just ignorant to what is truly coming down the pipe, we can only hope that this time it will be different. But consider, that for every word that defines Obamacare, there are 30 more words that enforce it. With 109 new regulations and counting, you have to wonder if this monstrosity of intervention will finally be the straw that breaks the proverbial camel’s back. It surely has the making for it because we have never seen anything like it.

Cost since 1913? Well, the dollar has lost nearly 90% of its value and the purchasing power of that dollar has been eroded considerably.

Below is a chart that demonstrates the destructive quality of Government intervention to 1819:

How the Paper Money Experiment Will End

29 Dec


December 14, 2013


A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible. In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this senario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt.

This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government.

We are now in a situation that looks like a dead end for the paper money system. After the last cycle, governments have bailed out malinvestments in the private sector and boosted their public welfare spending. Deficits and debts skyrocketed. Central banks printed money to buy public debts (or accept them as collateral in loans to the banking system) in unprecedented amounts. Interest rates were cut close to zero. Deficits remain large. No substantial real growth is in sight. At the same time banking systems and other financial players sit on large piles of public debt. A public default would immediately trigger the bankruptcy of the banking sector. Raising interest rates to more realistic levels or selling the assets purchased by the central bank would put into jeopardy the solvency of the banking sector, highly indebted companies, and the government. It looks like even the slowing down of money printing (now called “QE tapering”) could trigger a bankruptcy spiral. A drastic reduction of government spending and deficits does not seem very likely either, given the incentives for politicians in democracies.

So will money printing be a constant with interest rates close to zero until people lose their confidence in the paper currencies? Can the paper money system be maintained or will we necessarily get a hyperinflation sooner or later?

There are at least seven possibilities:

1. Inflate. Governments and central banks can simply proceed on the path of inflation and print all the money necessary to bail out the banking system, governments, and other over-indebted agents. This will further increase moral hazard. This option ultimately leads into hyperinflation, thereby eradicating debts. Debtors profit, savers lose. The paper wealth that people have saved over their life time will not be able to assure such a high standard of living as envisioned.

2. Default on Entitlements. Governments can improve their financial positions by simply not fulfilling their promises. Governments may, for instance, drastically cut public pensions, social security and unemployment benefits to eliminate deficits and pay down accumulated debts. Many entitlements, that people have planned upon, will prove to be worthless.

3. Repudiate Debt. Governments can also default outright on their debts. This leads to losses for banks and insurance companies that have invested the savings of their clients in government bonds. The people see the value of their mutual funds, investment funds, and insurance plummet thereby revealing the already-occurred losses. The default of the government could lead to the collapse of the banking system. The bankruptcy spiral of overindebted agents would be an economic Armageddon. Therefore, politicians until now have done everything to prevent this option from happening.

4. Financial Repression. Another way to get out of the debt trap is financial repression. Financial repression is a way of channeling more funds to the government thereby facilitating public debt liquidation. Financial repression may consist of legislation making investment alternatives less attractive or more directly in regulation inducing investors to buy government bonds. Together with real growth and spending cuts, financial repression may work to actually reduce government debt loads.

5. Pay Off Debt. The problem of overindebtedness can also be solved through fiscal measures. The idea is to eliminate debts of governments and recapitalize banks through taxation. By reducing overindebtedness, the need for the central bank to keep interest low and to continue printing money is alleviated. The currency could be put on a sounder base again. To achieve this purpose, the government expropriates wealth on a massive scale to pay back government debts. The government simply increases existing tax rates or may employ one-time confiscatory expropriations of wealth. It uses these receipts to pay down its debts and recapitalize banks. Indeed the IMF has recently proposed a one-time 10-percent wealth tax in Europe in order to reduce the high levels of public debts. Large scale cuts in spending could also be employed to pay off debts. After WWII, the US managed to reduce its debt-to-GDP ratio from 130 percent in 1946 to 80 percent in 1952. However, it seems unlikely that such a debt reduction through spending cuts could work again. This time the US does not stand at the end of a successful war. Government spending was cut in half from $118 billion in 1945 to $58 billion in 1947, mostly through cuts in military spending. Similar spending cuts today do not seem likely without leading to massive political resistance and bankruptcies of overindebted agents depending on government spending.

6. Currency Reform. There is the option of a full-fledged currency reform including a (partial) default on government debt. This option is also very attractive if one wants to eliminate overindebtedness without engaging in a strong price inflation. It is like pressing the reset button and continuing with a paper money regime. Such a reform worked in Germany after the WWII (after the last war financial repression was not an option) when the old paper money, the Reichsmark, was substituted by a new paper money, the Deutsche Mark. In this case, savers who hold large amounts of the old currency are heavily expropriated, but debt loads for many people will decline.

7. Bail-in. There could be a bail-in amounting to a half-way currency reform. In a bail-in, such as occurred in Cyprus, bank creditors (savers) are converted into bank shareholders. Bank debts decrease and equity increases. The money supply is reduced. A bail-in recapitalizes the banking system, and eliminates bad debts at the same time. Equity may increase so much, that a partial default on government bonds would not threaten the stability of the banking system. Savers will suffer losses. For instance, people that invested in life insurances that in turn bought bank liabilities or government bonds will assume losses. As a result the overindebtedness of banks and governments is reduced.

Any of the seven options, or combinations of two or more options, may lie ahead. In any case they will reveal the losses incurred in and end the wealth illusion. Basically, taxpayers, savers, or currency users are exploited to reduce debts and put the currency on a more stable basis. A one-time wealth tax, a currency reform or a bail-in are not very popular policy options as they make losses brutally apparent at once. The first option of inflation is much more popular with governments as it hides the costs of the bail out of overindebted agents. However, there is the danger that the inflation at some point gets out of control. And the monopolist money producer does not want to spoil his privilege by a monetary meltdown. Before it gets to the point of a runaway inflation, governments will increasingly ponder the other options as these alternatives could enable a reset of the system.


The Best of Philipp Bagus

Philipp Bagus is an associate professor at Universidad Rey Juan Carlos. He is an associate scholar of the Ludwig von Mises Institute and was awarded the 2011 O.P. Alford III Prize in Libertarian Scholarship. He is the author of The Tragedy of the Euro and coauthor of Deep Freeze: Iceland’s Economic Collapse.