Yesterday at the LPSF meeting in response to a question about hard money, Libertarian Presidential Candidate George . Phillies stated that gold caused the various panicks of the nineteenth century. I said that he was wrong, but the conversation was ended there.
I picked up the conversation later and discovered that Mr. Philies is in favor of central banking, like Ben bernanke, that steady , slow inflation should be the policy of the central bank. In the same conversation in which he praised the management of the european Central Bank, he also noted the lower standard of living that Europeans enjoy in certain material ways.
WHY DOES THIS MATTER???
1. (And this has real traction with liberals). Hard money is anti War. Modern war requires, more than bullets and artillery, money. Paper money can be printed in nearly unlimited quantities to fund the war machine, while leaving taxes the same or lower. Very few people blame the resulting inflation on it's perpetrator.
2. Central banking and fractional reserve banking persistently cause economic booms and busts that waste vast amount of resources and cause great human misery. The assumption that these booms and busts are inherent in free markets is a cornerstone of socialist ideology.
So long as the public continues to believe that inflationary booms and the resulting busts are built into free markets, they will be seeking other solutions.
I don't see how a Libertarian candidate can effectively espouse free markets, while supporting central planning of the medium that is half of every economic transaction?
Mr. Phillies also appears to confuse the use of gold , as money with the gold standard.The gold standard was a set of rules, set up by the Bank of England, in consultation with Sir Isaac Newton to manage the central bank monetary system. Central banking, fractional reserve banking, legal tender laws, and the forced acceptance of paper notes were part and parcel of this standard. The standard also allowed the central bank or other monetary authority to adjust the ratio of silver (and copper) to gold by fiat.
Mr. Phillies was correct, there were numerous panicks in the 19th century. With few exceptions that serve to prove the rule, booms were the result of some form of credit expansion that was either permitted through the failure to punish the fraudulently issued paper certificates that are not backed by the gold or silver that they claim to be backed by, or by forced changes in metal ratios. Wars,of course, can cause economic hardship independently of monetary policy, as can bad economic policy pursued by important trading partners. The exception that proves the rule that free market hard money is stabilizing was the gold rush, that caused a mild inflation. in the era following 1849..
The assertion that steady inflation is a good thing strikes me as odd. It seems to me that if prices are constantly falling at a steady rate due to the continued progress of man making more and more goods available at a faster rate than money can be dragged out of the stingy earth, then everyone benefits. Who wants higher prices for what they consume. Who wants to put money in the bank to save for a rainy day or old age, and find it nearly worthless twenty years later. No Mr. Phillies, and Mr. Friedman, inflation is not a good thing.
Unfortunately, in an economy where money is created when people borrow it, inflation is a necessity in order to allow the debt to be serviced. In this sense, Mr. Phillies is correct, constant inflation is a necessity of a debt base
monetary system. The interest on the debt must be serviced. If inflation stops, the debt pyramid collapses… Inflate or Die should be written in stone above the portico of the Fed. Those who have trouble keeping up with the inflation, the old, the sick, and those who pursue traditional values such as saving money, and not participating in massive ponzi markets, these people will be crushed by inflation and the low interest rates created by easy money.
Most of the old folks in my family and circle of friends have been squeezed to the point of near poverty by the years of low interest and persistent inflation, witch, incidentally, is far worse than reported, according to www.shadowstats.com
The other big complaints that most people believe are failures of free markets, are in fact the result of fractional reserve banking.
The concentration of economic power in a few hands is a result of chronic inflation. As new money is created, those who can borrow that money can use this newly created money to buy real assets. As inflation progresses, the resulting debt is easily paid off.
Much of the concentration of political power is nurtured on the mothers milk of newly created money. take ruddy for instance. He resigns from a modestly paid government career and opens a Security Consulting firm. So far so good. Given his access to bankers with high level connections, he is lent most of the money to buy an investment bank. Now he really has connections to the fresh green inked paper. Then, a few years later, he sells the Bank he bought for 8.5 million for 85 million. wither this windfall was actually "earned" or just a payoff will forever remain a mystery.
Feinstein is married to an investment banker. I should emphasize that is not a hint of illegality or scandal in the affairs of Mr. (Feinstein) Blum. Just the normal course of business in the world of paper money, central banking, fractional reserve banking, and legal tender laws.
Pelosi is married to a former New York investment banker.
clean as whistle, but nevertheless her power rests on his good fortune.
Bankers bought George Bush his baseball team with newly printed paper.
George Bush's brother was a key officer in a failed Savings and Loan that cost the taxpayers 150,000,000.00 dollars in the mid eighties.
John Glenn,Clark Clifford, Lyndon Johnson, and on another all based their power on banking careers or participating in access to newly minted bank credit.
Another symptom of our dysfunctional society that most people blame on free markets is concentration of power in the media. If a major broadcaster steps out of line, they can be brought to Jesus by either threatening to short the stock to oblivion, or buy them out with the endless credit of the Federal Reserves printing presses. Chuck Colson, Nixon's counsel, threatened to do both of those things to CBS when Walter Cronkite did his first major segment on Watergate. All three major networks have been bought out by Wall Street in recent years.
It is important that the people never catch on to the perps of chronic inflation. One of the biggest indicators of the rate of inflation is the price of gold. Throughout the last twenty eight years the price of gold has been manipulated by the dishoarding of gold from central bank vaults in the west and persistent naked shorting of gold by key investment banks who work in the Feds interest. The battle is being lost. The powers that be do not want this understood, thus for the last 28 years they have reminded the public how much the price of gold is below it's minutes long peak in the nineteen eighties. Now that this record has been breached on a weekly basis, the new line coming from the financial media is that gold is way below it's inflation adjusted peak, something that gold bugs have been saying for years. Again , the controlled media is trying to prevent the public from waking up to the continued debasement of the dollar. I was saddened to hear this mantra being parroted in our very own group.on Saturday. The media's grip reaches deep, even in libertarian circles.
The continuous emission of new money is often misallocated by the banks, usually in gigantic and spectacular fashion. In the twenties it was overinvestment in agriculture. The ubiquitous tractor plowed up the entire Midwest fence post too fencepost. the dust bowl resulted, coinciding with the great depression, as all the bad investments made by the first credit boom of the newly created Fed imploded.
Now we come to the real concentration of power. When the inevitable bust comes, the work out firms, still having access to Fed credit emitted in New York, buy up assets at pennies on the dollar.
FDR was hailed as a savior of the common man. One of his first acts in office was to close all the banks for a holiday, not allowing Americans access to their money. Then he outlawed the personal possession of gold and forced the American people to take 20 dollars in paper for each ounce.Once all the gold was safely in the bankers control, he, by fiat, devalued the dollars in the peoples pockets from 20 dollars and ounce to 35 dollars an ounce,instantly making the banks sixty percent richer and the American public sixty percent poorer There was mass hunger, but the big banks were saved. My cousin lived out his life with severe retardation because his mother was malnourished in his first trimester during the debts of the depression.
The big workout firms that are now collecting assets as agents for the Feds role as lender of last resort have deep political connections. Cyberus is the Republican favored work out firm, with Dan quail in a very senior position.Cyberus was the two headed dog that guarded the gates of hell.You will recognize many other names if you goggle Cyberus.
The instability resulting from the creation and destruction of debt based money is very difficult on the poor and middle class. Long term chronic inflation makes it particularly difficult to save for old age. Only the lucky crap shooters in the stock market might come out reasonably well off after taxes, fees and inflation. The American public is quite aware of this insecurity. Unfortunately, the Cato institute , not being Austrians, are not. Thus CATO embarrassed the libertarian movement with their plan to privatize Social Security without first making the money secure. I recall a Cato "expert" smugly saying that stocks always go up and thus people who just put money in the stock market can retire securely. Let them eat cake shares and icing dividends was his attitude.
Of course no system is perfect. Even honest money can be influenced by the use of force to skew the markets by our trading partners. Mr. Phillies thus sought to justify his dislike of precious metals by the historical example of the two Opium Wars Britain fought with China, in order to force into circulation the silver the Chinese were hording. Lack of silver was causing declining prices in Britain, as less silver chased the same amount of goods. Debtors hate this and guess who the biggest debtor in an Empire is.
Mr. Phillies is a deeply decent man, and perhaps the best candidate this year.
He is unfortunately deeply miseducated on the strengths of Austrian theory. This is excusable, being that he works in Academia in Boston, the twin axis of Keynesian orthodoxy.
Questions?