Topic: Gold and Silver
The "Great Slump" of 2008 (PART 1/2)
One of Lord John Maynard Keynes's essays "The Great Slump of 1930" is extremely relevant today as we look forward at the 2009 economy and future governmental antics. Let's take a look!
by Jake Towne, the Champion of the Constitution
(libertarian)
Saturday, December 20, 2008
The outstanding contemporary relevance of Lord Keynes’ short essay "The Great Slump of 1930" comes from the fact that Keynes faced very similar dire auspices as he grappled with the uncertain future of the 1930 global economic downturn. At the time he wrote the essay, Keynes was trying to explain both the origins of the crisis and its future length and severity. Needless to say, he missed the boat completely, although like a good medieval soothsayer he did manage to hedge his bet a little. Obviously, the "Great Slump" was not a temporary downturn but instead heralded the Great Depression, which would last until the wartime economy of WWII stimulated industry in the United States while utterly destroying Europe, the epitome example of lost wealth via Henry Hazlitt’s "broken window" illustration. Based on recent FED manuevers and Obama's future taxation and government expansion plans, most likely the modern-day Keynesian-Friedmanite command-and-control corporate governments will respond in a similar hapless manner as Keynes’ abject failure almost 80 years ago. (photo)
First, here is a little historical context. The advent of the Federal Reserve in 1913 and World War I funding had severed most countries from the fiscal discipline of a true gold standard in 1914. (More on this in Part 2!) Throughout the 1920s, the pound sterling of the fading British Empire was continuously propped up on a ‘gold bullion standard’ (more or less fiat) that America’s FED, on a ‘gold standard,’ supported via inflation. The British pound, however, kept falling off of its crutches, and was basically doomed by the time of Keynes’ essay. [Source: Murray Rothbard, "America’s Great Depression", p. 137-209/409] This is can be compared to the completely fiat (money without intrinsic value) world of fluctuating exchange rates, heavily based on the American petrodollar, which is undergoing the final death throes of its present form. Lastly, the "extreme violence" of which Keynes writes was mainly manifested by 10 million unemployed in the USA, Germany, and the UK. As fellow Nolan Chart columnist Chuck Angier notes in "Jobs: Headlines I'd Like to See", 533,000 jobs were lost in November 2008 in the United States.
"We have magneto trouble." – Lord Keynes, 1930
In his prelude, Keynes wrote:
"The world has been slow to realize that we are living this year in the shadow of one of the greatest economic catastrophes of modern history... [The man in the street] begins to doubt the future. Is he now awakening from a pleasant dream to face the darkness of facts? Or dropping off into a nightmare which will pass away?
"He need not be doubtful. The other was not a dream. This is a nightmare, which will pass away with the morning. For the resources of nature and men's devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life—high, I mean, compared with, say, twenty years ago—and will soon learn to afford a standard higher still. We were not previously deceived. But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time." (photo)
Keynes later added that the "fundamental cause of the trouble is the lack of new enterprise due to an unsatisfactory market for capital investment" and that "there cannot be a real recovery… until the ideas of lenders and the ideas of productive borrowers are brought together again; partly by lenders becoming ready to lend on easier terms and over a wider geographical field, partly by borrowers recovering their good spirits and so becoming readier to borrow."
Let’s now examine what I highlighted above. First, Keynes predicts that the crisis is just a figurative "nightmare," and will disappear simply because people are (he spoke the truth here!) still resourceful, the factories still exist, etc. Then he goes on to blame the market for not providing ample exchange of credit due to lack of "good spirits." Now, there is some sense to the saying that a depression is a state of mind, and trust must exist between both parties, but Keynes is barking up the wrong tree. The fact of the matter is that whether it is an individual, a company, or a bank, it is a basic truth that in a free market, i.e. not one based on any form of force, parties will seek to exchange goods and services because they receive mutual benefits from the transaction. Keynes has omitted from his memory that barter, or direct-exchange, economies developed into indirect-exchange economies based on the use of "money." For all parties to have a solid trust in "money", money must be a commodity with intrinsic worth. (Read my article "The Money Matrix - What Makes Money Money? (PART 3/15)" for more details on this.)
Now what does our "Lord" Keynes suggest as the solution?
"No one can take the first step except the central banking authorities of the chief creditor countries; nor can any one Central Bank do enough acting in isolation. Resolute action by the Federal Reserve Banks of the United States, the Bank of France, and the Bank of England might do much more than most people, mistaking symptoms or aggravating circumstances for the disease itself, will readily believe."
As Austrian economist Murray Rothbard demonstrates in his writings, kings, lords, dictators, and other governments of all kinds have proved repeatedly throughout the ages that they simply cannot be trusted with control over fiat currency and will ultimately fail at commanding economies. Today’s American FED and Treasury "bailouts" are finally giving the American corporate-cronyism form of capitalism all the remaining aspects of the Leninist "commanding heights" economy that served the Soviet Union so well. The classical Keynesian-Friedmanite school of thought is that smart and slick central planners can somehow control and manipulate the economy by stimulating it at opportune times by inflation with unsound money, or holding back the throttle in times of abundance. The overall result is apparent to all - the well-known, inevitable Misesian "boom-bust" economic model - which can only be resolved with sound money and truly free markets.
Now look at the current American banking situation. As I noted in "Rioting at the Gates of Thermopylae: The Ramparts of the FED & Central Banks Shudder", the 3-month annualized growth of M1, the best approximate for dollar cash and coin in circulation, is at record-breaking 38%. In fact, the entire depressionary scenario as M1 and M3 (total money supply) shoot past each other in opposite directions can be seen in this graph from shadowstats.com. Our central bank, the FED, is embarking on a "quantitative easing" strategy that tries, as Keynes so desperately wished, to marry the borrower and lender once more, as this cartoon so lovely demonstrates. As Michael Maloney illustrates in his article "The Greatest Wealth Transfer Ever", banks are not lending since they have frightful balance sheets and are rightfully fearful of insolvency. Bank reserves and borrowing from the FED are going parabolic.
Meanwhile, the Obama version of FDR’s New Deal stimulus plan will fail miserably, just as FDR’s senseless failure did. (No, the New Deal did NOT end the Great Depression!) As Hazlitt explains in Chapter 4 of his "Economics in One Lesson," public works mean taxes. Future taxes to pay for today’s stimulus, that is all it is, and eventually this system will collapse under its own debt. Furthermore, Obama’s stimulus will allocate capital inefficiently, and although the "seen" beneficiaries may eke out a living enslaved to suckling the breast of the state, all of the "unseen" people (that is, you and me) will suffer and, what is far worse, pay for the breastfeeding of others.
[If Obama really wants to start to solve our economic woes, I DO have a "bailout" plan for him. Rather than spend billions or even a trillion of money that will eventually need to be paid back in taxes as a "stimulus," how about bailing out the taxpayer? Last time I checked, $1.2 trillion will be stolen in 2008 from all Americans via the income tax. (p35/342) How about abolishing the income tax for 2008? The entire 92,000 employees of the IRS and the tax preparation industry can take a well-deserved vacation instead of sucking our economy for blood! Plus there will be no administration costs for this bailout! This will be the most efficient economic solution as each individual would then do what they see fit (and possibly even save a little!) to better their situation. While I am offering advice, withdraw all troops in foreign countries immediately, that will save us a bundle, and after this depression is felt by all, the absurd lunacy of defending other countries’ borders while we go bankrupt here at home will be revealed for all to see.]
Keynes, the FED, Obama, Paulson, and most modern-day economists are completely missing the solution staring right at their blank, sweaty, panicked faces. I have termed this meltdown a "Triple D" Crisis; the petro-Dollar, the national Debt inherent in all fiat currencies, and the last straw to break the proverbial camel’s back, financial Derivatives. However, this term describes the problem, but not the solution. Everyone, we are living in a time when no one understands, or has forgotten, what money really is. In short, we are living in a Gold Crisis.
The financial crisis of 2008 and the "Great Slump" of 1930 can be resolved by releasing government and central banker control of money, by enabling gold and silver to compete as currencies against the governmental fiat paper. (I would mention that gold and silver are the only currencies allowed by the Constitution of the United States, Article 1, Section 8, but that would be beating a dead horse from prior articles.) I hope to explain this clearly in future articles, but by reading the sources I have highlighted and my partially-completed Money Matrix series below with a free mind, you may come to the same conclusion as I. (Photo) (2)
Lastly, with a closing quote from that false-free-market economist/prophet Milton Friedman. He once said:
"Money is too important to be left to central bankers. You essentially have a group of unelected people who have enormous power to affect the economy. I’ve always been in favor of replacing the Fed with a laptop computer, to calculate the monetary base and expand it annually, through war, peace, feast and famine by a predictable 2%."
See, at heart Friedman is just another command and control freak! I wonder if Friedman was aware that mining naturally expands the gold supply by roughly 2% annually?
END THE FED! End Crappy Toilet Paper Money and Fiat Electrons!
Jake, the Champion of the Constitution [Reach the Author Here!]
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Bernanke's Great Lie - The "Gold Standard" and the Great Depression (PART 2/2)
Published: December 25, 2008
The claim that the "gold standard" caused or worsened the Great Depression debunked.
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We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.
Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.
Tu ne cede malis sed contra audentior ito. Do not give in to evil but proceed ever more boldly against it.
"Intelligence is quickness in seeing things as they are." - George Santayana
"In a world beyond controlling!Are you going to deny the savior in front of your eyes?
Stare into the night! Power beyond containing!
Are you going to remain a slave for the rest of your life?"
- Disturbed, "The Night" from their Indestructible album. Keynes sure denied the savior! Gold will win the war!
"Gold was, and still is, the ultimate symbol of wealth, power, beauty, and prestige.. History shows that whenever the acceptance and the use of gold were high, there was prosperity, cultural advancement and political stability. But, more importantly, gold is not only essential for prosperity and culture but for personal and political freedom." - Ferdinand Lips (2001)
"Gold is Money, and Nothing Else." - JP Morgan before Congress's Pujo Commission, 1913
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Suggested Further Research List
Keynes, Lord John Maynard. "The Great Slump of 1930." 1930.
Rothbard, Murray N. "America’s Great Depression." 1963.
Rothbard, Murray N. "What has the Government Done with Our Money?" 1990.
Rothbard, Murray N. "The Case Against the Fed." 1994.
Hazlitt, Henry. "Economics in One Lesson." 1946.
Little old me. "The Money Matrix - Prelude (PART 1/15)". 2008. A half-completed series, if you like it, encouragement needed :) "The Money Matrix - How the FED Works (PART 6/15)" is a must read if you do not understand fractional reserve banking and how money is created and destroyed.
Little old me. "The End for the Dollar and all Fiat Currencies (1/5)". 2008. A 5-part series on the manipulation of gold and silver markets.
Little old me. "Rioting at the Gates of Thermopylae." 2008. What can you do to protect yourself and your family during this crisis?
Little old me. "Calling All Wheelbarrows: Hyperinflation in America? (Part 2/2)". July 2008. My article is a little dated, but meet our probable future.
Mises Institute. "Congressman Ron Paul debating FED Governor Charles Partee." 1983. "The paper standard is *ucking history, and it’s *ucking economic law, and economic truth." - Dr. Paul. See 13:00. Talk about fireworks! It appears at one time the FED was willing to debate, I very much respect the courage of Partee to address the sound money wolfpack in attendance.
Maloney, Michael. "The Greatest Wealth Transfer Ever." 2008.
Dorsch, Gary. "Beware, "Quantitative Easing" is Hallucinogenic." 2008.
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Nolan Chart Facebook Group Page Created
Summary of Articles for Jake, the Champion of the Constitution (12/03/2008)
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©2008 Jake Towne, the Champion of the Constitution, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Saturday, December 20, 2008
Last modified: Thursday, December 25, 2008
The views expressed in this article are those of Jake Towne, the Champion of the Constitution only and do not represent the views of Nolan Chart, LLC or its affiliates. Jake Towne, the Champion of the Constitution is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
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Reader Comments:
Posted By: George Dance
Date: 2008-12-20 11:19:47
Great article. Here's a couple of bits of trivia that you may find interesting. You might even work them into your next article, but in case you don't, you've given me an opportunity to do that here.
The first one's uncited, though I can try to look it up if you want. During the 1920's the U.S. construction industry was busy lobbying for "countercyclical economics" (as Keynesian economics was known before The General Theory came out); and at the time their lobbying organization was headed by Herbert Hoover and Franklin D. Roosevelt.)
The second's a quote from Ben Bernanke, which I found while researching my article, Ron Paul on Bob Barr: "We're allies". It's from a Huffington Post article by Kevin Phillips called, "Time to End ‘Bernanke Panky’?":
Back in 2002, Bernanke, then a Fed Board member, told a Chicago meeting that the group's honoree, octogenarian economist Milton Friedman, had been correct in blaming the Fed for the Great Depression. "You're right," Bernanke told Friedman and the rest of the audience. "We [the FRB] did it. We're very sorry. But thanks to you [Friedman's analyses and teachings], we won't do it again."
Posted By: Jake, the champion of the constitution
Date: 2008-12-20 15:24:58
Hey George!
Thanks for writing back and the quotes! I'm still working on Part 2 but it will expose the lie about the gold standard during the Great Depression, and hopefully I won't need so many words to do it. Bernanke is a whipping boy for that one.
Jake
Posted By: gene
Date: 2008-12-20 15:55:04
I thought it was a good point that instead of spending trillions, the income tax could be removed! An interesting math project could be determining how long the income tax could be lifted by not spending any of the bailout money, in other words, how many months or years of zero income tax would the bailout buy? It certainly would be a much more "progressive" version of bailout as the average workers would benefit instead of paying for it. Of course, this would be precisely the problem in implementing something of that nature, it wouldn't benefit the "proper" parties as far as the "experts" are concerned!
Posted By: Jake, the champion of the constitution
Date: 2008-12-20 16:09:47
Dear gene,
By all means copy it! copy it! I am just chockful of ideas these days, somehow I don't think Obama is interested in them.
And think of the savings from A) not collecting taxes and B) not administering the bailout. Plus our precious congressmen's time can be spent on repealing laws and bringing the troops home!
Jake