Topic: Economics
The Third Seal Conservatives and liberals have it wrong: The problem is the Federal Reserve Bank, not the Fed's policy.by Josh Koch
(libertarian)
Sunday, June 29, 2008
When He broke the third seal, I heard the third living creature saying, "Come." I looked, and behold, a black horse; and he who sat on it had a pair of scales in his hand. And I heard something like a voice in the center of the four living creatures saying, "A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine." Revelations 6:5-6 (NASV)
As a Christian libertarian in today's world, I find the above quote terrifying. A denarius was a day's wages in the agrarian Roman Empire. This prophecy must have mystified the people of the time, to whom the concepts of "inflation" and "monetary policy" would have seemed alien. Paying $4 per gallon for gas and watching the cost of food escalate, I think the days of the third seal conditions are nigh at hand.
Recently, I had an odd conversation with a conservative armchair economist. Coming from a libertarian/Paulian-Austrian School perspective, I was shocked to listen to his pronouncements, but I have come to find out that he is far from alone in his thoughts. One need only cruise this site and others to observe these sentiments among conservatives.
Conservative economists seem to have given up on the idea of fighting the Federal Reserve and fiat money. In this, they are terribly misguided. Their underlying assumption is that modified Keynesian economics, which accept debt-fiat hybrid currencies and central banking cartels, are a feasible model if they are just tweaked in the "right" manner. They reject the Keynes brand, but they adopt his underlying theories as premises for their own misguided musings.
It is in this assumption that conservatism's fall as an economic school is complete, in that such an assumption is based on tenets of socialism: a command economy, a central bank, and absolute control of currency and transactions. If we refuse to look outside the box for solutions, we must accept a proactive tyranny as the normal state of affairs, something that no libertarian will embrace, unlike new-model "conservatives." If conservatives accept a government's sovereign right to devalue the fruits of our labors constantly, conservatism has become ideologically bankrupt. If we allow a government-sanctioned banking monopoly to turn our "gains" into debt instruments, we are actually abetting our own demise with each dollar that we earn.
The problem is more complicated than "liquidity," a euphemism for lending dollars to the public. By accepting a bureaucrat's sovereign pronouncements about the basic units of exchange rather than abiding by the law of unfettered supply and demand, we have gone from wage earners to debt speculators. After all, we may earn a "living," but, if the dread financial sovereign decrees the fruits of our labors of no value, have we, in fact, earned a fair return on our labor investment?
No, we have not! Under such a system, the term "livable wage" becomes a parody wrapped within an enigma. Since expenses will spiral out of control, we must take bets that each day's pay will cover our ever-changing expenses. It's a losing bet, and the house will always win, yet we persist in hoping for the best against all odds. This is the worst sort of speculation, one where the deck is stacked and we cannot win. To make matters worse, we also cannot tell by how much we are losing until it is too late to correct our bets.
The problem is not, as so many conservatives believe, the unfair exportation of goods and services. Also, it is not the increase in costs for staples of everyday life. The real cost varies, but the major cost changes in recent years have come from the fact that our dollar is losing value precipitously. The liberals believe that minimum wage increases are the answer, but their failed attempt is analogous to the conservatives' attempts because it tries to fix a symptom of the deeper problem without fixing the deeper issue.
What, then, is the deeper problem? Inflation of the dollar supply is the problem. This is a natural outworking of placing the supply outside the realm of market forces, in the hands of a private banking monopoly that controls supply and pricing of the dollar debt instruments that it literally loans to the economy.
Until arbitrary control of the currency is abolished, inflation will continue unabated. It simply must for the banks to turn a profit. Consider the nature of the dollar system: Each dollar represents a wholesale loan from the Federal Reserve Bank cartel to the US Government, which, in turn, retails the loan to the economy. Without gold (or anything else) offered in exchange for a dollar bill, we are essentially taking loans against an infinite reserve of nothing.
Yet, with any lender, the profit on the retail side comes from bundling sales of new loans. Bonds accumulate interest, for instance, but the rate of return is figured into their sale price and takes time to accumulate. In the case of our dollar, the demand is manipulated and the monopoly controls all supply. Therefore, they will continue to accumulate escrowed value from the existing dollars on loan (in circulation) at a slow rate, but they must continue to make the loans (print and circulate dollars) by a constant increase in the dollar supply. In short, the Fed profits on the wholesale side from the circulating dollars, but the bulk of new and immediate profit comes from the retail subsidiary, the US Treasury, with whom they split the paper "profits" of their retail dollar sales, colloquially called "liquidity injections."
Thus, we may safely assume that inflation, whether it be high or low at any given point, is an unavoidable corrosion of the national economy when fiat currency, a central bank, and arbitrary supply are in play. The conservative calls for low interest rates are meaningless in such a situation because they completely miss the subtleties of the economic mechanics involved.
To truly fix this problem, we need a libertarian solution. We need competing currencies to keep the systems honest. We need the marketplace to control rates, not the figurehead of a government-backed cartel. We need a backed currency, not a Deus Ex Machina. We have the technology to implement this system, but we lack the political courage to do so. Until conservatives and liberals are willing to accept such a system, they can call for higher wages, more regulation, higher/lower interest rates, and fewer imports, but they will, at best, merely put the disaster off a little longer.
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The views expressed in this
article are those of Josh Koch only and do not represent
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I suppose that none of us can say with absolute certainty just what it will take to end inflation once and for all. Frankly it seems rather amazing that fiat money can serve it's purpose and survive at all!
However, after many years of libertararian beliefs and study, I have come to believe that our fiat dollar currency (or others) is subject to the law of supply and demand as is everything else, and thus we must disallow The Fed (& our government) from manipulating our money supply and screwing around pretending that somehow these con-men economists are competent to better manage our economy than can the natural free market. There's darn little that the so-simple supply-demand curve cannot explain
So The Fed along with deficit spending for war and socialism have taken us past the brink of disaster, heading for a mammoth crash which promises to destroy most of civilization (if we even dare call it that!).
We are about to elect a new President, who almost certainly will be among those responsibly for doing nothing about these causes despite years of political practice, and who are not addressing the issue of economic collapse, which unless fixed very soon, will render all the rest of their trivia irrelevant.
I've been trying to cover this stuff on my blogger at http://morality101.net/blog/ for some months now, and I know for sure that most of the people "just don't get it".
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