The Worn Out Text-Book Economist and Central Planners
We seemed to be plagued with false theories, text-book economic mentalities and feckless remedies to our economic quagmire that these "economists" have been instrumental in creating. by Republicae
(libertarian)
Thursday, October 16, 2008
We seemed to be plagued with false theories, text-book economic mentalities and feckless remedies to our economic quagmire that these "economists" have been instrumental in creating. These "Keynesians" in Washington, New York can rely upon little but a continuation of an expansive inflationary policy combined with price and wage fixing, as well as government intervention in yet another attempt to seek stability in an economic and monetary system that is fundamentally unstable by nature.
Few in the Halls of Economic and Political Power seem to realize that the techniques they employ for dealing with economic issues has worn extremely thin. They rely, once again, on the necessity of revaluation of faltering assets, illiquid credit markets and a depreciated currency model. There remain few tricks in the central banking economic planning bag that has not been tried before; yet they remain on a predictable track, moving in a similar direction that will prove just as ineffective and potentially dangerous to the overall stability of this country. Yet, when the unthinkable happens they are ready to come to the rescue with more of the same, doing what they have done for the last three generations with their monetary management skills which, in the end, will amount to little more than a high-sounding euphemism for a continuation of currency depreciation through inflation and government sweet-heart deals for the politically and financially well-connected.
So, instead of returning to a sound monetary system based upon what can only be called automatic currencies such as gold and silver which need no government hand to operate, yet they continue to rely upon a failed system of fiat currency that must be propped up in order to function. We are forced to accept their managed currencies which are based solely upon the guile of taxation and government decree. These so-called economic wizards, these text-book economists in the FED must continually assure government and the people that they have things under control and yet in their hopelessly antiquated minds they must wonder just what real control they have over the situation as they are confronted with massive dislocation within the monetary and credit market. We find ourselves as a nation caught up in every bureaucratic whim, tossed like a ship without a helmsman.
We have been victim of a swindle, carried out by a massive subterfuge created by both bankers and politicians who seem to be engaged in a deliberate destruction of this country's economic and social well-being. They disregard common-sense reality for a fantasy world created around a system of debt. We seemed to be inundated with politicians from whom we never hear a serious discussion of the fundamental problems facing this country; they sit content to listen to the same voices that whisper the same words from the same view point that has guided this country for the last 75 years of failed monetary and economic policies, as well as foreign and domestic policies. They have proven themselves stagnant even when they declare their devotion for reform and the dedication for change.
I have to wonder that somewhere in the back of the minds of these economic and political experts if there is not some sense of the actual dimensions of the problems they have created and support through they actions and inaction? Although they try, they seem to fail to come to grips with the fact that there is absolutely no possible way to bring the current problems, not only with the economy, but also government expenditures within a manageable proportion; in their silence and disregard they disavow any real solutions. With the massive debt and growing pool of future unfunded obligations, perhaps the seek to delay as long as they can on demand payments by stretching out the pain over the next 50 or 60 years, but they fail to realize that the demand payment will come upon this country much sooner than they appear to expect. They now hold both the public and public revenue hostage to a monetary and economic ideology that has proven to be rotten in conception and execution. The day is upon us when the juggling act they have been playing will no longer be effective. I am sure these economic and monetary Neanderthals haven't given it a second thought, but when 3 Cent Dollar will be plunged into hyperinflationary territory the reality they awaken to will be far too little and far too late to save their precious peonage system of fiat money.
The politicians of this country has played in their fiat sandbox for far too long, it has allowed them to tamper and meddle, to overextend their reach and to rely upon deficit spending to achieve questionable political and social goals.
As I have stated before, there was a time when anyone supporting a fiat monetary system and the subsequent economy that could be built upon such a system were considered crack-pots, snake-oil salesmen who didn't have either a firm grasp of the economics of money or the social consequences of such systems. There was a time when every economist of any high repute supported gold specie monetary system because of the soundness such a system offered to society. They understood the merits of such a system, both on the domestic front and the international front since every currency bore a fixed weight of measure and a fixed fineness, the means of exchange on every front was straight-forward and without ambiguity. Gold specie was convertible at a fixed ratio by anyone who held it into any other gold currency unit of exchange and the flexibility it offered, as well as the stability, was and is unprecedented in the annals of monetary mediums.
Gold specie was the first and foremost bulwark against the wiles of political ideology and it was the standard of defense against domestic inflationary policies that wandering bureaucratic minds might envision for the benefit of political ends.
During those heady days, when inflation or deflation did occur, the monetary sound economy would produce a relative quick sequence of economic events to bring back equilibrium within the system without the need for government management or a central bank's counterforce. For instance, when inflation occurred and prices rose domestically this encouraged import, discouraged exports and the balance of trade would shift against the inflating country's economy; gold would then flow out causing a contraction of bank credit backed by the gold specie thus the mechanism brought inflation to a quick end. If you look at the instances of this, when there was no government intervention or banking interference, the chain of events were far shorter, much more direct and far less deep than under our current fiat model which must completely rely upon central bank manipulation to be maintained to such a degree that it can be maintained under such an artificial system of economic management. It is evident, by historical accounts, that as soon as foreign governments, bankers and exchange dealers began to suspect that a county was beginning to suffer an inflationary bout, the exchange rate for the country's currency fell below the "gold ratio" ratio of exchange then gold would flow out and the market in the country losing the gold would bid up the discount rate. So this system, running automatically without management from either the government or a central bank, would effectively halt domestic inflation while drawing funds from foreign lenders, businesses and entrepreneurs abroad because they wanted to take advantage of the higher short-term rates being offered on money and the system once again began to balance itself.
Another very interesting comparison between fiat monetary systems and gold specie systems is in the realm of confidence and fiduciary responsibilities. Since convertibility had to be maintained, the level of confidence in the monetary and banking systems needed to be assured on a daily basis, there was no hiding behind a fractional reserve system that tends to promote irrational decisions on the part of bankers, but at times just shear irresponsibility and sometimes criminal activity. Because of a fixed weight of exchange under gold specie, there was a very dependable exchange ratio, combine that with a flexible convertibility between currencies of different countries and it is easy to see why international trade, investment and lending were undertaken with much more freedom and confidence than under this current monstrosity built upon a fiat monetary mind-set. Additionally, along with the ease of convertibility there was also a relatively stable and uniformity in pricing on the world markets, especially for transportable commodities.
There are few cases where one can say that a gold specie system has broken down, except when a country and its citizens may fear invasion during periods of war; yet in the historic cases that I have researched over the years, I have not found an actual break down in a gold specie system, but have found several instance where it has been abandoned due to government decree, but never in necessity and always in an agenda other than that of economic stability.
I suppose it should be relatively easy to discern that the reason so many central planners, government bureaucratic political ideologues and money managers hate gold is that it prevents them from inflating for the benefit of unwise government expenditures, protectionism through monetary manipulation and nationalistic policies both domestically and abroad. Gold has proven to be the ultimate in providing individual protections, both in terms of private property and rights; it requires a government to listen to the people, to maintain a balanced budget and to bear the responsibility for its actions. Fiat monetary systems do just the opposite, it gives government and central planners a free-hand, not only in the affairs of the people, but also it serves as a means of expansionism, nationalism and in many instances authoritarianism. It is the perfect tool for tyrants.
There is a woe in our land, one that stems from an overly impressive official confidence in a system that is doomed, by its very nature, to fail. By their own account, given the recent GAO report, the government in its present form and its current fiscal condition is completely unsustainable and yet, they continue down the very same path that helped us arrive at this point. This country has been undermined from within by those who, for whatever reason, have maintained their position through a mentality that they "know best"; they have yet to prove it through their actions however. The Federal Reserve is desperately seeking a solution and yet it escapes them because they are so steeped in a quasi-Keynesian mentality that they fail to see beyond their old worn out text-book "solutions" to the very problems that they helped create through that very text-book mentality. They have completely bought into the very system that is now consuming it from within and their stagnant minds are not willing to reach beyond the mire of a very dead economic model that had very questionable beginnings.
This country, nor the world, will ever be able to work itself out of this current situation because the chain of events we are now seeing is nothing more than an unraveling of the debt standard of fiat money which is unstable in concept and promotes the very thing it is touted to prevent.
In Liberty,
Republicae
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I like your articles but it takes time to read them. You have so much to say. But some are just too long. I like to read them but it takes quite some time. I will read this one later.
What is the effect of an unread article ~ NOTHING.
How many minds do you change when no one has read what you write ~ NONE.
You seem to be so in love with your own plodding, repetitious, stultifying writing that you forget about READERS. An author who doesn't know his audience is like a song without a melody.
Nobody is going to read this stuff. You write like a man in prison who wants to use every waking minute filling up paper.
Your thoughts are useless when they're unread. So why bore us to tears? You're the kind of writer who's good for other people's writing because instead of reading YOUR stuff, they read someone else's.
Somebody's got to tell the Emperor that he hasn't got any clothes on.
Well I didn't have a problem with this article. Don't feel compelled to dumb down your message for the masses. Let them feel compelled to rise to yours.
Thumbs up. Interesting how your article has 7 thumbs up so far. Take a look at Master C's articles and see how many thumbs he's gotten. He'd probably have a whole lot of thumbs if there were a thumbs down button. Master C doesn't know what makes a good read. He resorts to TYPING IN ALL CAPS and using BOLD to convince you he knows what he's talking about. It doesn't work. Although, when used sparingly you can MAKE IT WORK IF IT IS ACTUALLY A TRUE AND INTERESTING STATEMENT.
Master C....You appear to be profound in your views and accurate in your judgment, except it where knowledge is necessary to form such views and judgment. Thus, in such cases your views and judgment only appear relevant in your own mind.
Dirty, don't blame Master C just because he is a stenciled mind, similar in fashion to those who give an form of knowledge without its content. I have yet to read one of his articles that has either followed a logical progression or presented a rational conclusion. I am sure I am not the only one who appears to be of this opinion judging from the comments to his articles.
Here are just a few quotes from history spoken by "experts" of the time, sound familiar?
"We will not have any more crashes in our time."- John Maynard Keynes in 1927
"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."- E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928
"There will be no interruption of our permanent prosperity."- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928
"No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding."- Calvin Coolidge December 4, 1928
"There may be a recession in stock prices, but not anything in the nature of a crash."- Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."- Irving Fisher, Ph.D. in economics, Oct. 17, 1929
"This crash is not going to have much effect on business."- Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929
"There will be no repetition of the break of yesterday... I have no fear of another comparable decline."- Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929
"We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices."- Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929
"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."- R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
"Buying of sound, seasoned issues now will not be regretted"- E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929
"Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom."- R. W. McNeal, financial analyst in October 1929
"The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin."- Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929
"Hysteria has now disappeared from Wall Street."- The Times of London, November 2, 1929
"The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before."- Business Week, November 2, 1929
"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..."- Harvard Economic Society (HES), November 2, 1929
"... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."- HES, November 10, 1929
"The end of the decline of the Stock Market will probably not be long, only a few more days at most."- Irving Fisher, Professor of Economics at Yale University, November 14, 1929
"In most of the cities and towns of this country, this Wall Street panic will have no effect."- Paul Block (President of the Block newspaper chain), editorial, November 15, 1929
"Financial storm definitely passed."- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929
"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929
"I am convinced that through these measures we have reestablished confidence."- Herbert Hoover, December 1929
"[1930 will be] a splendid employment year."- U.S. Dept. of Labor, New Year's Forecast, December 1929
"For the immediate future, at least, the outlook (stocks) is bright."- Irving Fisher, Ph.D. in Economics, in early 1930
"...there are indications that the severest phase of the recession is over..."- Harvard Economic Society (HES) Jan 18, 1930
"There is nothing in the situation to be disturbed about."- Secretary of the Treasury Andrew Mellon, Feb 1930
"The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity."- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930
"... the outlook continues favorable..."- HES Mar 29, 1930
"... the outlook is favorable..."- HES Apr 19, 1930
"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."- Herbert Hoover, President of the United States, May 1, 1930
"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."- HES May 17, 1930
"Gentleman, you have come sixty days too late. The depression is over."- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930
"... irregular and conflicting movements of business should soon give way to a sustained recovery..."- HES June 28, 1930
"... the present depression has about spent its force..."- HES, Aug 30, 1930
"We are now near the end of the declining phase of the depression."- HES Nov 15, 1930
"Stabilization at [present] levels is clearly possible."- HES Oct 31, 1931
"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."- President F.D. Roosevelt, 1933
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