Did Joe Stack read Flight?

I rather doubt it, but given what's been reported about what he did and why, there are eerie similarities to the actions of my lead character in Flight of the Barbarous Relic. Thanks to daughter Kimmi Smith for pointing this out.

Slow-frying the taxpayer, over and over

Some years ago I wrote an article about the passage of The Current Tax Payment Act of 1943, a.k.a., withholding. Even as the plan was being sold to Americans as a public benefit, their elected representatives in D.C. were gloating over how this new bill would allow them to "fry" whatever revenues they wanted out of the taxpayer. Any suggestion that this was the real motive behind the law, of course, was dismissed as a conspiracy theory, and a pernicious one at that, since the government was engaged in another war.

As insidious as withholding is, it is not without competition. In fact, it bows humbly to the true master of monetary evil, The Fed. At least withholding is done in plain sight. You can look at your paycheck stub and see how much the government has taken. We never really know how much the Fed steals since it works in secret, which it prefers to call "independence." The Fed poses as our protector against the "tax" of inflation while using monetary inflation to divert wealth to the biggest banks and the government. Most people don't understand how the Fed works or why we even have it, since the country thrived for well over a century without it. As for all those pre-1913 panics necessitating a central bank, read Rothbard (Pdf); we needed honest (full-reserve) banking, not a banking cartel.

Ron Paul is someone who certainly understands what the Fed is up to. In a recent post, he questions the ties between the new crop of defaulting governments, Goldman Sachs, and the Fed. He writes:

Greece is only the latest in a series of countries that have faced this type of crisis in recent memory. Not too long ago the same types of fears were mounting about Dubai, and before that, Iceland. Several other countries (Spain, Portugal, Ireland, Latvia) are approaching crisis levels with public debt as well. Many have strong ties to Goldman Sachs and the case could easily be made that default could have serious implications for big US banking cartels. Considering the ties between the Fed and these big banks, it is not outlandish to wonder if the US taxpayer is secretly bailing out the entire world, country by country, even as our real unemployment tops 20 percent. Unless laws are changed to allow a complete and meaningful audit of the Federal Reserve, including its agreements with foreign central banks, we might never know if this is occurring or not. . . .

Because of our globe-straddling empire and lingering reserve currency status, perhaps no one has a more vested interest in keeping this system cobbled together than our own government and the Federal Reserve. The agreements that Iceland and Dubai and Greece have negotiated can amount to little more than kicking the can down the road, as their overall spending habits remain largely intact, fiat currencies are still legal tender and more debt is issued on top of unsustainable debt. The American people have the right to know if they are going to be the ones holding the bag in the end because the Federal Reserve secretly put them on the hook for it. This knowledge would be a key factor in peacefully dismantling this immoral and unconstitutional system.

Capitalism's war against scarcity

Jeff Tucker has an insightful article on the shift from physical to digital over the last decade. He cleaned out his office recently for the first time in ten years. He writes:

Here's some of what I found: video tapes of short clips of ideas and events that are now all on YouTube; a printout of contacts generated by my own Palm Pilot, all of which are now back on a handheld device that syncs through cyberspace with any online device; my ancient Palm Pilot itself, which is about as useful as a pet rock; first print runs of legislation before Congress, now all on the Internet and searchable; two big plastic trays, one labeled "in box" and one labeled "out box," now replaced by a gargantuan archive of emails that I can access in seconds; photographs of this and that, easily scanned and posted and shared with the world; scholarly journals (say no more); pile after pile of weekly magazines and newspaper clippings, all long ago digitized; cassette recorders for doing interviews; once-treasured software packages that now seem as sophisticated as cave drawings; a "world clock"; a thermometer with a wire you stick outside the window. . . .

Somehow, the change from physical to digital strikes me as more significant than the move from iron to steel, from horses to internal combustion, or from land travel to air travel. In all other cases, the technological shift went from less- to more-efficient ways of accomplishing tasks by the use of things. But these things were still scarce. To make another book required felling another tree. To get from here to there still required fuel and everything that is associated with making it. My pile of paper could not simultaneously be your pile of paper. The space on the land on which I was driving could not be shared without causing a wreck and endangering life itself.

Eliminating scarcity in things people need and value is a good thing. Eliminating scarcity in money, another product of the central bank and the digital age, is disastrous.

The last honest bank in history

The Bank of Amsterdam was founded in 1609 as a deposit bank. It was highly unusual among banks because it was a deposit bank that only engaged in deposit banking. It refused to make loans. From G. Edward Griffin's The Creature From Jekyll Island: A Second Look At the Federal Reserve:

Its income was derived solely from service fees. All payments in and around Amsterdam soon came to be made in paper currency issued by the bank and, in fact, that currency carried a premium over coin itself. [pp. 172-173; emphasis added]

Quoting from John Kenneth Galbraith's Money: Whence It Came, Where It Went, Griffin writes:

For a century after its founding it functioned usefully and with notably strict rectitude. Deposits were deposits, and initially the metal remained in storage for the man who owned it until he transferred it to another. None was loaned out. [Creature, p. 173]

According to Jesus Huerta de Soto in Money, Bank Credit, and Economic Cycles [Pdf], the bank was founded on the principle that it had a contract with the depositor that required it to maintain at all times

a 100-percent reserve ratio with respect to “demand” deposits. This measure was intended to ensure legitimate banking and prevent the abuses and bank failures which had historically occurred in all countries where the state had not only not bothered to prohibit and declare illegal the misappropriation of money on demand deposit in banks, but on the contrary, had usually ended up granting bankers all sorts of privileges and licenses to allow their fraudulent operations, in exchange for the opportunity to take fiscal advantage of them. [p. 98; emphasis added]

De Soto quotes David Hume as saying that

no bank could be more advantageous, than such a one as locked up all the money it received, and never augmented the circulating coin, as is usual, by returning part of its treasure into commerce. [p. 102]

In Wealth of Nations, Adam Smith also had high praise for the bank:

The Bank of Amsterdam professes to lend out no part of what is deposited with it, but, for every guilder for which it gives credit in its books, to keep in its repositories the value of a guilder either in money or bullion. That it keeps in its repositories all the money or bullion for which there are receipts in force, for which it is at all times liable to be called upon, and which, in reality, is continually going from it and returning to it again, cannot well be doubted. . . . At Amsterdam no point of faith is better established than that for every guilder, circulated as bank money, there is a correspondant guilder in gold or silver to be found in the treasure of the bank. [p. 104, De Soto]

In the 1780s, as demanded by the city of Amsterdam, the bank began to loan out a large part of its deposits to cover growing government spending.

Hence, deposits at that time amounted to twenty million florins, while there were only four million florins’ worth of precious metals in the vaults; which indicates that, not only did the bank violate the essential principle of safekeeping on which it had been founded and its existence based for over one hundred seventy years, but the reserve ratio had been cut from 100 percent to less than 25 percent. This meant the final loss of the Bank of Amsterdam’s long-standing reputation: deposits began to gradually decrease at that point, and in 1820 they had dwindled to less than one hundred forty thousand florins. The Bank of Amsterdam was the last bank in history to maintain a 100-percent reserve ratio, and its disappearance marked the end of the last attempts to found banks upon general legal principles. [p. 106, De Soto; emphasis added]

Trouble at the Fed

Writes Antony P. Mueller, an adjunct scholar at the Mises Institute:

Bernanke's challenge resembles the task at which the Gosplan of the Soviet Union failed. In most of the so-called "capitalist economies," modern central banks are supposed to accomplish a similar task: to make the economy and employment grow, to finance wars and fight depressions, to supervise and regulate financial markets, and all along to guarantee "price stability." In order to grapple with such a superhuman challenge, the Fed staff make up one model after another, only to have them each be immediately falsified by new data. As a consequence of this confusion, each erroneous policy measure is followed by the next.

Ben Bernanke is too much of a good guy to practice the art of deceit in the cynical way that is necessary for deception to work on a grand scale. His predecessor at the helm of the US central bank, Alan Greenspan, at least knew that central banking is not a science but a kind of show business whose very nature is the pretence of knowledge.

There is no solution to Bernanke's manifold dilemmas other than to end the Fed. Economies are too complex to be handled by a central authority. This lesson was learnt by the central planners of the socialist economies at a high price.

We do not need new monetary process models, more statistics, or better scenarios. All of these are in ample supply. We do not need a more competent chairman. By conventional measures, few are better qualified for the job than Bernanke. What we need is something else: the establishment of a different kind of monetary system, one that uses competitive markets in the area of money and banking, and that eliminates the currency monopoly of the state.

The central bank's pretense of knowledge is obvious, given its manifest failure to meet its stated goals. What isn't always obvious is how much the state benefits with every run of the printing press. Politicians will keep the pretense alive until the chandeliers fall on their heads. At that point they will once again blame the free market and start over again.

Though I like Mueller's article, I'm not as generous as he is in attributing innocence to Bernanke's motives. As Mueller points out, Bernanke is one of the brightest academics around. It would be naive to believe such a person could be fooled by so crude a thesis as Friedman's monetarist explanation of the Great Depression.

Six Blunders of the Current Orthodoxy

Robert Higgs, a Senior Fellow at the Independent Institute and editor of The Independent Review, describes (Pdf) six major errors of the current economic orthodoxy, which he says began with "the first edition of Paul Samuelson’s Economics (1948), the best-selling economics textbook of all time and the one from which a plurality of several generations of college students acquired whatever they knew about economic analysis. Long ago, this view seeped into educated discourse, writing in the news media, and politics, and established itself as an orthodoxy."

Higgs calls this phenomenon "vulgar Keynesianism," which he further refines this way:

I use "vulgar Keynesianism" to denote a loosely articulated belief system about economic booms and busts to which journalists, politicians, and a wide segment of the general public have subscribed since the 1950s. It is not necessarily the same thing as Keynes's own ideas or the models developed and refined by so-called new Keynesian economists, some of whom are much more sophisticated about the issues (not to say that I agree with them, but only to recognize that some of them are well informed, well educated, and serious thinkers conscious of what they are doing).

The six major errors consist of the following:

1. Aggregates, that is, "[thinking] of the economy in terms of a handful of economy-wide aggregates: total income or output, total consumption spending, total investment spending, and total net exports." Whatever complex relationships exist within the aggregates are ignored because they're irrelevant. To the vulgar, the economy produces an "output," not an endless variety of products.

Aggregate output is driven by aggregate demand, to which aggregate supply more or less responds automatically.

In truth, "producers are connected in an intricate pattern of relations . . . [C]ritical consequences turn on what in particular gets produced, when, where, and how." Economic action refers to the choices of millions of participants in selecting the actions to take and the alternatives to forgo. The orthodox model "actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception—the intellectual equivalent of a baby toy."

2. Relative Prices - The orthodox view ignores relative prices and their changes. There is only one price, "the price level," which is a weighted average of all the prices for which the economy's goods are sold. Seeing aggregates only, the orthodox view does not see why a sudden increase in demand in one area could be problematic. We can never have too many houses and apartments, as long as the economy has unemployed resources.

If there are unemployed skilled silver miners in Idaho, building more condos in Palm Beach is still a good thing. Aggregate output is a simple increasing function of the aggregate labor employed. Mathematically,

Q = f(L); where dQ/dL > 0

Aggregate production has only one input, aggregate labor. Do workers work without the aid of capital? It would seem so, though if questioned vulgar Keynesians will admit laborers do use capital, but it's a "given" and fixed in the short run.

And the short run is all that matters.

3. Rate of Interest - A crucial relative price, the rate of interest is the price of goods available now relative to goods available in the future. The rate of interest affects the choice between current consumption and saving.

The orthodox view ignores relative prices. Interest rates are simply the rental rate for borrowed money. The lower the rate of interest, the more people will borrow and spend. As long as at least one person is unemployed, this is always good for the economy. Since unemployment always exists, the interest rate is never low enough for the orthodox view. Some have even proposed a negative rate of interest.

4. Capital and its structure - Capital to the vulgar is an inheritance from the past; it is given, it exists already. It is "essentially an undifferentiated glob of monetary value, any part of which may be substituted perfectly for any other part of equal monetary value."

"It matters not whether firms invest in new telephones or new hydroelectric dams: capital is capital is capital."

In contrast to the orthodox, Austrian economics presents "a theory of malinvestment, which is to say a theory of how an artificially reduced rate of interest leads business firms to invest in the wrong kinds of capital, in particular the longest-lived capital goods, such as residential and industrial buildings, as opposed to inventories, equipment, and software with a relatively short life."

The boom spurred by low interest rates culminates in a bust. But the vulgar Keynesians see no need for a correction, that is, for "the bankruptcies and unemployment that necessarily attend a substantial economic restructuring." Instead, government should engage in deficit spending to compensate for lower private investment and consumption spending.

5. Malinvestments and Money Pumping - the vulgar analysts disregard malinvestments and encourage government spending in excess of its revenues. The borrowing that's needed to make up the excess of spending over revenue should be assisted by a central bank policy of "easy credit." Easy money lowers the cost of financing deficits, but to the vulgar its major value economically is the consumer spending it induces.

The vulgar ones don't sweat inflation - it can always be countered by price controls and rationing, which had some efficacy during WW II. Their biggest fear is deflation.

6. Regime Uncertainty - The vulgar Keynesians are policy hounds. Try something, and if that doesn't work, try something else. Better yet, try many things at once. Roosevelt did it, Johnson did it, and Obama is attempting to be the most trying of all. They fail to understand that extreme policy activism creates what Higgs calls "regime uncertainty." Regime uncertainty is "a pervasive uncertainty about the very nature of the impending economic order, especially about how the government will treat private-property rights in the future. This kind of uncertainty especially discourages investors from putting money into long-term projects." Long-term investing virtually disappeared from 1929 to 1946.

The "bailouts, capital infusions, emergency loans, take-overs, stimulus packages, and other extraordinary measures crammed into a period of less than a year," have created a great deal of regime uncertainty. It can only hurt.

Mogambo sounds off

He sounds off on -- what else? The Fed and its product, which we're all forced to accept as a stand-in for wealth. He never lets up, nor should he until the damn Fed and its paper currency are gone forever. As Mogambo tells us in one breath, the party started

in 1971 when Nixon severed the dollar/gold link, and especially since 1987 when Alan Greenspan took over the Federal Reserve, and doubly-especially since 1997 when this same moron named Alan Greenspan lost his freaking mind and really started creating excess credit in the banks, and triply especially since 2008 when that raving lunatic bastard, Ben Bernanke, took over at the damned Federal Reserve and really, really, really started to create money by the trillions of dollars, using some of it to actually buy up worthless, dog-crap assets and the rest to buy government bonds so that the commie rats in the White House and Congress could continue to deficit-spend us into bankruptcy, a budget deficit which now approaches 12% of GDP, but which they had to do since they could not stop partying once they got started, or the whole rotten financial structure, made out of cards, erected on a bed of sand, on borrowed money, at huge degrees of leverage, collapses, the currency collapses, finally ending up with bread going up in price so much that nobody can afford to eat, and everybody tragically starves to death in a huge, horrible inflation in prices caused by the incredible inflation in the money supply, except the people who have gold, silver and oil.

More on the PIGS

From Gary North:

The crisis over Portugal, Italy, Greece, and Spain – PIGS – continues to escalate. Because they have surrendered their monetary policy to the ECB, these nations are unable to inflate their way out of the fiscal crisis. This leaves the following options.

1. Default on some or all of their debts
2. Pay higher interest rates
3. Cut spending
4. Raise taxes
5. Withdraw from the EMU
6. Withdraw from the EU
7. Wait for a bailout by the ECB.
8. Choices 2-7

There is a legal question regarding withdrawal. These nations have surrendered their national sovereignty to the New Europe. How can they regain it? At what price?

If they leave, the EU will have to impose sanctions. Military invasion is out of the question. Want to fight Spain across the Pyrenees? How about fighting Greece in the hills? So, the sanctions would be economic. A major one would be to impose high tariffs on these nations. The borders would be closed.

These four nations are ruled by politicians who cooperatively sold their nations' sovereignties for a mess of pottage: access to northern Europe's capital and markets. They are highly unlikely to secede.

So what options do the PIGS have? As North sees it,

The PIGS have no ability politically to cut the costs of national government. The welfare state mentality is universal. Politicians refuse to slow the rate of spending. Raising taxes will tank their economies. Politicians may try it, but there will be painful economic repercussions.

Rising interest rates will tank their economies.

This leaves only one possible solution: kick the can. Promise stability and growth. Promise that they will get their financial houses in order.

The welfare state is based on promises. All over the world, it is facing bankruptcy. But the voters believe in the promises, and politicians dare not tell the truth.

The PIGS are getting no help from the European Central Bank. The capital markets are raising interest rates. Their economies are still declining.

There is an answer: open default by the welfare state. I mean across-the-board default, all over the world. . . .

This will not happen.

Rising rates and recession in southern Europe look likely. That recession will spread across the borders.

More bailouts ahead

This time it's not Wall Street necessarily, but countries, with Greece apparently being first in line for a bailout. Writes John Rubino:

With a bail-out of Greece apparently immanent and everyone drawing parallels between the PIGS countries [Portugal, Italy, Greece, and Spain] and the Wall Street firms that nearly cratered the global economy in 2008, this might be a good time to ask why each year seems to bring a new set of financial basket cases requiring taxpayer cash.

The answer, of course, is easy money. When governments create too much credit, borrowing gets easier at the margins and the less intelligent, moral, and wise end up borrowing far more than they would normally be able to. When they inevitably implode, the world gets another chance to behave rationally by letting them go, accepting the resulting short-term pain, and learning the relevant lessons. But beginning in the 1990s with the Mexican and Russian defaults and the self-destruction of Long Term Capital Management, the strong economies have chosen to avoid the pain and bail out the losers.

He concludes his article this way:

When the bond or currency markets say no more, the party will end. Then we’ll see who’s really too big to fail.

Secret summit of top bankers

This posting is late, but the importance of the event has not diminished. As reported by George Lekakis and Fleur Leyden on February 6, 2010:

THE world's top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.

Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.

Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies. . . .

The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.

A commentator named Temjin had this astute comment:

MOST of the bad debt has NOT been written off yet. They have only been carried off to an off-balance sheet. If all these bad debts were marked to market, you can be sure the global financial system would be technically insolvent. I support the "shut down the RBA" movement going on in Sydney right now. The central bankers are nothing but master money manipulators who steal wealth from the public. (and no, it's not a conspiracy theory, action speaks louder than words and there have been lots of actions lately)

Is this a sign that Ron Paul's movement to end the Fed is catching on globally? Another reader, Glen, had this to say:

The problems that caused this disaster in the first place never went away. They were only masked by massive government bailouts and changes to accounting standards that favoured masking the value of these toxic assets. What passes as analysis in Australia and globally for that matter is nothing more than a bunch of cheer squads applauding dodgy figures and while turning a blind eye to the realities of the situation. A truly appalling situation that was totally avoidable.