Congressman Watt – Charlatan or Economic Imbecile?

Congressman Mel Watt (D-NC) is either a charlatan or ignorant of basic economics.  Either way he is unfit to serve in Congress let alone serve as chairman of the Domestic Monetary Policy and Technology Subcommittee.  This week Congressman Ron Paul (R-TX) announced that Watt took the knife to his bill to audit the Federal Reserve – The Federal Reserve Transparency Act of 2009 (HR 1207).  According to Paul, Watt as chair of the above mentioned committee cut out “just about everything”  in preparing the bill for a full committee vote.

Specifically, Watt eliminated the provisions requiring audits of the Fed’s transactions with foreign banks, its deliberations on monetary policy, the activities of the Open Market Committee, and disclosure of communications between the Federal Reserve Board and reserve banks.  Essentially the bill has become a shell of its original self.  Paul, of course, does intend to attempt to restore the bill to its original form during Financial Services Committee deliberations, but that is not the point.  The point is why has Congressman Watt gutted a bill that has over 300 cosponsors in the House and the support of a large majority of Americans?

It could be because he is repaying the financial industry which has throughout his career in Congress contributed over $890,000 to his campaigns.  That would be only fair given how much they have helped him maintain power and the privileged perks of members of Congress – great healthcare, great salary, and a great pension plan.

But, what is funny and ironic is that the industry that is second in contributions to Watt is organized labor at $873,000.  Big banks and labor unions make strange bedfellows?  You would think their interests are so diametrically opposed that they would not be #1 and #2 in contributions to the same member of Congress.  Labor union support of Watt is also curious given that North Carolina is a Right to Work state and not nearly as unionized as the People’s Republics of Massachusetts and California.   But, not to worry, Congressman Watt has traditionally taken care of unions as well.  He has supported every “entitlement” program that comes down the pike in favor of their leadership.  The list has included minimum wage, the “right” under law to collective bargaining, so-called fair employment practices, social security, socialized medicine – the list goes on and on.

So, if the congressman is so busy serving big banks and labor unions, what has he done for the actual people who elect him every two years?  Well, very little.  You see by supporting the Federal Reserve and bailing out big banks through legislation he is supporting the perpetuation of inflation.  Our dollar has lost 95 percent of its value since the Fed was given control over it by Congress in 1913.  But, most folks don’t understand how the Fed imposes this hidden tax on them by debasing our currency causing prices to rise.  Instead Watt and his ilk blame capitalism for rising prices and offer socialized medicine, minimum wages, and other socialist schemes to combat the higher cost of living for families.  If they would just support sound money in the first place there would be no perceived need for these wasteful programs.

So this is where the charlatan or economic imbecile question comes into play.  Does Watt understand that his support for the banking cartel known as the Federal Reserve System is what actually causes hardship for labor and ordinary Americans in his district?  Does he realize that by gutting HR 1207 he will help to continue the debasement of our currency?  Has it clicked in his head that his support for or at the very least his blind eye toward the reckless monetary policy of the current Fed leadership will be responsible for the future hyperinflation we will experience.  Has he considered his own culpability in the coming collapse of the dollar which will usher in an era of even higher unemployment with a drastically reduced standard of living in America?

Given the bubble mentality around Washington, a reasonable person could conclude that Watt is both a charlatan and an economic imbecile.  He is an economic imbecile because he must believe that economic doom caused by Fed policies is not inevitable otherwise he would not support them in light of the fact that the collapse would also affect him negatively.  He certainly is a charlatan because like many members of Congress Watt has the best of both worlds.  Special interests of all stripes get federal goodies from him which personally cost him nothing.  In return those special interest groups guarantee his reelection every two years with huge cash contributions to his campaigns.  In the meantime, our national debt is grotesquely high, our manufacturing base continues to move overseas, our financial industry is bankrupt, and the dollar is on the brink of collapse.

This is the essence of our problems.  Too many charlatans and imbeciles have been in charge of Washington for far too long.  Unfortunately all good things must come to an end.  The federal gravy train that Congressman Watt and his comrades have built to continually get reelected is about to crash.  When it does they won’t understand it, but they should because it will be caused by the fraud they have perpetuated on America.

End of Slavery, Equal Rights, and Abolishing the Fed, Not Radical Ideas

The Federal Reserve system needs to be abolished – placed on the scrapheap of financial/economic history.  I realize this is a radical, you might even say a fringe idea.  But, it you think about it, it is no more an extreme idea today than the abolition of slavery was in the 1840s and equal rights were for black Americans in the 1950s.  Slavery was eventually abolished and equal rights were given because it was the right thing to do.  When Americans realize the Federal Reserve in the 20^th and early 21^st centuries has enslaved them to a monetary system that benefits the political elite and favored rich at the expense of themselves, they should do the right thing and force Congress to eradicate the system.

The framework for our current Federal Reserve system was hatched at a secret meeting of bankers at Jekyll Island, Georgia in November 1913.  Orchestrated by JP Morgan, the goal of the system was to provide the nation with a “safer, more flexible, and more stable monetary and financial system.”  But, as will soon be pointed out, the Fed has never accomplished its mandate.  In fact, it has been used more as a vehicle by politicians to spend recklessly so they can get reelected and as a business plan for big banks to make a fortune.

As to the first accusation against politicians, it’s no secret that the federal government is broke.  Indeed, Washington owes a little over $11.6 trillion not including about $45 trillion in unfunded future liabilities for Social Security and Medicare.  Since September 28, 2007 the national debt has increased by about $4 billion a day.  So how is it that Washington can continue to spend us into oblivion on such ridiculous programs as cash for clunkers?  In a sweetheart arrangement the Fed monetizes the government’s debt by printing money and purchasing a bond (debt instrument) from Congress.  It then attempts to sell that bond to individuals, banks, countries, and other institutions as an investment.  Uncle Sam then must pay interest on that investment.  A big problem can immediately be realized – increasing debt means higher interest payments and higher interest payments means a larger percentage of the federal budget must be used just to service the debt.

To complete the sweetheart deal, Congress has given the Fed complete control of our money and the ability to keep secret its inner workings.  These inner workings include shady deals to bailout failed member banks and currency transfers to foreign banks.  Consequently, everyone wins – well sort of.  The politicians get to promise and deliver goodies to their constituents and special interests without any of the restraints faced by those with a fixed budget and the Fed can wheel and deal in helping its colleagues in the banking industry all over the world.  Let’s not forget too that the Fed is a political organization.  The members of the Federal Open Market Committee (FOMC) are appointed and reappointed by the president.  This means that the organ of the Fed that has primary responsibility for monetary policy is ultimately beholden to the president.  Consequently, the FOMC has historically maintained a policy of easy money because it is perceived that this is what keeps economies strong and the electorate happy. 

Now, I mentioned earlier that everyone wins from this arrangement, well sort of.  The politicians and bankers are big winners, but American workers, consumers, and taxpayers are big losers.  All that printing of money, selling of debt, and shady bank deals has a cost.  Unlike what Bernanke and the rest of the big spenders in D.C. want us to believe, just like any commodity, when the supply of dollars increases generally speaking the value goes down.  So as the Fed pumps too many dollars into the economy through the printing press, low interest rates, and the fractional reserve accounting scheme the value of our dollar falls.  Of course, this means that more dollars are generally needed to buy the same items.  In fact, the things we demand most should and do go up the most in price.  Look at the cost of healthcare, a college education, and automobiles.

Now, blanket statements are fine, but hard statistics really prove the point.  In the 95 years prior to the founding of the Fed, prices in the United States generally fell by about 35 percent.  This means that the same basket of goods that cost $100 in 1818 only cost $65 in 1913.  However, after the Fed began making our financial system safer, more flexible, and more stable, prices for the next 95 years increased by a phenomenal 2052 percent!  Thus, in 1913, a basket of goods costing $100 cost $2152.03 in 2008.  The biggest difference between 1818-1913 and 1913-2008 is the operation of the Fed during the latter time period.  In the previous period there was no central bank inflating the dollar supply and thus raising prices through the printing press, artificially low interest rates, and fractional reserve banking.  Additionally, during most of the 1818-1913 time period the U.S dollar was backed by gold.  This put a further restraint on reckless spending by Washington.  However, in 1933, FDR took us off the gold standard domestically and in 1971 Nixon closed the gold window to foreigners, thus ushering in the biggest spending era in U.S. history.

Reckless federal spending, big bank bailouts, and shady financial deals are all made possible through the Federal Reserve system.  This is why the system must go.  An even bigger reason the Fed must go is because it is responsible for perpetual price increases.  These price increases especially in things like healthcare enslave Americans – make many take two jobs, forego other purchases or work beyond normal retirement age.  This is why the Fed should be abolished and why eventually this idea like the abolition of slavery and equal rights will not be considered farfetched.

The Minimum Wage is Subterfuge, Repeal It!

The Greenspan/Bernanke recession has made things bad all over.  Last Tuesday, I drove to my local Convenience Center for Collecting Residential Trash and Recycling only to find it closed.  In an effort to further cut costs during these economic hard times, my county has cut back on the number of days these centers are open from five to four.  I am sure that many Americans have similar stories whether it has to do with government services, the number of tellers in your local bank, or the number of folks flipping burgers at your local fast food shop.  Spending is down and revenue is scarce so government and business are cutting back on expenses.

The cause of this current circumstance is well known.  For too long Americans and their government spent money like crazy – money neither group had.  To their credit, many Americans seem to have learned their lesson.  The national savings rate is at an all time high somewhere around seven percent.  These Americans have sobered up and are paying down loans and building nest eggs for the future.  In spite of Washington’s irresponsible spending to coax the American people to spend our way to recovery, they haven’t and as a consequence prices for everyday items have generally fallen.  This is what happens when a Federal Reserve induced bubble pops.  The prices of overvalued items and assets fall.  Logically, what should happen as well is that wages should fall by a comparable amount.  As companies were “doing well” during the boom, wages rose as a consequence.  Thus, as prices decline so should wages as a consequence.

But, thanks to our ever benevolent leaders in Washington, wages are about to go up this week.  On Friday, the federal minimum wage will increase from $6.55 per hour to $7.25 per hour.  Of course, this increase is meant to help the economically underprivileged among us cope with the ever increasing price of things.  But, three questions immediately arise: 1. Hasn’t the rate of inflation as reported by the Bureau of Labor Statistics actually gone down in the last year?  Seems like an odd time for a raise in the base wage? 2. Given the current unemployment rate, should Uncle Sam be raising the cost by more than ten percent on business to hire and retain employees?  3.  Why do we need a minimum wage in the first place?

As to the first question, prices have generally fallen in the last year according to government statistics, but official Washington doesn’t care because it believes that if people have more money they will spend it and lift us out of recession.  What they don’t take into account is that the minimum wage hurts employment and thus income.  In our current market high wages have caused a surplus of workers.  Consequently, many are getting laid off.  An increase in the minimum wage at this time will only aggravate unemployment because the base wage is artificially high and not determined by the market.   

Think about this, isn’t it better to have 20 people working at $3.63 per hour than 10 people at $7.25?  Those 10 unemployed folks would be on the public dole in some form – unemployment benefits, food stamps, direct payments, Medicaid – these government expenditures forces the Fed to print more money which causes price inflation thereby hurting not only those on minimum wage but those receiving the welfare.  This puts political pressure on Congress to raise the minimum wage again.  A vicious circle ensues and that is the problem with government central planning of the economy – it needs to enact new programs to offset the unintended damages of its old programs.

Agreed, there is no way of knowing exactly how many more people would have jobs without the minimum wage.  But, one thing is clear there would be more.  Simple mathematics validates this point.  Another thing is that hard workers would be rewarded and sloths would be punished without a government mandated base wage.  As a former business owner I was frustrated that I couldn’t pay my most valuable employees more because scarce resources were needed to pay others a minimum wage.

As to the second question, it seems particularly stupid to raise the minimum wage at a time when businesses are struggling, unemployment is up, and we need wages to adjust down with prices so as to bring recovery.  Small business must eventually lead the way when the circumstances are right for economic recovery.  Raising costs on small business is going to delay those circumstances further.

Lastly, and most importantly, generations of politicians have socialized us to believe that the minimum wage is just, compassionate, and necessary to help millions of Americans provide at least a minimal existence for themselves and their families.  According to minimum wage apologists, millions of Americans would be naked, on the streets, and on the brink of starvation without the benevolent mandate from the government.  What they fail to understand is that government policy causes the price increases that make in their words the minimum wage necessary to live a minimal existence.  Murray Rothbard has pointed out that from the mid-eighteenth century until 1940 prices actually fell on average from year to year with the exception being during war years.  A couple of conditions were at play then that don’t exist today.  The regulatory state had not been born yet thus industries produced an ever increasing supply of goods to keep price inflation at bay and the gold standard restrained the government’s propensity to devalue the dollar through deficit spending.

Since 1940, the Federal Reserve which is responsible for maintaining price stability and the value of the dollar has actually been responsible for the dollar losing more than 93 percent of its value.  The bottom line is that minimum wage laws are a reaction to the government’s historical bungling of our economy.  If policymakers really wanted to help the poor in America they would eliminate most regulations on business and institute a sound money system.  In particular, a commodity backed currency would alleviate the ability of politicians and central bankers to devalue the dollar and cause price inflation by printing money and running deficits.  In short, we would return to the days when prices remained at the very least truly stable.

On Friday, when the minimum wage increases by more than 10 percent it will be applauded by politicians and pundits alike.  But, keep in mind, if the policymakers were really doing their jobs, there would be no need for the minimum wage in the first place.  Time will only tell how high the Congress and president will raise the minimum wage in the future to offset all the inflating that has taken place over the last two years.  It will be a lot and it will hurt as many people as it purports to help.