“Change” Has Come to America?

January 30, 2008

The current financial meltdown has its origins in a presidential act that took place in 1971.  In that year, through presidential directive, the United States defaulted on its obligations under the Bretton Woods system.  Because the Vietnam War and LBJ’s Great Society required large expenditures on the part of Uncle Sam, inflation and a devalued U.S. dollar resulted.  The problem for the U.S. at the time was that foreign countries could demand gold in exchange for devalued dollars.  Naturally, this is exactly what they did.  Fearing a complete depletion of U.S. gold reserves, Richard Nixon closed the gold window and began the age of the fiat dollar.

With the Gold Standard out of the way, the federal government could monetize even larger amounts of debt.  In 1971 the national debt of the United States was $425 billion.  At the end of 2008, the national debt exceeded $10 trillion – a 2252 percent increase in 38 years!  Naturally, this mammoth increase in debt did come at a cost to our economy.  For one thing, every dollar in debt the government monetized was one dollar less that could be used by industry to grow the economy.  Another cost was inflation – the erosion of savings and purchasing power.  From 1792 to 1971, the average yearly inflation rate was .7 percent.  From 1972 to 2008, the super monetized debt era, the average yearly inflation rate was 4.66 percent.  This increase in inflation contributed to the ballooning of household debt during this time period.  If things cost more money and savings isn’t worth as much debt is likely to increase.  In 1971, U.S. household debt was about $500 billion.  In 2008, the number ballooned to about $14 trillion – a 2700 percent increase in 38 years!

Spending sprees, whether personal or governmental, can’t last forever.  The depression we are heading into is the hangover for our binging.  Taking the debt numbers from above into account, we are headed for the mother of all depressions. 

The funny thing is that Washington has tried very hard to avoid depression.  It has done it through, you guessed it, more monetized debt.  It is like policymakers at the Federal Reserve, Executive Branch, and in Congress have no creativity or memory.  They have spent trillions of dollars to stimulate the economy out of the current financial crisis.  What we have to show for it is a record number of Americans receiving jobless benefits, many well-known brand names on the brink of bankruptcy, and an assets market that has already lost trillions in value continuing to flounder.

Then on January 20, 2009, Barack Obama, the man that promised us “Change We Can Believe In”, was sworn in (well, sort of) as president.  What was one of his first priorities? – to monetize over $800 billion in new debt to stimulate the economy.  This is the same exact thing we have been doing for the last 38 years.  Isn’t one definition of insanity to repeat the same action over and over again expecting a different result?  But, it gets worst.  Obama’s stimulus bill is packed with spending that doesn’t have anything to do with economic recovery.  Washington can’t even make it look good anymore.  The spending proposals include:  $420 million to battle avian flu, $335 million for programs to combat AIDS, VD, and TB, $2 billion for Head Start, $10 billion for science facilities, and $6 billion to bring high-speed Internet to rural and underserved areas.  If this is change then I am a communist.

We do need change in America.  We need to change our political leadership and install statesmen that can think outside the Keynesian box.  We need to change our expectations of what government can and should do.  We must return to the limitations placed on Washington’s power found in the Constitution.  We need to change our monetary system.  The Fed should be abolished and our currency should be backed by a scarce commodity.  We need to change our personal habits.  Many Americans need to learn there is no such thing as a free lunch.  The bills eventually come due as is being proven through this impending depression.  Finally, we need to change our economic system.  We need to reject the statism, socialism, fascism or whatever ism you want to call it of at least the last 38 years and reinstitute a free market system.  That free market system would pay its bills, reward merit, and penalize misbehavior.  If President Obama genuinely wants to fulfill his campaign pledge to “Change” America then he can start with this blueprint.

Boycott the Banking Cartel, Join a Credit Union

January 24, 2008

It is no secret that this author detests the Federal Reserve Bank and believes it should be abolished in favor of a sound monetary system.  However, the chances of that happening any time soon are about as good as former president Bush being appointed Secretary of State in a future administration.  So, is there anything Americans can do to hurt the cartelized system and potentially bring it to its knees?  Besides electing anti-Fed representatives and senators to Congress, Americans have the ability to take their banking business elsewhere – to non-Federal Reserve credit unions.

For first time readers of this column, I will briefly review the reasons for my disdain of the Fed.  In 1913, at the urging of big bankers, Congress created the Federal Reserve System.  The system essentially set up a banking cartel in the United States whereby through Fed policies big banks could reap huge profits while the little guy had his purchasing power and savings stolen from him.  This was done through interest rate adjustments, a fractional reserve banking scheme, and the printing press.  Since 1913 Fed policies have been responsible for a 95 percent loss in the purchasing power of the dollar</a>. Of course the Fed had accomplices in committing this grand larceny of epic proportions.  On April 5, 1933 Roosevelt ended the Gold Standard for domestic holders and in 1971Nixon permanently closed the Gold window for foreigners.  Because the supply of money was no longer restricted to the amount of gold in circulation, the Fed could now increase the money supply arbitrarily.  And that is exactly what it did

As a related consequence, today, our national debt is $11 trillion and according to President Obama Americans need to get used to budget deficits over $1 trillion a year into the future.  Many will say, “well, the national debt doesn’t matter”.  Many pundits and politicians alike seem unfazed by all the spending.  But, the debt does matter.  Like individuals and businesses, when Uncle Sam’s credit runs out and the bills come due Washington will be faced with a choice between default or raising taxes and cutting spending.  In light of the current spending spree and Washington’s aversion to spending cuts, tax hikes will be hefty and will certainly lead to economic disaster.

Then there are all the bailouts of Fed member banks.  These banks and most Americans know who they are, have made horrible lending decisions in the recent past, but through their buddies at the Fed are not suffering the consequences of those decisions.  Bernanke pressured the Congress to appropriate money we didn’t have to the tune of $850 trillion to bail the banks out.  Congress, going against the wishes of 90 percent of the American people, acquiesced.  The Fed printed the money.  What did we get for our involuntary generosity?  No progress toward solving our economic woes and no accountability from the Fed on where the money went.

So, let’s get back to our discussion of credit unions.  Because of their status they have many advantages for consumers.  They are not-for-profit and therefore unconcerned about stockholder equity and exempted from most state and federal taxes.  Consequently, credit unions, compared to traditional banks, return their profits to their customers, who are the owners, in the form of lower rate loans and services and higher rate savings accounts.

But, beyond the advantages of using credit unions as a consumer, using them would contribute to hurting the Fed sponsored cartelized banking system and perhaps perpetuate its eventual downfall.  First, credit unions are not regulated by the Fed.  Second, Fed banks rely on our deposits to make loans.  By rechanneling our deposits into safer, more responsible credit unions we take away their ability to make profit (and bad loans).  The question then arises, how much further bailout money would the American people tolerate for these failing Fed banks before calling for the Federal Reserve system’s abolition?

Third, with less deposits in Fed banks the fractional reserve scheme is tempered in its ability to artificially increase the money supply.  It is true that credit unions are held to reserve requirements, but to the best of my knowledge these are minimum requirements.  Thus the democratically elected boards of credit unions could keep their reserves at percentages much higher than required by the Fed.

Credit unions, like the rest of us, are feeling the effects of the financial crisis.  However, they are not running to Congress looking for handouts from taxpayers.  They exist to serve their members and not irresponsible Wall Street fat cats.  Many did not participate in sub-prime lending.  By transferring the national savings to them and away from Federal Reserve banks, Americans can put a significant hurt on the Federal Reserve system and eventually bring about its demise.  For more information about joining a credit union go to: http.www.creditunion.coop/how_to_join.html.

Keynes’ Prophetic Words

January 16, 2008
“By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.” John Maynard Keynes (1883-1946), British economist.

How true Keynes’ words have been.  Since its inception in 1913 the Federal Reserve Bank of the United States has perpetrated policies that have devalued the U.S. dollar by over 90 percent.  It has done this by increasing the money supply arbitrarily through fractional-reserve banking, interest rate adjustments and yes as the context of Keynes’ statement indicates through the printing of money out of thin air.  For the most part, almost all Americans have been oblivious to this grand larceny of epic proportions.  Many realize that they cannot buy as much as days gone by, but they don’t know exactly why.  Many realize that they will have to save/invest a lot more for a better retirement than their grandparents, but again many do not know why.  I remember a history teacher of mine bemoaning the fact that unlike his father of a generation earlier he could not afford to buy a new automobile each year.  He made more money than his father did, but that just didn’t convert into a new car per annum.  The irony was that my history teacher, like many, loved Franklin Roosevelt, who was of course the very scoundrel responsible for taking us off the Gold Standard and allowing the Fed through our elected officials to print money at will and debase our currency. 

What is truly amazing is that today given the consequences of fiat money and all the trillions of dollars the Fed has already printed for “economic recovery” there is still a large clamoring for more artificial dollar production to “thaw” credit markets.  Most pundits, journalists, and economists are badgering the incoming Obama Administration and Congress to do more.  Well, their wish is about to come true.

Congress is considering an $825 billion “economic recovery plan”.  The plan would do everything from making homes more energy efficient to, if you can believe it, infusing cash into money-losing companies to help them stay afloat.  It’s the old, the government can solve all of our problems with no costs mentality.  Of course, for those of us that understand why we have to save more for retirement and why most of us no longer can buy a new car every year it is more of the same – the Federal Reserve counterfeiting our currency and thereby devaluing it based on false economic theory that was discredited long ago.

The facts speak for themselves.  Uncle Sam has already injected over $2 trillion to thaw credit

markets and stimulate the economy.  What do we have to show for it – a surging unemployment rate, the lowest consumer confidence in a long time, and still no pick up in banks loaning money again.  As of the week ending December 17, 2008, the cash reserves of banks in the U.S. increased to $774.4 billion from $604.7 billion in November and an incredible $2.39 billion in December 2007.  In December the yearly rate of growth of commercial bank loans fell to 3.55 from 4.8% in November and a hearty 10.2% in December 2007.  Remember how we were told by the Paulson/Bernanke/Bush Crime Syndicate that if Congress didn’t appropriate $700 billion in October the world would come to an end?  Their scare tactics were based on phony economics then and consideration of even more spending now is based on equally phony economic assumptions.

Make no mistake about it, even though the Fed has pumped trillions of dollars into the economy prices continue to fall.  That’s because consumers, banks, and other businesses have not bought into the government’s phony recovery scheme and are saving their cash for harder economic times to come.  Those times will come and be accompanied by the realization of most Americans that the dollar has been devalued enormously and they better spend theirs before it is too late.  At that point, the resulting inflation and lack of goods to buy from all the spending will send us into an economic ice age.  Unfortunately, even then, Keynes words will be prophetic.  I am sure the Fed’s printing press activities will not be blamed for our disaster.  Like now, the blame will fall on capitalism.