Keynesians are Clueless

March 25, 2012

Paul Krugman, New York Times columnist, Nobel Prize winner, and Keynesian economist extraordinaire is about to have his new book released entitled, End this Depression Now.  In it, the Duke of Deficit Spending argues that a speedy, robust recovery from the Great Recession which started in 2008 is just a quick policy decision away.  If only our leaders can muster the “intellectual clarity and political will” needed to raise federal spending further, Americans will begin consuming again, businesses hiring, and the current depression will be over in a flash.  Once again Krugman is being true to his economic philosophy – namely that increasing aggregate demand through loose fiscal and monetary policy is a cure-all for what’s ailing the economy.  Let it be said that there is not a more consistent deflationist than Paul Krugman in all of the economic profession.

Now, why anybody would still listen to Krugman is a mystery to me.  After all, he entirely missed calling the financial crisis of 2008 while Austrian economists were spot on with their prognostications.  I suppose most laymen don’t know the difference and most economists and academics are as Milton Friedman proclaimed so long ago “All Keynesians now”.  Thus ignorance of and loyalty to a failed philosophy are powerful forces to make people do irrational things.

In the first place, Krugman shows his ignorance with the title of his book, End this Depression Now.  The statistics indicate that we are not currently in a depression.  Secondly, current numbers indicate that the deflationary spiral that Krugman has been predicting and fears the most is not happening.  On the contrary, while he continues to fret over falling prices leading to a double-dip recession, long-term trends point strongly toward oncoming double digit price inflation.

What it all boils down to is that Krugman and other Keynesian economists are about to miss the next economic crisis.  Austrians have been arguing all along that we can’t solve our economic problems by doing the same things that got us into the mess in the first place.  Deficit spending and a ridiculously loose monetary policy will not cleanse the market of all the mal-investments made during the preceding artificial boom (housing bubble).  It will only put us deeper into trouble.  What was needed was a drastic cut in government spending, a cut in taxes, and the setting of interest rates by the market not the monetary oligarchs at the Federal Reserve.

So because policy makers in Washington listened to Krugman and his ilk over the voices of reason, we are about to enter the next cycle of boom and bust.  It will consist of phony growth, rising prices, and rising interest rates which will ultimately pop the bubble and send the economy into another tailspin.  The proof is in current trends.

In spite of Krugman’s ill-timed book, we are not in the middle of a depression.  Consumer spending is way up.  In the fourth quarter of last year balances on credit cards rose 9.27 percent.  In February, retail sales in the U.S. improved in 11 of 13 industry categories and marked the biggest gain in five months according to Commerce Department figures.

Then there is job growth.  400,000 private sector jobs have been created just in the first two months of this year.  More workers mean more spenders and more spenders mean more jobs, right?

Oh, and let’s not forget how well the financial markets are doing.  The Dow is up 7 percent YTD, the S&P 500 is up 11 percent YTD, the Homebuilders Index is up 23 percent YTD, and the S&P Financials are up 21 percent YTD.  These are not numbers indicative of a depression.

But, all of this good news is coming at a cost, literally.  We are approaching the place this commentator wrote about on October 16, 2009.  Bernanke and the Federal Open Market Committee are going to have a big decision to make in the near future – raise rates and burst the Fed induced bubble or leave rates low and watch prices skyrocket.

Price inflation is already heating up.  It was only a matter of time before all the stimulus, low interest rates, and money printing kicked in to produce higher prices.  The money supply has increased by 14.6 percent year over year ending in February.  That makes 39 consecutive months of double digit year over year rates of monetary inflation.

The result has been higher gasoline and food prices.  College and healthcare costs continue to rise.  And the Manufacturing ISM Report On Business® for the 4th straight month shows the number of industries experiencing higher raw material costs on the rise and the number of industries experiencing  lower raw material costs on the decline.  It will be just a matter of time before those higher raw material costs find their way into higher prices on the merchant’s shelf.

So while Krugman and other Keynesians clamor for more federal spending and easy money to produce a speedy, robust recovery from the Great Recession, they are missing that the next boom and bust cycle has already begun.  But, that’s okay because Austrians have been predicting it for some time.  In the words of Yogi Berra, “It’s déjà vu all over again”.

Article first published as Keynesians Are Clueless on Blogcritics.


Bernanke’s Publicity Stunt

March 23, 2012

Federal Reserve Chairman Ben Bernanke has taken his defense of the Federal Reserve System on the road.  In response to recent critics of the central bank, notably Republican presidential candidate Ron Paul, Bernanke is scheduled to deliver four classroom lectures at George Washington University.  In his first discourse, Bernanke was Bernanke, extolling the virtues of the Fed while criticizing calls to return the dollar to a gold standard.

One of Bernanke’s criticisms of a return to the gold standard is that it is not practical.  By that he means “it can be a waste of resources to secure all the gold needed to back currency, moving it from South Africa to the Federal Reserve Bank of New York’s basement”.  But, the benefit of using gold to back currency is precisely because it is scarce and difficult to dig up and transport. Otherwise, it would have little value and be about as valuable as paper money.

A more significant criticism lodged by Bernanke against the gold standard is that it doesn’t prevent “short-term volatility”.  According to the Fed chairman, “Since the gold standard determines the money supply, there’s not much scope for the central bank to use monetary policy to stabilize the economy”.  By short-term volatility, Bernanke must be referring to those periods in the 19th Century when the Second Bank of the United States and the federal government from time to time allowed banks to suspend payment in species thus enabling widespread currency inflation and financial volatility.  The fact is that under a true gold standard short-term volatility would not exist.  Prices would be stable and the artificial booms and inevitable busts caused by Fed monetary price fixing would not happen.

But, to his credit, Bernanke did acknowledge that historically countries using the gold standard have experienced long periods of price stability.  In fact, in the United States from the mid-Nineteenth Century until 1940 prices in the United States actually fell on average from year to year – the main exceptions being during war years.

So while even Bernanke admits that the gold standard is an effective means to produce stable prices which after all benefit the poor, the elderly, and others on fixed budgets, why is he still so resistance to a return to the gold standard?  The key is in the answer he gave to one student’s question about why Fed critics are pushing hard to return to a gold standard. Bernanke indicated that they want to remove some “discretion” the Fed has over the economy.  It is this “discretion” that Bernanke and his monetary oligarchs used to dole out trillions of dollars in secret loans to their bank buddies who nearly brought the whole financial system to its knees.  Many of them got a piece of the action – Citigroup – $2.513 trillion, Morgan Stanley – $2.041 trillion, Merrill Lynch – $1.949 trillion, Bank of America – $1.344 trillion, Barclays PLC – $868 billion, Bear Sterns – $853 billion, Goldman Sachs – $814 billion, Royal Bank of Scotland – $541 billion, JP Morgan Chase – $391 billion, Deutsche Bank – $354 billion, UBS – $287 billion, Credit Suisse – $262 billion, Lehman Brothers – $183 billion, Bank of Scotland – $181 billion BNP Paribas – $175 billion, Wells Fargo – $159 billion, Dexia – $159 billion, Wachovia – $142 billion, Dresdner Bank – $135 billion, and Societe Generale – $124 billion.  You see with a gold standard these loans and other Fed schemes to benefit the bankers would not be possible.  Thus, when Bernanke criticizes the gold standard it is more than just professorial theorizing, it is a defense of the current corrupt banking cartel in America.

In the final analysis, Bernanke’s lecture series at G.W. is nothing more than a publicity stunt and not a very good one at that.  The Federal Reserve is an indefensible institution.  Compounding his problem are arguments he is attempting to make against the gold standard which served our country well for so long.  Anything he says cheats the students of valuable educational time.  Perhaps the powers that be at G.W. should invite Ron Paul to debate Bernanke.  Only then will the students get their money’s worth.

Article first published as Bernanke’s Publicity Stunt on Blogcritics.

 


Ron Paul’s Delegate Strategy May be Working

March 12, 2012

There is an interesting analysis article over at Real Clear Politics that lays out a scenario whereby the August Republican National Convention evolves into the worst nightmare imaginable for party officials – a brokered convention.  Based on how Republican candidates for president have done so far with different demographics and regions of the country, Sean Trende predicts how the race for the Republican nomination may play out and lays out a scenario where a brokered Republican convention could take place.

Now, it’s no secret that a brokered convention would be a catastrophe for Republican Party leaders use to grand coronations at their quadrennial national party events.  After all, anything could happen.  Chaos could rule or a dark horse candidate not officially sanctioned by the party oligarchs could emerge.  In either case their lack of control would disrupt the usual smooth proceedings meant to portray to the nation a party united, happy, and excited about its standard bearer.

Given his campaign’s strategy of focusing on caucuses and out hustling his rivals at local, county, and state conventions nationwide the main beneficiary of a brokered convention would be Texas Congressman Ron Paul.  The fact of the matter is that most Americans do not get involved in politics.  Many rightly view it as an ugly, corrupt business.  Others are too busy following American Idol, Dancing with the Stars, or the latest escapades of Lindsay Lohan.  While others would rather leave it to the professionals.  But, Ron Paul supporters are different.  They may not outnumber the supporters of other candidates, but they are hungrier and more dedicated to their principles.  They are much more willing to show up, outlast, and fight for delegate positions than the supporters of rival candidates.  These attributes seem to be paying dividends for the Paul campaign at least in the early stages of the delegate selection process.

In Iowa, Ron Paul supporters have become delegates for other candidates.  Under party rules, if the convention is brokered at some point those delegates could be eligible to throw their support behind Dr. Paul.

In Georgia, Paul forces took over or as local GOP officials called it “hijacked” the DeKalb County delegate-selection convention in eastern metropolitan Atlanta.  They also missed by a whisker doing the same thing in populous Cobb County.

And in Clark County, Nevada, home to Las Vegas, at the county GOP convention made up of over 2600 delegates, Paul supporters organized and triumphed by electing Paulites to all 14 seats on the ballot for county GOP executive committee board.  These 14 new members of the board will make up two-thirds of the ruling body.  Consequently, that county’s GOP platform now calls for holding elected officials to their oath to the Constitution, repeal of the 16th Amendment, and a full audit of the Federal Reserve.

The process of selecting delegates in most states is in the early stages.  There will be multiple stories like the ones mentioned above.  Ultimately, there may be a brokered Republican convention in August.  Then again, there may not be.  Ron Paul may not get the GOP nomination for president in 2012, but whoever does will be leading a party much different from the one that exists today.  It will include delegates to the national convention, activists, and party officials who support a non-interventionist foreign policy, sound money, and civil liberties.  You talk about a nightmare for the party oligarchs!


Just Who is a Threat to Whom?

March 1, 2012

If you listen to the so-called mainstream media Iran is the biggest threat to world peace since Adolph Hitler.  Every night, journalists, analysts, and government officials bombard the airwaves with inflammatory rhetoric about how Iran is hell-bent on incinerating Israel and the United States.  Naturally, the whole charade is packaged to instill fear in the average American that if Iran builds nuclear weapons it would be the end of Western Civilization as we know it.  The daily barrage is reminiscent of the American media’s successful campaign in 2003 to beat the drums for war with Iraq by convincing Americans that Saddam Hussein was allied with Al Qaeda and possessed weapons of mass destruction.  We know now that the allegations against Saddam were false and represented either incompetent journalism at best or fraudulence at worse.

In either case the same crusade is being played out today against Iran.  What the discerning observer must ask is: who is really a threat to whom in this circumstance?  A close look at the evidence should leave little doubt in anyone’s mind.

When it comes to military might the United States’ far exceeds the Iran’s capabilities.  The comparison is so ridiculous that I won’t insult my readers’ intelligence by spewing already known facts.  However, it is important to note that about 45-50 percent of Iran’s meager air force is grounded because of a lack of spare parts (owing mostly to the outdated aircraft in its fleet).  The last time it saw action was in 1988 at the tail end of the Iran-Iraq War.  It also lacks modern radar, communication, and electronic warfare equipment.

Iran’s navy fares no better.  It boasts a few small frigates and three Russian shallow water Kilo-class submarines.  This is undoubtedly not the kind of fleet that could ever pose a threat to any country.  For the American media to talk up that Iran’s military poses a huge threat to the United States is ridiculous.

On the other hand, the best trained and equipped military in the world has Iran almost completely surrounded.  The United States has military personnel and hardware on 44 bases around Iran.  She maintains an invasion force in neighboring Afghanistan and has conducted air campaigns over other regional countries including Pakistan and Yemen.

In fact, the U.S. has even just recently violated Iranian airspace with at least one spy drone that the Iranians shot down.  Additionally, the car bomb blast that killed an Iranian nuclear scientist inside Iran in January has U.S. and/or Israeli intelligence finger prints all over it.

But this should come as no surprise as the U.S. has a history of meddling in the internal affairs of Iran.  In 1953, the CIA orchestrated the overthrow of the democratically elected Iranian Prime Minister Mohammad Mosaddegh.  Mosaddegh’s crime was nationalizing Iran’s oil industry.  Besides overthrowing the popular Mosaddegh, the U.S. also installed and then supported until 1979 the brutal regime of Mohammad-Reza Pahlavi (The Shah).  This sordid history of American intervention in Iran essentially paved the way for the ascendance of the Ayatollah Ruhollah Khomeini and the current frigid relationship that exists between the two countries.

Lastly, the extreme sanctions being placed on Iran by the United States is the same tactic applied by Franklin Roosevelt on pre-war Japan.  In July of 1941, FDR froze all Japanese assets in the U.S., terminated all trade agreements between the two countries, and set up an oil embargo which proved to be the straw that broke the camel’s back.  The result was the Japanese attack on Pearl Harbor and America’s entry into World War II.  Today, the Obama Administration is attempting to starve Iran into submission with trade sanctions and an embargo on Iranian oil.  The U.S. ability to impose these sanctions through her European allies is yet another way the U.S. is a much larger threat to Iran than Iran is to the U.S.

At the end of the day, when you cut through all the hype of the media and our leaders calling for tough action against Iran, what is needed is a little perspective.  It is the United States that has the mightier military by far.  It is the United States that has Iran almost completely surrounded by a military force that She has recently used on several of Iran’s neighbors and Iran as well.  It is the United States that in the past has been involved in a violent overthrow of Iran’s government and the propping up of a brutal despot.  And it is the United States that has imposed crippling sanctions on Iran in order to get its way.  But we are to believe that Iran is a threat to the United States?  It’s no wonder Iran may be seeking nuclear weapons.  How else could She defend herself?

Article first published as Just Who is a Threat to Whom? on Blogcritics.