Howard S. Katz's "Bad News"

Howard S. Katz has posted a fascinating blog entitled "Bad News" which I reproduce below:

>"I have bad news for all young Americans.

"You were born into what used to be the greatest country in the world. The Founding Fathers of this country fought for our liberty in the 18th century. They won, and they set up a government whose purpose was the protection of everyone’s rights. The first President of this country was known for being unable to tell a lie.

"In 1933, however, the country fell into the hands of a collection of scoundrels. They said, “Rob from the rich and give to the poor.” Then they set up a system which robs from the poor and gives to the rich. In order to win support for this system, they told a bunch of lies.

"Then when these lies had become accepted as commonplace, they made up more lies. Then more lies still. The whole structure resembles an onion. If you are smart enough to discover an important truth and peel off one layer of the onion, you think that you are seeing reality. But then there is another lie to be peeled off and yet another lie beneath that. Let us take the current issue facing America, the “interest rate cut” of Sept. 18, 2007. The phrase is in quotes because, while not literally a lie, it was a half truth, and a half truth with the intent to deceive. (See blog 9-24-07.)

"The argument in favor of the “rate cut” was that the country was on the verge of a recession. Please to define recession? Well, John Maynard Keynes argued that it was not having a lot of goods that made a country rich. Just the opposite, what made a country rich was having a lot of demand. It was necessary to have an intense desire for economic goods, and having this desire would in some way create the goods.

"Let us test this theory against the empirical facts. In North Korea, for example, they have unbelievable poverty. Ditto, ditto, Tibet, Albania and most of black Africa. Is the United States rich and North Korea poor for the simple reason that we have more demand? And anyway, how would you measure demand to prove whether this was true or false?

"In reality, a human being starts to demand economic goods almost from his first breath. He cries for food. Then he cries for a rattle, then a bicycle. Then he asks for a car. Then he gets a job so that he can get a better car. All of his life is spent demanding. The problem in an economy is not to create the demand. There is plenty of demand. What America (and Britain) did starting about 1790 was to figure out a way to increase the quantity of goods to satisfy that demand. That took a number of brilliant men. At that time, all of the world was demanding (and had been demanding since the creation of the human species), but only the Anglo-Saxon countries (and later a number of other countries which imitated them to a degree) figured out how to satisfy much of that demand.

"Now, what about recessions? According to the Keynesian theory it is bad to not have enough demand. But it is equally bad to have too much demand. And since there is no way to measure demand, we must depend on the economic authority figures to tell us whether demand is too high or too low. An economy with demand too low is said to be in recession or depression. An economy with demand too high is said to be overheating and suffering from inflation. And what the Keynesian economists are always searching for is a Goldilocks economy – one where the demand is just right.

"One thing is impossible under this theory,: to have demand too low and too high at the same time. Or to put it in their lingo, it is impossible to have a recession and an overheating (inflationary) economy at the same time.

"But two months ago, Ben Bernanke, the chairman of the Federal Reserve, said that the economy was in danger of inflation. Indeed, for the first 8 months of 2007 the official consumer price index has risen by 3%. If this continues for the remainder of the year, then 2007 will come in at a 4.5% rate. And this would be the highest rate since 1990. But just last week, in the twinkling of an economic eye, Bernanke said that the economy was in danger of a recession. (I should mention that most pieces of economic data are very erratic, and it is necessary to watch a given index for at least 6 or 12 months to even know whether it is going up or down. Indeed, all of the data issued over the most recent two months are labeled preliminary. They are often revised, and sometimes revised sharply. A piece of data which was reported two months ago might be revised away next month and discovered never to have happened.)

"If you want to understand what is really going on, then the U.S. economy did not suddenly go from too much to too little demand. There has been too much demand for every one of the past 52 years because prices have risen every year since 1955. And during this period there have been nine officially declared recessions. In every one of these, there has been too much demand and too little demand. Nobody cares that this is impossible. To be a Keynesian economist, one must, like the Queen of Hearts, “believe 6 impossible things before breakfast.” (To believe the impossible, it is helpful to give different meanings to the same concept. For example, sometimes demand means a willful desire, as when a baby cries; sometimes it means effective demand, i.e., demand backed up by the money to buy.)

"But the sad thing, dear young American, can be seen if we consider a line from Hamlet. “Though this be madness, yet there be method in’t.” Indeed, modern establishment economics is madness. Yet there is a method in it. The method is to rob from the poor and give to the rich. From 1972, real wages in America have been going down. From 1974, the stock market has been going up. (During the age known as the period of the robber barons the real wages of the working man went up, and the stock market went sideways.)

"The Federal Reserve does not have the ability to manage the economy. From 1836 to 1914 there was no central bank in America, and our economy was the greatest in the world. During this time prices remained stable. Today the bankers (government and private) have the privilege to create money, and the classrooms are filled with “economists” teaching that the creation of money out of nothing is the “road to plenty.”

"One of the rich people who made big bucks from the Greenspan issues of money in the 1990s was hurting this year because the creation of money slowed down. This gentleman, Jim Cramer, went on YouTube on August 6 and threw a public tantrum. (You can find it via a Google search on his name and then click YouTube – Market Meltdown.) The reason that the Federal Reserve “lowered interest rates” (meaning agreed to print money) on Sept. 18 was that it was trying to balance the rich people like Jim Cramer with the poor people who do not make any noise. The squeaky wheel got the grease. And all the pseudo-economics is a rationalization.

"This is the world into which you were born. The Government steals from the poor and gives to the rich. How much is to be stolen is decided by the method of the 3-year old who throws a tantrum in the supermarket. Paper money is the money of the bankers. Gold money is honest money. Gold is the money of the people."