I have been rereading Alexis de Tocqueville's Democracy in America; the translation is by Harvey C. Mansfield and Delba Winthrop. It isn't light reading, but it is accessible, and every American should read it. Following his 1831 visit to the United States, de Tocqueville published it in two volumes, which appeared in 1835 and 1840. Many of de Tocqueville's insights about America are accurate today, often eerily so.
On page 128 de Tocqueville questions whether the framers of the US Constitution were right or wrong to permit the president to be reelected. This is a fascinating question because I can think of a number of abuses that have occurred in connection with presidential reelection during my lifetime, especially during the administration of President Richard Nixon. Indeed, statistics show that the stock market routinely rises during presidential election years, for the party in power manipulates the Federal Reserve Bank in its favor. De Tocqueville points out that a president who seeks reelection views laws and negotiations as electoral schemes that redound to his or her, rather than to the nation's, benefit. "The principle of reelection therefore renders the corrupting influence of elective governments more extensive and more dangerous. It tends to degrade the political morality of the people and to replace patriotism with cleverness."
De Tocqueville adds that all forms of government are associated with a natural vice, and laws that enhance the vice are undesirable. The founding fathers limited the whims of the majority by state governments' electing senators and the electoral college's electing the president. De Tocqueville notes, "In introducing the principle of reelection [of the president], they destroyed their work in part. They granted a great power to the president and took away from him the will to make use of it."
Progressivism worsened this result because the Seventeenth Amendment, a 1912 product of Progressivism, made the election of senators direct. Moreover, the replacement of party conventions with primaries and the diminution of the influence of the electoral college have made the president ever more likely to be tempted to manipulate public policy to gain reelection.
De Tocqueville writes:
Each [form of] government brings with it a natural vice...the genius of the legislator consists in discerning it well...[E]very law whose effect is to develop this seed of death cannot fail in the long term to become fatal, although its bad effects may not be immediately perceived.
The effect of Progressivism was to pass a series of such laws that enhanced the majoritarian principle without concern for checks and balances. The power of banks and the Federal Reserve Bank interact with the tendency of the president to manipulate public opinion in his--and the banks'--short-term favor. The result has been misallocation of credit and other resources and resultant economic instability that, in turn, has resulted in increasing cries for government intervention and socialism. The public is unable to perceive that their economic insecurity is the direct result of governmental manipulation of credit to the short-term advantage of politicians and banking, real estate, business, and investment interests.
My thought is that the United States would be better with a president elected for one six-year or even four-year term rather than for two four-year terms.
Showing posts with label banking. Show all posts
Showing posts with label banking. Show all posts
Friday, February 12, 2016
Saturday, December 25, 2010
Ownership of the Federal Reserve Bank
An anonymous poster asked me about the ownership of the Federal Reserve Bank and without doing a lot of research I found an interesting post by Professor Edward Flaherty of the University of Charleston. Flaherty debunks the claim that foreigners or the Rothschilds control the Fed. That is silly. But equally silly is Flaherty's claim in the following sentence:
"The New York Federal Reserve district contains over 1,000 member banks, so it is highly unlikely that even the largest and most powerful banks would be able to coerce so many smaller ones to vote in a particular manner. To control the vote of a majority of member banks would mean acquiring a controlling interest in about 500 member banks of the New York district. Such an expenditure would require an outlay in the hundreds of billions of dollars. Surely there is a cheaper path to global domination."
While coercion is a loaded term, Flaherty displays a lack of understanding of basic political and interest group processes. Typically, democratic processes yield a small number of controlling or influential parties. Robert Michels first called this process the iron law of oligarchy in a book on political parties (specifically the Socialist Party of Germany, which at the time was considered highly democratic) and it has been examined by Mancur Olson on the public policy level in his book Rise and Decline of Nations.
While it is silly to claim that the Rothschilds or some cabal of Jewish or British bankers controls the Fed, it is equally silly to claim that the big money center banks do not influence monetary policy. Since 2008 we have witnessed Goldman Sachs largely dictate national spending policies. Flaherty's claim that ordinary political processes do not apply and that the large banks lack influence on the nation's monetary policy, given the trillions of dollars just printed and handed to them, is wrong.
Monetary policy favors the commercial banks and by definition the big commercial banks get the most juice from the Fed's monetary expansion. That doesn't mean that there's a conspiracy of international bankers, Jewish, British or otherwise, nor does it mean that there is a a conspiracy of big US banks. It just means that money center banks control a disproportionate share of a monetary system that is designed to subsidize banks in general. The bigger banks benefit more than do the smaller banks, and they do more damage because they tend to be more speculative. The Mexican and Latin American debt crisis; the Hunt silver speculation; Enron; Long Term Capital Management; and the sub-prime crisis as well as the century old merger mania that has reduced American business's creativity are all due to the money center banks.
The banks and financial interests benefit and you lose. That is built into the system that American voters have supported. If you insist on voting for one of the two major parties every time, you are supporting the system. Voters have themselves to blame, not a conspiracy.
"The New York Federal Reserve district contains over 1,000 member banks, so it is highly unlikely that even the largest and most powerful banks would be able to coerce so many smaller ones to vote in a particular manner. To control the vote of a majority of member banks would mean acquiring a controlling interest in about 500 member banks of the New York district. Such an expenditure would require an outlay in the hundreds of billions of dollars. Surely there is a cheaper path to global domination."
While coercion is a loaded term, Flaherty displays a lack of understanding of basic political and interest group processes. Typically, democratic processes yield a small number of controlling or influential parties. Robert Michels first called this process the iron law of oligarchy in a book on political parties (specifically the Socialist Party of Germany, which at the time was considered highly democratic) and it has been examined by Mancur Olson on the public policy level in his book Rise and Decline of Nations.
While it is silly to claim that the Rothschilds or some cabal of Jewish or British bankers controls the Fed, it is equally silly to claim that the big money center banks do not influence monetary policy. Since 2008 we have witnessed Goldman Sachs largely dictate national spending policies. Flaherty's claim that ordinary political processes do not apply and that the large banks lack influence on the nation's monetary policy, given the trillions of dollars just printed and handed to them, is wrong.
Monetary policy favors the commercial banks and by definition the big commercial banks get the most juice from the Fed's monetary expansion. That doesn't mean that there's a conspiracy of international bankers, Jewish, British or otherwise, nor does it mean that there is a a conspiracy of big US banks. It just means that money center banks control a disproportionate share of a monetary system that is designed to subsidize banks in general. The bigger banks benefit more than do the smaller banks, and they do more damage because they tend to be more speculative. The Mexican and Latin American debt crisis; the Hunt silver speculation; Enron; Long Term Capital Management; and the sub-prime crisis as well as the century old merger mania that has reduced American business's creativity are all due to the money center banks.
The banks and financial interests benefit and you lose. That is built into the system that American voters have supported. If you insist on voting for one of the two major parties every time, you are supporting the system. Voters have themselves to blame, not a conspiracy.
Tuesday, March 17, 2009
Sweden Is A Backward, Authoritarian Land
Someone brought up Sweden recently. The socialist American media is biased in its reporting on Sweden so it is difficult to find factual information. You won't find it in the New York Times, written on the sixth grade level of the American left. A number of years ago Roland Hunter's book entitled The New Totalitarians described the suppressive nature of the Swedish government. In 2006 the sadly now-defunct New York Sun, commenting on the lies and propaganda that appeared in the Economist Intelligence Unit about Sweden, noted:
"Dissent is powerfully discouraged. In Sweden, whose murder rate is currently twice that of America...the Swedish press routinely depicts America as crime-ridden. Polls show that the majority of Swedes are deeply disturbed by their country's dramatic social changes and highly critical of the policies that brought them about. Yet the crime and violence generally go unreported, so only rarely does any of the criticism seep into the press."
In other words, Sweden is a country run like New York City, where lies are taken for truth and school children are indoctrinated in left wing propaganda (as in the New York City school system) and, I add, new ideas are forbidden.
Moreover, Sweden is not immune from the nationalist hatred and bigotry that frequently characterizes socialism:
"Instead of reporting on such worrisome findings, politicians and the press alike focus on the evils of America and Israel."
Similarly, the book publishing industry in Sweden serves as a mouthpiece for the authoritarian state:
"Swedish book publishing is similarly unbalanced. Recently Michael Moynihan, an American writer based in Stockholm, toted up the English-language political books that had been translated into Swedish since September 11. His long list included several works apiece by Noam Chomsky and Michael Moore, plus volumes by the communist historian Eric Hobsbawm, the anti-American journalist John Pilger, and the 'Holocaust industry' critic Norman Finkelstein. On the entire list, only one author was not a leftist."
There is only one independent television station, and the Swedish government has attacked it for failing to adopt the government's views:
"When voices of dissent do break through in Sweden, they're often punished. During the runup to the Iraq war, the Swedish government censured the independent TV channel TV4 for running an "Oprah" episode that presented both pro- and anti-war arguments. TV4 was charged with violating press-balance guidelines when in fact its offense was being too balanced — it had exposed Swedish viewers to ideas from which journalists had otherwise shielded them."
The opposition party, Sweden Democrats, are repeatedly attacked by the Swedish government and their speech suppressed:
"Earlier this year, for example, the government closed down the Sweden Democrats' Web site because it had published a cartoon of Muhammad. Stig Fredriksson, head of the free-speech organization Publicistklubben, complained bitterly. But the incident was hardly reported in Sweden — and, of course, barely caused a ripple abroad. If the Bush administration had closed down a Democratic Party Web site¸ there would be scare headlines and editorials thundering about dictatorship — and rightly so. But when Sweden's rulers did it, it was apparently acceptable — because they did it in the name of political correctness."
Opponents to the Swedish government's policies are routinely fired from their jobs:
"a few weeks ago, a junior diplomat was dismissed when it became known that he was a member of the party and had criticized his country's immigration policy. On several occasions, thugs loyal to the ruling parties have broken up Sweden Democratic meetings and beaten up party leaders. And this is a nation in which a party led by an admitted communist was, in recent memory, part of the ruling coalition."
Moreover:
"Swedish elections aren't really secret — other people at the polling place can look at your ballot and see which party you support."
I have not looked at Swedish banking practices but if the banking system is state controlled, I wonder how open to new and innovative ideas it might be. Sweden has never been an innovative country. Its industries are imitative. It is able to survive on small beer because it has a small population. Should the world adopt a Swedish model, suppression and stagnation would follow.
"Dissent is powerfully discouraged. In Sweden, whose murder rate is currently twice that of America...the Swedish press routinely depicts America as crime-ridden. Polls show that the majority of Swedes are deeply disturbed by their country's dramatic social changes and highly critical of the policies that brought them about. Yet the crime and violence generally go unreported, so only rarely does any of the criticism seep into the press."
In other words, Sweden is a country run like New York City, where lies are taken for truth and school children are indoctrinated in left wing propaganda (as in the New York City school system) and, I add, new ideas are forbidden.
Moreover, Sweden is not immune from the nationalist hatred and bigotry that frequently characterizes socialism:
"Instead of reporting on such worrisome findings, politicians and the press alike focus on the evils of America and Israel."
Similarly, the book publishing industry in Sweden serves as a mouthpiece for the authoritarian state:
"Swedish book publishing is similarly unbalanced. Recently Michael Moynihan, an American writer based in Stockholm, toted up the English-language political books that had been translated into Swedish since September 11. His long list included several works apiece by Noam Chomsky and Michael Moore, plus volumes by the communist historian Eric Hobsbawm, the anti-American journalist John Pilger, and the 'Holocaust industry' critic Norman Finkelstein. On the entire list, only one author was not a leftist."
There is only one independent television station, and the Swedish government has attacked it for failing to adopt the government's views:
"When voices of dissent do break through in Sweden, they're often punished. During the runup to the Iraq war, the Swedish government censured the independent TV channel TV4 for running an "Oprah" episode that presented both pro- and anti-war arguments. TV4 was charged with violating press-balance guidelines when in fact its offense was being too balanced — it had exposed Swedish viewers to ideas from which journalists had otherwise shielded them."
The opposition party, Sweden Democrats, are repeatedly attacked by the Swedish government and their speech suppressed:
"Earlier this year, for example, the government closed down the Sweden Democrats' Web site because it had published a cartoon of Muhammad. Stig Fredriksson, head of the free-speech organization Publicistklubben, complained bitterly. But the incident was hardly reported in Sweden — and, of course, barely caused a ripple abroad. If the Bush administration had closed down a Democratic Party Web site¸ there would be scare headlines and editorials thundering about dictatorship — and rightly so. But when Sweden's rulers did it, it was apparently acceptable — because they did it in the name of political correctness."
Opponents to the Swedish government's policies are routinely fired from their jobs:
"a few weeks ago, a junior diplomat was dismissed when it became known that he was a member of the party and had criticized his country's immigration policy. On several occasions, thugs loyal to the ruling parties have broken up Sweden Democratic meetings and beaten up party leaders. And this is a nation in which a party led by an admitted communist was, in recent memory, part of the ruling coalition."
Moreover:
"Swedish elections aren't really secret — other people at the polling place can look at your ballot and see which party you support."
I have not looked at Swedish banking practices but if the banking system is state controlled, I wonder how open to new and innovative ideas it might be. Sweden has never been an innovative country. Its industries are imitative. It is able to survive on small beer because it has a small population. Should the world adopt a Swedish model, suppression and stagnation would follow.
Wednesday, February 4, 2009
Decentralization, Banking and the Two Party System
The American party system has changed four times, and three of the changes were linked to money and banking. Moreover, three of the changes were linked to the issue of decentralization and states' rights. The current tremors surrounding monetary policy and the Federal Reserve Bank coincide with increasing questioning of why the Democrats and Republicans have failed to question the subsidization of investment and commercial banks and the recent Federal Reserve Bank inflation of the monetary base. One key difference between the current crisis in the American party system and past crises is the absence of a competent press or media. These were central to political debate in America until the 1930s. However, the transition from passive to active electronic media has reinvented, downsized and in a sense traditionalized the press from the centralized mainstream media that was prevalent in the 1950s to websites and blogs that are reminiscent of early newspapers.
The changes in the American party system were as follows. First, the establishment of the Federalist and Democratic Republican parties in response to Alexander Hamilton's advocacy of the First Bank and federal subsidies to manufacturing. Second, the split between the National Republicans and the Democratic Republicans, which became the split between the Whigs and the Democrats in 1836 specifically in response to Andrew Jackson's removal of federal assets from the Second Bank and his veto of the Second Bank. Note that decentralization played a role both in the Federalist-Democratic division in the 1790s and the Whig-Democratic division of 1836. Both the Federalists and the Whigs were elitist centralizers and the Democrats were decentralizers, pale copiers of the earlier anti-Federalists.
The third party formation was of course in the 1850s, the formation of the Republican Party, the centralizing party that inherited Whig elitism but reformulated its ideology to combine (a) surface advocacy of laissez faire, in imitation of Jackson with (b) the traditional Whig advocacy of centralization. The Civil War was fought not over banking but slavery. It was here that the centralization issue came to the fore.
The fourth party formation occurred in 1896, when William Jennings Bryan reinvented the Democratic Party as the party of inflation and free silver. Many of the subsequent centralizing ideas of Franklin D. Roosevelt were included in Bryan's philosophy. In 1896 the debate between centralizers and decentralizers died. Although the southern Democrats continued to advocate decentralization, the majority of the two major parties became committed to reform on a centralized basis.
This transformation was reinforced in the 1930s, when Roosevelt accelerated the Democrats' insistence on centralization.
Of the four changes, only the establishment of the Republican Party did not involve banking. However, the Republicans' insistence on intensification of centralization, not only concerning the Union but also the National Banking Act, led to establishment of the Federal Reserve Bank five decades later.
The development of American politics, then, has been toward centralization. But in management, business, economics and political theory, centralization was increasingly shown to be an inferior solution during the past eight decades.
One of the pivotal moments in American politics was Andrew Jackson's formulation of the Democratic Party. Until then, parties barely existed in America. Jackson identified the special interest of privilege linked to paper money and held that the formation of an organized party of common Americans was necessary to forestall privilege and banking interests. He was not certain that the average American was capable of withstanding the onslaught of paper money advocacy and privilege associated with central banking. The power of Jackson's vision was great, and the powerful party organization of the nineteenth century and the public's commitment to sound money permitted survival of the Jacksonian system for nearly eight decades.
However, the ideas of Fabian socialism, Bismarck's social democracy and Progressivism provided American elites with new ammunition that the Jacksonian model could not contemplate. These included the use of pretense of supporting the common man in the name of elite privilege as a tool to wrest control of banking and money in favor of economic elites. This was accomplished in the context of modest reform in areas such as workers' compensation and then in the 1930s minimum wages and social security, all with dubious value to the average American.
Nor was Jacksonian democracy itself free of special interest characteristics. There have been wrinkles and overlap in all of the American party formulations. The Jacksonian Democrats were cruel racists. Jackson oversaw the Trail of Tears march and the insistent American racism traces its resonance to Jacksonian Democracy. Jacksonian Democracy itself was a form of special interest formulation, of the common white male identifying himself as superior to blacks and native Americans.
As Louis Hartz correctly points out, the brilliance of the Whigs was the use of the Lockean imagery in the interest of mercantilist philosophy. This has been the artifice of the Republicans since the Civil War. But all of American party ideologies have been self-contradictory, and the Republican is as well. Jackson claimed to be a democrat, yet he forestalled South Carolinian nullification. He claim to be for states' rights, yet he created rigid national party organization.
Today, the Republicans claim to be for free markets yet institute socialism. Much like the Democratic Republicans in 1836, the Republicans are at the breaking point.
The changes in the American party system were as follows. First, the establishment of the Federalist and Democratic Republican parties in response to Alexander Hamilton's advocacy of the First Bank and federal subsidies to manufacturing. Second, the split between the National Republicans and the Democratic Republicans, which became the split between the Whigs and the Democrats in 1836 specifically in response to Andrew Jackson's removal of federal assets from the Second Bank and his veto of the Second Bank. Note that decentralization played a role both in the Federalist-Democratic division in the 1790s and the Whig-Democratic division of 1836. Both the Federalists and the Whigs were elitist centralizers and the Democrats were decentralizers, pale copiers of the earlier anti-Federalists.
The third party formation was of course in the 1850s, the formation of the Republican Party, the centralizing party that inherited Whig elitism but reformulated its ideology to combine (a) surface advocacy of laissez faire, in imitation of Jackson with (b) the traditional Whig advocacy of centralization. The Civil War was fought not over banking but slavery. It was here that the centralization issue came to the fore.
The fourth party formation occurred in 1896, when William Jennings Bryan reinvented the Democratic Party as the party of inflation and free silver. Many of the subsequent centralizing ideas of Franklin D. Roosevelt were included in Bryan's philosophy. In 1896 the debate between centralizers and decentralizers died. Although the southern Democrats continued to advocate decentralization, the majority of the two major parties became committed to reform on a centralized basis.
This transformation was reinforced in the 1930s, when Roosevelt accelerated the Democrats' insistence on centralization.
Of the four changes, only the establishment of the Republican Party did not involve banking. However, the Republicans' insistence on intensification of centralization, not only concerning the Union but also the National Banking Act, led to establishment of the Federal Reserve Bank five decades later.
The development of American politics, then, has been toward centralization. But in management, business, economics and political theory, centralization was increasingly shown to be an inferior solution during the past eight decades.
One of the pivotal moments in American politics was Andrew Jackson's formulation of the Democratic Party. Until then, parties barely existed in America. Jackson identified the special interest of privilege linked to paper money and held that the formation of an organized party of common Americans was necessary to forestall privilege and banking interests. He was not certain that the average American was capable of withstanding the onslaught of paper money advocacy and privilege associated with central banking. The power of Jackson's vision was great, and the powerful party organization of the nineteenth century and the public's commitment to sound money permitted survival of the Jacksonian system for nearly eight decades.
However, the ideas of Fabian socialism, Bismarck's social democracy and Progressivism provided American elites with new ammunition that the Jacksonian model could not contemplate. These included the use of pretense of supporting the common man in the name of elite privilege as a tool to wrest control of banking and money in favor of economic elites. This was accomplished in the context of modest reform in areas such as workers' compensation and then in the 1930s minimum wages and social security, all with dubious value to the average American.
Nor was Jacksonian democracy itself free of special interest characteristics. There have been wrinkles and overlap in all of the American party formulations. The Jacksonian Democrats were cruel racists. Jackson oversaw the Trail of Tears march and the insistent American racism traces its resonance to Jacksonian Democracy. Jacksonian Democracy itself was a form of special interest formulation, of the common white male identifying himself as superior to blacks and native Americans.
As Louis Hartz correctly points out, the brilliance of the Whigs was the use of the Lockean imagery in the interest of mercantilist philosophy. This has been the artifice of the Republicans since the Civil War. But all of American party ideologies have been self-contradictory, and the Republican is as well. Jackson claimed to be a democrat, yet he forestalled South Carolinian nullification. He claim to be for states' rights, yet he created rigid national party organization.
Today, the Republicans claim to be for free markets yet institute socialism. Much like the Democratic Republicans in 1836, the Republicans are at the breaking point.
Tuesday, February 3, 2009
Henry Clay and the Panic of 1819
Henry Clay was the founder of the Whig Party and Abraham Lincoln's mentor. The Whig Party was antecedent to today's Republican Party. Born in Virginia, his family moved to Kentucky when he was 14 in 1791. Clay became a lawyer and was a Democratic Republican, that is, a follower of Jefferson. Although the Democratic Republicans opposed the Federalists' plan to support business at the federal level, some Democratic Republicans favored government support for manufacturing and banking at the state level:
"Though Republicans generally rejected federal assistance to economic development, they debated whether state governments should establish or subsidize banks, transportation companies, or other corporations. Henry Clay's first major effort in the Kentucky state legislature was to come to the defense of just such a corporation, the embattled Kentucky Insurance Company."*
The Kentucky Insurance Company was given a monopoly to insure all Mississippi River cargoes in the state of Kentucky but it was also given the power to make loans and issue notes, i.e., paper money. Many Kentuckians opposed this proposal. However, Henry Clay, who had been elected to the state legislature in 1803 favored paper money because, according to Watson**:
"men like Clay were convinced that the availability of credit for new investments and a plentiful currency that could expand in volume with the needs of local business were absolutely essential for regional prosperity. When an effort began in 1804 to repeal the company's banking privileges, Clay leaped to its defense."
The opponents of the Kentucky Insurance Company won a Pyrrhic victory in that the monopoly of paper money issuance was withdrawn from the Kentucky Insurance Company but it was granted to several other banks. Paper money issuance proceeded handsomely in Kentucky.
Clay was elected to the House of Representatives in 1811. He was an advocate of aggressive military action against the British in 1812 and a mild opponent of slavery (he himself owned slaves). Participating with John Quincy Adams in the peace negotiation with the British in Ghent in 1814, Clay returned to Congress at a time when the Federalist Party gasped its final breath due to its opposition to the War of 1812. Watson notes that***:
"the lessons of the war had persuaded many leading Republicans that some of the Federalists' favorite measures had merit after all, including a national bank, a protective tariff and federal aid to internal improvements. The new policies appealed strongly to Henry Clay, and the congressman from Kentucky was in the forefront of efforts to adopt them."
The First Bank of the United States's charter had expired in 1811, but the War of 1812 motivated support for a Second Bank. The war also increased support for federal subsidies to manufacturing because many felt that military strategy required manufactures. Difficulties in transporting troops and men led to support among future Whigs for road building. John C. Calhoun, later the advocate of state veto power and state's rights (over slavery), argued that improved transportation would make the Republic smaller and so overcome Montesquieu's and others' concern that republics in large areas cannot survive. "Let us then...bind the Republic together with a perfect system of roads and canals."+ However, many Americans were++:
"worried about the corrupting power of monopolies and feared that the creation of a new class of moneyed capitalists based on paper wealth would undermine the moral and political fiber of the republic."
After the War of 1812 American trade with Europe grew rapidly, in part because of a famine in Europe+++:
"Inexperienced in the fluctuations of an unregulated market economy, government officials and officers of the newly chartered Second Bank of the United States cooperated merrily in feeding the boom, often profiting from banking and land speculation on their personal accounts.
"The party ended abruptly, however, when the BUS had to collect enough specie to make the final payment on the Louisiana Purchase.++++ Loans were suddenly called in, and the Bank demanded specie in exchange for its holdings of state bank notes. Suddenly deprived of credit, numerous urban businesses collapsed and discharged their employees. Thousand of borrowers could not pay their loans and lost homes, farms and businesses to the sheriff's auction. Coincidentally, a bumper crop in Europe cut demand for American foodstuffs and drove farm prices even lower. From a heyday of prosperity and expansion, the American economy was plunged into the rigors of high unemployment, widespread bankruptcy and the suspension of specie payments by banks.
"The panic struck in 1819, and parts of the economy continued to be affected throughout the first half of the 1820s. Fortunately, most Americans still lived on subsistence farms that provided food for their tables, regardless of the level of commodity prices or the prospects for waged labor...Banks demanded strict repayment of their loans but refused to honor their own obligations to pay specie...At the center of everything, the Bank of the United States was the strictest creditor of all, seeking to pay its own debts by pressing state banks and private customers with equal severity. Among the many lawyers who did a handsome business suing delinquent borrowers and foreclosing lands for the BUS, Henry Clay was one of the most active, with a heavy case load all over Kentucky and Ohio."
*Harry L. Watson. Andrew Jackson versus Henry Clay: Democracy and Development in Antebellum America. Boston: Bedford St. Martin's, 1998. p. 46.
**Ibid., p. 48.
***Ibid., p. 52
+John C. Calhoun, "Speech on Internal Improvements", February 4, 1817, in Robert L. Meriwether, ed., The Papers of John C. Calhoun, vol 1, 1807-1817, 23 vols, p. 401.
++Ibid., p. 55
+++Ibid., p. 56
++++Note that this government policy of Jefferson's precipitated the panic, as did the excessive paper money issuance which would not have been possible without government legalization and support of fractional reserve banking and banking monopolies.
"Though Republicans generally rejected federal assistance to economic development, they debated whether state governments should establish or subsidize banks, transportation companies, or other corporations. Henry Clay's first major effort in the Kentucky state legislature was to come to the defense of just such a corporation, the embattled Kentucky Insurance Company."*
The Kentucky Insurance Company was given a monopoly to insure all Mississippi River cargoes in the state of Kentucky but it was also given the power to make loans and issue notes, i.e., paper money. Many Kentuckians opposed this proposal. However, Henry Clay, who had been elected to the state legislature in 1803 favored paper money because, according to Watson**:
"men like Clay were convinced that the availability of credit for new investments and a plentiful currency that could expand in volume with the needs of local business were absolutely essential for regional prosperity. When an effort began in 1804 to repeal the company's banking privileges, Clay leaped to its defense."
The opponents of the Kentucky Insurance Company won a Pyrrhic victory in that the monopoly of paper money issuance was withdrawn from the Kentucky Insurance Company but it was granted to several other banks. Paper money issuance proceeded handsomely in Kentucky.
Clay was elected to the House of Representatives in 1811. He was an advocate of aggressive military action against the British in 1812 and a mild opponent of slavery (he himself owned slaves). Participating with John Quincy Adams in the peace negotiation with the British in Ghent in 1814, Clay returned to Congress at a time when the Federalist Party gasped its final breath due to its opposition to the War of 1812. Watson notes that***:
"the lessons of the war had persuaded many leading Republicans that some of the Federalists' favorite measures had merit after all, including a national bank, a protective tariff and federal aid to internal improvements. The new policies appealed strongly to Henry Clay, and the congressman from Kentucky was in the forefront of efforts to adopt them."
The First Bank of the United States's charter had expired in 1811, but the War of 1812 motivated support for a Second Bank. The war also increased support for federal subsidies to manufacturing because many felt that military strategy required manufactures. Difficulties in transporting troops and men led to support among future Whigs for road building. John C. Calhoun, later the advocate of state veto power and state's rights (over slavery), argued that improved transportation would make the Republic smaller and so overcome Montesquieu's and others' concern that republics in large areas cannot survive. "Let us then...bind the Republic together with a perfect system of roads and canals."+ However, many Americans were++:
"worried about the corrupting power of monopolies and feared that the creation of a new class of moneyed capitalists based on paper wealth would undermine the moral and political fiber of the republic."
After the War of 1812 American trade with Europe grew rapidly, in part because of a famine in Europe+++:
"Inexperienced in the fluctuations of an unregulated market economy, government officials and officers of the newly chartered Second Bank of the United States cooperated merrily in feeding the boom, often profiting from banking and land speculation on their personal accounts.
"The party ended abruptly, however, when the BUS had to collect enough specie to make the final payment on the Louisiana Purchase.++++ Loans were suddenly called in, and the Bank demanded specie in exchange for its holdings of state bank notes. Suddenly deprived of credit, numerous urban businesses collapsed and discharged their employees. Thousand of borrowers could not pay their loans and lost homes, farms and businesses to the sheriff's auction. Coincidentally, a bumper crop in Europe cut demand for American foodstuffs and drove farm prices even lower. From a heyday of prosperity and expansion, the American economy was plunged into the rigors of high unemployment, widespread bankruptcy and the suspension of specie payments by banks.
"The panic struck in 1819, and parts of the economy continued to be affected throughout the first half of the 1820s. Fortunately, most Americans still lived on subsistence farms that provided food for their tables, regardless of the level of commodity prices or the prospects for waged labor...Banks demanded strict repayment of their loans but refused to honor their own obligations to pay specie...At the center of everything, the Bank of the United States was the strictest creditor of all, seeking to pay its own debts by pressing state banks and private customers with equal severity. Among the many lawyers who did a handsome business suing delinquent borrowers and foreclosing lands for the BUS, Henry Clay was one of the most active, with a heavy case load all over Kentucky and Ohio."
*Harry L. Watson. Andrew Jackson versus Henry Clay: Democracy and Development in Antebellum America. Boston: Bedford St. Martin's, 1998. p. 46.
**Ibid., p. 48.
***Ibid., p. 52
+John C. Calhoun, "Speech on Internal Improvements", February 4, 1817, in Robert L. Meriwether, ed., The Papers of John C. Calhoun, vol 1, 1807-1817, 23 vols, p. 401.
++Ibid., p. 55
+++Ibid., p. 56
++++Note that this government policy of Jefferson's precipitated the panic, as did the excessive paper money issuance which would not have been possible without government legalization and support of fractional reserve banking and banking monopolies.
Friday, January 23, 2009
The Banking System Has Caused Economic Slowdown
The consensus argument (which is often wrong) is that the banking system has caused the current economic malaise. In general, recessions and depressions are monetary. The Great Depression was a monetary phenomenon. This time, the Fed has ballooned money supply yet the slowdown continues. Of course, it is likely that there is a lag, and in a month, two or three there will be a turnaround. The stock market, however, continues to fall. This may have to do with continued media publicity. If the lag or media publicity arguments do not turn out to hold, the culprit is the banking system itself, which is what I keep hearing.
Not that money supply is independent of the banking system. Much of the money supply is created by the banks. But if the money supply is the reason for depressions and recessions, there is an argument to maintain the current banking system--the Fed can counter panics and so fractional reserve banking's chief problem (the threat of runs) can be countered. But not if the banking system itself is faulty. Then the argument for the current fractional reserve system is attenuated. Then, fractional reserve banking is in part responsible for misallocation and slowdowns, and money supply (itself a product of fractional reserve banking) is only partly to blame. In that case, a clear thinking public (sans the New York Times, pro-bank "liberals" and the like) ought to ask why the the banking is perpetuated given its dismal performance.
Fractional reserve banking is a form of fraud and need not be legal. Bankers lend out more money than they have on reserve. For every one dollar deposit, banks lend out up to six additional dollars. These dollars are covered by incoming new deposits. The system is not far from a Ponzi scheme. New investment covers old loans. It works if borrowers come and go with regularity. The problem until the days of the New Deal was that they frequently did not. There would be "runs", banks would falter and depressions would result.
Without fractional reserve banking there would be more savings and less economic activity. The economic activity that occurred would be more rational than it is with fractional reserve banking. Over time, better projects would be built and there would be more innovation because investors would be more focused on rational investments. This would stabilize economic outcomes over time, as more good ideas were implemented as were fewer bad ones. There would be less reckless depredation of the environment as unnecessary housing and manufacturing would be cut back. Higher unemployment levels over the intermediate and perhaps long term could be subsidized through relief, just as it is now. Interest rates would be higher and more people would save. There would be less or no inflation (and perhaps deflation) so people planning for retirement would not need to rely on the stock market. Savings would generate adequate returns for retirement. Better investment would be made, so that statistical economic growth might be slower but substantive economic growth would be much faster. The difference to which I'm alluding, satistical versus substantive economic growth, is that statistical growth includes garbage investment like sub-prime housing and public schools that do not produce value. Substantive economic growth would include private schools that do produce value and housing that people really want.
Banks need not be permitted to lend more money than they have. The argument for doing so is economic growth. But the argument against it is the rape of America's retirees; and the stifling of innovation caused by the misallocation of credit and irrational turns in the economy due to banking panics--on the part of bankers themselves.
Not that money supply is independent of the banking system. Much of the money supply is created by the banks. But if the money supply is the reason for depressions and recessions, there is an argument to maintain the current banking system--the Fed can counter panics and so fractional reserve banking's chief problem (the threat of runs) can be countered. But not if the banking system itself is faulty. Then the argument for the current fractional reserve system is attenuated. Then, fractional reserve banking is in part responsible for misallocation and slowdowns, and money supply (itself a product of fractional reserve banking) is only partly to blame. In that case, a clear thinking public (sans the New York Times, pro-bank "liberals" and the like) ought to ask why the the banking is perpetuated given its dismal performance.
Fractional reserve banking is a form of fraud and need not be legal. Bankers lend out more money than they have on reserve. For every one dollar deposit, banks lend out up to six additional dollars. These dollars are covered by incoming new deposits. The system is not far from a Ponzi scheme. New investment covers old loans. It works if borrowers come and go with regularity. The problem until the days of the New Deal was that they frequently did not. There would be "runs", banks would falter and depressions would result.
Without fractional reserve banking there would be more savings and less economic activity. The economic activity that occurred would be more rational than it is with fractional reserve banking. Over time, better projects would be built and there would be more innovation because investors would be more focused on rational investments. This would stabilize economic outcomes over time, as more good ideas were implemented as were fewer bad ones. There would be less reckless depredation of the environment as unnecessary housing and manufacturing would be cut back. Higher unemployment levels over the intermediate and perhaps long term could be subsidized through relief, just as it is now. Interest rates would be higher and more people would save. There would be less or no inflation (and perhaps deflation) so people planning for retirement would not need to rely on the stock market. Savings would generate adequate returns for retirement. Better investment would be made, so that statistical economic growth might be slower but substantive economic growth would be much faster. The difference to which I'm alluding, satistical versus substantive economic growth, is that statistical growth includes garbage investment like sub-prime housing and public schools that do not produce value. Substantive economic growth would include private schools that do produce value and housing that people really want.
Banks need not be permitted to lend more money than they have. The argument for doing so is economic growth. But the argument against it is the rape of America's retirees; and the stifling of innovation caused by the misallocation of credit and irrational turns in the economy due to banking panics--on the part of bankers themselves.
Saturday, September 27, 2008
The Bailout Debate: Disgraceful Failure of American Democracy
The following questions should be addressed before there is further talk of a bailout for banks and insurance companies.
1. What was the role of the Federal Reserve Bank's monetary expansion in facilitating overly aggressive lending that lead to financial loss?
2. Given that Fed policy may have caused multi-trillion dollar losses, can we continue to sustain this institution, whose sole putative purpose is to professionally manage the money supply?
3. What is the role of fractional reserve banking in causing the losses, and given the large losses, are we certain that the institution of fractional reserve banking to which we have become accustomed is economically justifiable?
4. Are we certain that federal regulation of the money supply and banking is preferable to state regulation?
5. Would re-institution of a gold standard inhibit future losses of this kind?
6. Why is Congress not discussing a gold standard, and why does the media avoid this question?
These questions have not been asked. They have not been asked by the liberal media, by the O'Reilly Spin Zone, by talk radio's right-wing Progressives like Rush Limbaugh and Sean Hannity, or by our political leaders. This failure to debate an aggressive, socialistic bailout is disgraceful. Americans have become like sheep, following the presidential shepherd leading them over a progressive cliff into the socialist pit.
Successive generations of progressives have weakened American democracy. In the 19th century, relatively limited government and a greater role for the states limited the cognitive demands on American voters. Americans did not need to pretend to be experts on banking, military, tax and industrial safety policy. Although there were issues, they were narrower in scope. Progressivism claimed that democracy was capable of managing such diverse issues through the expertise of college-trained experts. Thus, progressivism was associated with accentuated imperialism in the Spanish-American War, the income tax, workers' compensation, the Sixteenth Amendment and the Revenue Act of 1913 establishing the federal income tax, and establishment of the Federal Reserve Bank in 1913.
The issue of banking has become salient this month and it may pay to recall that, until the National Bank Acts of 1863 and 1864 and the federal tax on currency issued by state banks passed in 1865, the states were free to regulate banking, and they did so in diverse ways. Some western states did not allow fractional reserve banking at all and others limited the establishment of banks. Note that fractional reserve banking is not the only kind of banking available. Savings and Loans have traditionally lent based on their mortgage holdings rather than on a one sixth fractional reserve.
There is a thin line between fractional reserve banking and outright fraud. Bankers lend money that the bankers do not hold. They rely on the probability that enough deposits will be made the next day to cover the loans that they make. Writing a check to someone when you don't have the money is usually considered fraud, and frequent bank runs and inflation due to bank-issued currency led to economic cycles in the nineteenth century. States were subject to public opinion, and to the extent that they violated this trust there were political upheavals, as with the Loco Focos in New York in the 1830s, who took over the Democratic Party in response to banking "monopolies" or charters.
Laissez-faire principles do not require acquiescence to fraud, and at the height of laissez-faire in America there was considerable distrust of banks even though the nation depended upon them for economic growth. Because of this distrust, Andrew Jackson stopped depositing federal monies in the central bank in 1833 and the central bank lost its federal charter in 1836.
Until 1913 there was no central bank, although the Banking Act of 1864 established national charters and state and federal banks co-existed thereafter. During the Civil War, the United States issued "greenbacks" that led to a significant inflation in the post-Civil War era. Pundits of that time, such as EL Godkin, founder of the Nation magazine, frequently noted the connection between inflation and subsidization of speculation by Wall Street buccaneers such as Jay Gould.
Although there were frequent complaints of "depressions" in the late nineteenth century it is difficult to grasp their severity or the meaning of the term. Immigration considerably accelerated in the post-Civil War era as big business began to dominate the American landscape. Why did immigration accelerate at the very time that leftists argue that depression dominated the American economy and big business oppressed workers?
The fact is that real wages increased steadily during the late nineteenth century despite the "great deflation". Prices were going down and workers were mistreated but real wages were increasing and the ones who were really in trouble were the business owners, whose profit margins were squeezed by intense competition. Thus, the term "depression" may more accurately reflect a "profit depression" than unemployment.
In the 1890s, due to global monetary conditions (a shortage of precious metals) there was a slight inflation, but the public found this troubling. The inflation that Walter Weyl mentions in his New Democracy was in the range of 1% per year. Woodrow Wilson had no intention of abolishing the gold standard, and the Fed was initially viewed as a way to more professionally manage monetary policy and foreign exchange. It was related to the Progressives' interest in globalization as a way to extend the then-closed frontier. Subsequently, the FDR administration abolished the gold standard.
The question needs to be asked whether fractional reserve banking is a good idea. The Fed was established in part to rationalize the banking system and oversee foreign transactions. However, the banking system owns the Federal Reserve Bank and there is often political pressure for the Fed to permit excessive lending from politicians. Excessive lending leads to fast economic growth, but as I have previously blogged many times, the quality of the growth deteriorates as credit expands because of a diminishing marginal returns principle.
The purpose of the Fed is to more professionally manage the money supply than existed in the nineteenth century. But the economy has been choppier since the Fed was established. The Great Depression and the terrible inflation and stagflation of the 1970s were worse in many ways than any 19th century depression.
The current troubles of American lending institutions, including some banks as well as investment and insurance companies, is evidence that the costs of these institutions exceed their benefits. Normal market institutions charge what the market will bear and their existence is justified if they make a profit. If their costs are too high they close. The fact that the accumulated profits of investment banks and insurance companies are insufficient to cover losses means that the institutions have failed to provide a social service and should be closed. There would be little loss to the public.
1. What was the role of the Federal Reserve Bank's monetary expansion in facilitating overly aggressive lending that lead to financial loss?
2. Given that Fed policy may have caused multi-trillion dollar losses, can we continue to sustain this institution, whose sole putative purpose is to professionally manage the money supply?
3. What is the role of fractional reserve banking in causing the losses, and given the large losses, are we certain that the institution of fractional reserve banking to which we have become accustomed is economically justifiable?
4. Are we certain that federal regulation of the money supply and banking is preferable to state regulation?
5. Would re-institution of a gold standard inhibit future losses of this kind?
6. Why is Congress not discussing a gold standard, and why does the media avoid this question?
These questions have not been asked. They have not been asked by the liberal media, by the O'Reilly Spin Zone, by talk radio's right-wing Progressives like Rush Limbaugh and Sean Hannity, or by our political leaders. This failure to debate an aggressive, socialistic bailout is disgraceful. Americans have become like sheep, following the presidential shepherd leading them over a progressive cliff into the socialist pit.
Successive generations of progressives have weakened American democracy. In the 19th century, relatively limited government and a greater role for the states limited the cognitive demands on American voters. Americans did not need to pretend to be experts on banking, military, tax and industrial safety policy. Although there were issues, they were narrower in scope. Progressivism claimed that democracy was capable of managing such diverse issues through the expertise of college-trained experts. Thus, progressivism was associated with accentuated imperialism in the Spanish-American War, the income tax, workers' compensation, the Sixteenth Amendment and the Revenue Act of 1913 establishing the federal income tax, and establishment of the Federal Reserve Bank in 1913.
The issue of banking has become salient this month and it may pay to recall that, until the National Bank Acts of 1863 and 1864 and the federal tax on currency issued by state banks passed in 1865, the states were free to regulate banking, and they did so in diverse ways. Some western states did not allow fractional reserve banking at all and others limited the establishment of banks. Note that fractional reserve banking is not the only kind of banking available. Savings and Loans have traditionally lent based on their mortgage holdings rather than on a one sixth fractional reserve.
There is a thin line between fractional reserve banking and outright fraud. Bankers lend money that the bankers do not hold. They rely on the probability that enough deposits will be made the next day to cover the loans that they make. Writing a check to someone when you don't have the money is usually considered fraud, and frequent bank runs and inflation due to bank-issued currency led to economic cycles in the nineteenth century. States were subject to public opinion, and to the extent that they violated this trust there were political upheavals, as with the Loco Focos in New York in the 1830s, who took over the Democratic Party in response to banking "monopolies" or charters.
Laissez-faire principles do not require acquiescence to fraud, and at the height of laissez-faire in America there was considerable distrust of banks even though the nation depended upon them for economic growth. Because of this distrust, Andrew Jackson stopped depositing federal monies in the central bank in 1833 and the central bank lost its federal charter in 1836.
Until 1913 there was no central bank, although the Banking Act of 1864 established national charters and state and federal banks co-existed thereafter. During the Civil War, the United States issued "greenbacks" that led to a significant inflation in the post-Civil War era. Pundits of that time, such as EL Godkin, founder of the Nation magazine, frequently noted the connection between inflation and subsidization of speculation by Wall Street buccaneers such as Jay Gould.
Although there were frequent complaints of "depressions" in the late nineteenth century it is difficult to grasp their severity or the meaning of the term. Immigration considerably accelerated in the post-Civil War era as big business began to dominate the American landscape. Why did immigration accelerate at the very time that leftists argue that depression dominated the American economy and big business oppressed workers?
The fact is that real wages increased steadily during the late nineteenth century despite the "great deflation". Prices were going down and workers were mistreated but real wages were increasing and the ones who were really in trouble were the business owners, whose profit margins were squeezed by intense competition. Thus, the term "depression" may more accurately reflect a "profit depression" than unemployment.
In the 1890s, due to global monetary conditions (a shortage of precious metals) there was a slight inflation, but the public found this troubling. The inflation that Walter Weyl mentions in his New Democracy was in the range of 1% per year. Woodrow Wilson had no intention of abolishing the gold standard, and the Fed was initially viewed as a way to more professionally manage monetary policy and foreign exchange. It was related to the Progressives' interest in globalization as a way to extend the then-closed frontier. Subsequently, the FDR administration abolished the gold standard.
The question needs to be asked whether fractional reserve banking is a good idea. The Fed was established in part to rationalize the banking system and oversee foreign transactions. However, the banking system owns the Federal Reserve Bank and there is often political pressure for the Fed to permit excessive lending from politicians. Excessive lending leads to fast economic growth, but as I have previously blogged many times, the quality of the growth deteriorates as credit expands because of a diminishing marginal returns principle.
The purpose of the Fed is to more professionally manage the money supply than existed in the nineteenth century. But the economy has been choppier since the Fed was established. The Great Depression and the terrible inflation and stagflation of the 1970s were worse in many ways than any 19th century depression.
The current troubles of American lending institutions, including some banks as well as investment and insurance companies, is evidence that the costs of these institutions exceed their benefits. Normal market institutions charge what the market will bear and their existence is justified if they make a profit. If their costs are too high they close. The fact that the accumulated profits of investment banks and insurance companies are insufficient to cover losses means that the institutions have failed to provide a social service and should be closed. There would be little loss to the public.
Monday, August 25, 2008
Barack Obama and the Inflation Lobby
There is a considerable degree of media deception about the causes of the recent run up in oil and commodities prices and decline of the dollar. The underlying cause of these phenomena is monetary expansion. Since the mid 1980s the Federal Reserve Bank has been increasing the money supply by about 8% per year. It takes a number of years for monetary expansion to affect prices. In this cycle there has been an additional factor: foreign central banks have supported the dollar in order to inflate in their own home markets. Thus, China now holds in excess of one trillion dollars as does Japan. Note that the entire US money supply is about the same amount, maybe slightly more. The Europeans and Saudis are also holding enormous amounts, as are smaller holders around the world. As a result, there is a possibility of a massive inflation, far greater than what we have seen this year. There is no mystery about it.
Nevertheless, I have not heard mention of this on television news except on the business and financial stations like Bloomberg and then in elliptical, deceptive terms. Secular increases in commodities prices across a range of commodities are not attributable to speculators, and even if there has been some speculation pushing up prices a bit, that factor will correct itself when the three-month and six-month futures contracts are settled (commodities contracts do not trade for ten years as I heard one of the media quacks say on television).
It is important to understand that there are beneficiaries from inflation. The chief beneficiaries are debtors. In the modern world, that would be large financial holding companies such as Time Warner and similar media conglomerates, as well as investment banks and commercial banks.
I have previously blogged that both traditionally Democratic investment banks such as Morgan Stanley and traditionally Republican investment banks such as Goldman Sachs have been backing Barack Obama. Investment banks benefit from inflation because increasing the amount of dollars lowers interest rates and boosts the stock market. Commercial banks benefit because they get to lend the new dollars to mortgage borrowers as well as large corporations. These interests: borrowers, investment banks and commercial banks benefit from inflation. Those who are net savers get hurt by inflation. Those without assets, the poor, also get hurt by inflation.
People sometimes remark that large investors like Warren Buffett and George Soros are left wing, and isn't this inconsistent with the supposed arrangement of political views, that the "left favors the poor" and the "right favors the rich". Obviously, that view of politics is ill-informed. The left in America has traditionally represented feudal (the Roosevelts) and socialistic (the Roosevelts) perspectives. The New York Times, for instance, favors the inheritance tax for people in the five million dollar bracket, but the owners of the New York Times, the Ochs Sulzbergers, have inherited the newspaper for four generations running. The Ochs Sulzbergers believe that the super-rich, such as themselves (last time I heard their fortune amounted to about $800 million, all inherited) should be protected from inheritance tax via family trusts, while up and coming entrepreneurs whose businesses might develop inter-generationally should be heavily taxed to eliminate potential threats to the feudalistic order. Naturally, the likes of George Soros and Warren Buffet have similar interests, as do the investment bankers at Morgan Stanley and Goldman Sachs.
Contrairimarie just forwarded a blog from No Quarters USA indicating that Barack Obama has chosen a lackey of MBNA, Joe Biden, to be his running mate. What a coincidence! Who was saying that the left favors the poor?
Just days ago Mr. Obama was claiming that Mr. McCain represents the rich. What concerns me most about Mr. Obama, besides the likelihood that he will perpetuate the inflationist agenda of the past quarter century, is that he is a conscienceless liar.
Nevertheless, I have not heard mention of this on television news except on the business and financial stations like Bloomberg and then in elliptical, deceptive terms. Secular increases in commodities prices across a range of commodities are not attributable to speculators, and even if there has been some speculation pushing up prices a bit, that factor will correct itself when the three-month and six-month futures contracts are settled (commodities contracts do not trade for ten years as I heard one of the media quacks say on television).
It is important to understand that there are beneficiaries from inflation. The chief beneficiaries are debtors. In the modern world, that would be large financial holding companies such as Time Warner and similar media conglomerates, as well as investment banks and commercial banks.
I have previously blogged that both traditionally Democratic investment banks such as Morgan Stanley and traditionally Republican investment banks such as Goldman Sachs have been backing Barack Obama. Investment banks benefit from inflation because increasing the amount of dollars lowers interest rates and boosts the stock market. Commercial banks benefit because they get to lend the new dollars to mortgage borrowers as well as large corporations. These interests: borrowers, investment banks and commercial banks benefit from inflation. Those who are net savers get hurt by inflation. Those without assets, the poor, also get hurt by inflation.
People sometimes remark that large investors like Warren Buffett and George Soros are left wing, and isn't this inconsistent with the supposed arrangement of political views, that the "left favors the poor" and the "right favors the rich". Obviously, that view of politics is ill-informed. The left in America has traditionally represented feudal (the Roosevelts) and socialistic (the Roosevelts) perspectives. The New York Times, for instance, favors the inheritance tax for people in the five million dollar bracket, but the owners of the New York Times, the Ochs Sulzbergers, have inherited the newspaper for four generations running. The Ochs Sulzbergers believe that the super-rich, such as themselves (last time I heard their fortune amounted to about $800 million, all inherited) should be protected from inheritance tax via family trusts, while up and coming entrepreneurs whose businesses might develop inter-generationally should be heavily taxed to eliminate potential threats to the feudalistic order. Naturally, the likes of George Soros and Warren Buffet have similar interests, as do the investment bankers at Morgan Stanley and Goldman Sachs.
Contrairimarie just forwarded a blog from No Quarters USA indicating that Barack Obama has chosen a lackey of MBNA, Joe Biden, to be his running mate. What a coincidence! Who was saying that the left favors the poor?
Just days ago Mr. Obama was claiming that Mr. McCain represents the rich. What concerns me most about Mr. Obama, besides the likelihood that he will perpetuate the inflationist agenda of the past quarter century, is that he is a conscienceless liar.
Monday, October 22, 2007
Howard S. Katz's "The Guy Who Pays Is You"
Howard S. Katz has an excellent blog this week at http://thegoldbugnet.blogspot.com. Katz argues that the banks' plan to bail out the sub-prime lenders, M-LEC, is merely a pretext for inflation by the Federal Reserve Bank. Katz argues that the only possible reason for M-LEC is to facilitate inflationary policy by the Federal Reserve Bank, and that the history of inflation is the history of economic decline.
The problem facing America today is inflation or depreciation of the dollar, but more fundamentally, the mentality that you can get something for nothing. Jim Cramer and many on Wall Street argue for low interest rates, i.e., currency depreciation, in order to stabilize the markets. But such terminology is just pretext for "subsidizing my stock portfolio". Where do the subsidies come from? They come from consumers who pay higher prices at the supermarket checkout because of the inflation that lower interest rates create.
Thus, we have a ninety year old policy of the average American's subsidizing wealthy investors through low interest rates and inflation. We also have a ninety-year history of opportunistic academics' providing bogus justifications for low interest rates, such as "full employment", even as Fed policies have stimulated robust stock markets that encourage top managers to think in terms of moving plants overseas to maximize their executive stock option holdings.
Katz is right that monetary depreciation causes misallocation of resources and economic decline. Why has it proceeded for so long? The answer is self-indulgence on the part of America's wealthy, a self-indulgence that parallels welfare in prior decades and the something-for-nothing mentality characteristic of liberalism.
The problem facing America today is inflation or depreciation of the dollar, but more fundamentally, the mentality that you can get something for nothing. Jim Cramer and many on Wall Street argue for low interest rates, i.e., currency depreciation, in order to stabilize the markets. But such terminology is just pretext for "subsidizing my stock portfolio". Where do the subsidies come from? They come from consumers who pay higher prices at the supermarket checkout because of the inflation that lower interest rates create.
Thus, we have a ninety year old policy of the average American's subsidizing wealthy investors through low interest rates and inflation. We also have a ninety-year history of opportunistic academics' providing bogus justifications for low interest rates, such as "full employment", even as Fed policies have stimulated robust stock markets that encourage top managers to think in terms of moving plants overseas to maximize their executive stock option holdings.
Katz is right that monetary depreciation causes misallocation of resources and economic decline. Why has it proceeded for so long? The answer is self-indulgence on the part of America's wealthy, a self-indulgence that parallels welfare in prior decades and the something-for-nothing mentality characteristic of liberalism.
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