Jim Crum and Mairi have forwarded this video of Congressman Paul Kanjorski's explanation of the "bailout". Kanjorski is one confused dude. There is no benefit to the public from the government's subsidizing incompetently run banks by buying their bad mortgages. It is true that what Congress is doing now is even worse, and the caller has a right to be disturbed. But it is unfortunate that she cannot obtain the information necessary to analyze this problem. Wall Street's publicists, the New York Times, CNN, Fox, et al. have seen to that.
Kanjorski's confusion is particularly acute in his dramatic depiction of a run on money market funds. There is no such thing as a "run" on money market funds. Money market funds are fully backed by loans. The funds could refuse withdrawals until the short term loans expire, and then pay the depositors.
Nor is the current approach to banking essential to the American economy. The banking system is not worth a trillion dollars to the public. It is not worth a dime. It has been a cancer on the American economy for two centuries.
If Kanjorski had bothered to inform himself about the history of money, he would know that America's current arrangement, the fiat paper system and the Fed, is the result of historical decisions that have not been beneficial and that the public fared better under the gold standard. In the 1970s there was a possibility that Milton Friedman's fixed monetary rule might work, but it did not. The only choices are (a) gold and silver without fractional reserve banking, which would result in gradual, stable growth, and (b) the unstable paper and fractional reserve system that has resulted in the Great Depression, the current instability, the 1970s deflation and absurd investment in worthless construction and mortgages.
Thursday, February 12, 2009
An Open Letter to Hu Jintao, General Secretary of the Chinese Communist Party
Dear Mr Hu:
If the Chinese adopt a systematic laissez-faire economic policy and a hard money, gold standard, then they will have the world's leading economy within 150 years. By the year 2250, the Chinese could regain its position as the world's wealthiest nation that it held until the 17th century and also outstrip the western nations with respect to technology.
The Chinese have made two crucial errors in their attempt to westernize their economy. (1) You have assumed that Wall Street and the American financial system is responsible for America's economic success. That is an error. Wall Street has been of at most secondary importance and may have served to reduce economic progress over the past century. (2) As a corollary to (1), you have decided to focus on exports to the US and to adopt a financial system that parallels America's. Although exports are useful and free trade is wise, it is wiser to allow the Chinese people to determine ways to satisfy Chinese markets. In part because of China's size, China cannot duplicate Japan's and Korea's export-led growth strategy. By focusing on exports, China has chosen a less stable and less productive path than would a free market or spontaneous approach.
One fallacy of America's economic policy is the idea that unconstrained flexibility in currency expansion can lead to better outcomes than a hard money (gold-based) system. Businesses are like children. They want ever more candy. But if you give them too much candy, it hurts their teeth. That is why today's American businesses from General Motors to Wall Street lack teeth. They have eaten too much candy.
For the past 110 years, America has lived off the innovation and growth of the 19th century. The reason is that America left the gold standard in 1933. The gold standard has the effect of stimulating innovation. Because of currency deflation, firms scramble to innovate. Workers enjoy rising real wages under deflation, and as a result can save and so do not suffer excessively during depressions. Depressions can be limited by insisting that banks do not lend excessively, by ending fractional reserve banking, and by requiring specie (gold) reserves.
American bankers and corporations have insisted that a "flexible" currency helps them. At the same time, they have engaged in double talk claiming that monetary expansion helps the poor. However, China is now seeing first hand the duplicity inherent in these claims. You are holding more than one trillion dollars in potentially worthless greenbacks and the losses due to America's reckless monetary expansion will cause harm to the Chinese people.
I urge you to familiarize yourself with the history of America's sixth president, Andrew Jackson, who abolished America's second central bank in 1836. The explosive economic growth that followed, despite a short term inflation and recession that followed, state-level paper money and the Civil War inflation, is testimony to the power of monetary responsibility.
America's economic success was due to laissez-faire. Even Marx does not claim that socialism is possible until laissez-faire has run its course. Should China adopt a laissez-faire policy and gold standard, I myself would be interested in living there.
Sincerely,
Mitchell Langbert, Ph.D.
If the Chinese adopt a systematic laissez-faire economic policy and a hard money, gold standard, then they will have the world's leading economy within 150 years. By the year 2250, the Chinese could regain its position as the world's wealthiest nation that it held until the 17th century and also outstrip the western nations with respect to technology.
The Chinese have made two crucial errors in their attempt to westernize their economy. (1) You have assumed that Wall Street and the American financial system is responsible for America's economic success. That is an error. Wall Street has been of at most secondary importance and may have served to reduce economic progress over the past century. (2) As a corollary to (1), you have decided to focus on exports to the US and to adopt a financial system that parallels America's. Although exports are useful and free trade is wise, it is wiser to allow the Chinese people to determine ways to satisfy Chinese markets. In part because of China's size, China cannot duplicate Japan's and Korea's export-led growth strategy. By focusing on exports, China has chosen a less stable and less productive path than would a free market or spontaneous approach.
One fallacy of America's economic policy is the idea that unconstrained flexibility in currency expansion can lead to better outcomes than a hard money (gold-based) system. Businesses are like children. They want ever more candy. But if you give them too much candy, it hurts their teeth. That is why today's American businesses from General Motors to Wall Street lack teeth. They have eaten too much candy.
For the past 110 years, America has lived off the innovation and growth of the 19th century. The reason is that America left the gold standard in 1933. The gold standard has the effect of stimulating innovation. Because of currency deflation, firms scramble to innovate. Workers enjoy rising real wages under deflation, and as a result can save and so do not suffer excessively during depressions. Depressions can be limited by insisting that banks do not lend excessively, by ending fractional reserve banking, and by requiring specie (gold) reserves.
American bankers and corporations have insisted that a "flexible" currency helps them. At the same time, they have engaged in double talk claiming that monetary expansion helps the poor. However, China is now seeing first hand the duplicity inherent in these claims. You are holding more than one trillion dollars in potentially worthless greenbacks and the losses due to America's reckless monetary expansion will cause harm to the Chinese people.
I urge you to familiarize yourself with the history of America's sixth president, Andrew Jackson, who abolished America's second central bank in 1836. The explosive economic growth that followed, despite a short term inflation and recession that followed, state-level paper money and the Civil War inflation, is testimony to the power of monetary responsibility.
America's economic success was due to laissez-faire. Even Marx does not claim that socialism is possible until laissez-faire has run its course. Should China adopt a laissez-faire policy and gold standard, I myself would be interested in living there.
Sincerely,
Mitchell Langbert, Ph.D.
The Irony of Franklin D. Roosevelt and America's Mainstream Publicists
The irony of Franklin D. Roosevelt is, of course, that Herbert Hoover and he took an economic downturn that should have taken two years to correct, and turned it into an eleven year drama. Then, the American media, historians and "Progressives" claimed that he was a hero for the drawn out harm that he caused.
Now, America has another opportunity to do harm to itself for even less reason than in the 1930s, and once again the dull witted American public buys every confidence scheme that Wall Street and its publicists offer.
I have come to the conclusion that a better term for "media" is "publicists". I had been using "pissant propagandists" but "publicists" captures the media's commitment to serving as a publicity department for America's third rate business community, inept banking community and of course the all-thumbs incompetents on Wall Street.
I have pretty much stopped following the acrobatics of America's moronic publicists and its dim witted discussion of the even dimmer witted "bailout". However, I am even more disturbed that the greedy, easily manipulated asses, apes woodpeckers and chimpanzees who constitute America's failed electorate have been granted the unlimited right to vote for representatives who adopt policies that neither representatives nor voters understand.
Now, America has another opportunity to do harm to itself for even less reason than in the 1930s, and once again the dull witted American public buys every confidence scheme that Wall Street and its publicists offer.
I have come to the conclusion that a better term for "media" is "publicists". I had been using "pissant propagandists" but "publicists" captures the media's commitment to serving as a publicity department for America's third rate business community, inept banking community and of course the all-thumbs incompetents on Wall Street.
I have pretty much stopped following the acrobatics of America's moronic publicists and its dim witted discussion of the even dimmer witted "bailout". However, I am even more disturbed that the greedy, easily manipulated asses, apes woodpeckers and chimpanzees who constitute America's failed electorate have been granted the unlimited right to vote for representatives who adopt policies that neither representatives nor voters understand.
On Reconstructing The Idea of Capitalism
"I think...that the term 'capitalism' is an important one and that it should not only be retained but defended. We must clear away the rubble that has accumulated on this ancient citadel since Marx and Engels and Sombart wrote. As in the case of the excavation of Troy, only patience and devotion will permit us to triumph in the end. And the rubble is so heavy: dialectical revolution, rationalistic spirit, human exploitation, personal greed--all the cant, fury and misguided sentiment of one hundred years! The digging is worth our efforts, for at the bottom we shall find a system and a set of attitudes which have made possible material progress and the alleviation of human suffering. This system and attitudes we may as well call 'capitalism' and if we define it, for historical analysis, as the risk-taking function of private individuals (who, by the process--if they are successful--create capital) and the development and maintenance of sound fiscal policy by the state, I think we will able to save the term from the opprobrium from which it suffers."
L.M. Hacker, "The Anticapitalist Bias of American Historians" in F.A. Hayek, Capitalism and the Historians. Chicago: University of Chicago Press, 1954, p. 74.
L.M. Hacker, "The Anticapitalist Bias of American Historians" in F.A. Hayek, Capitalism and the Historians. Chicago: University of Chicago Press, 1954, p. 74.
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