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I stole it from @zerohedge.. Goldman Justifies The Need For More QE3, And Even More Record Wall Street Bonuses
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This guy went to see his doctor and was diagnosed as having a tapeworm. "They're not easy to get rid of, but we'll give it our best shot,"the doctor told him, and instructed him to come in every day for two weeks, and to bring a lemon cookie and a walnut. The guy agreed, and showed up the next morning with the two items. To his horror, the doctor shoved the walnut up his butt, followed it with the crumbled-up cookie, and sent him home. This went on for twelve more days, at which point the doctor's instructions were to forget the cookie and bring in the walnut and a hammer. On the last day the fellow dropped his pants in considerable apprehension, gritting his teeth as the doctor inserted the walnut up his ass and calmly sat back. A few minutes later the tapeworm stuck his head out and said, "Where's my lemon cookie?"
---
Bankers & QEx
Greg
Saturday, September 3, 2011
Friday, September 2, 2011
The state is that entity which claims a monopoly on #violence
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From Wikipedia, the free encyclopedia
The monopoly on violence (German: Gewaltmonopol des Staates) is the conception of the state expounded by Max Weber in Politics as a Vocation. According to Weber, the state is that entity which claims a monopoly on violence, which it may therefore elect to delegate as it sees fit. Weber's conception of the state as holding a monopoly on violence has figured prominently in philosophy of law and political philosophy in the twentieth century.
It defines a single entity, the state, as exercising authority on violence over a given territory; territory was also deemed by Weber to be a prerequisite feature of a state. Such a monopoly, according to Weber, must occur via a process of legitimation, wherein a claim is laid which legitimises the state's use of violence.
[edit]Max Weber's theory
Max Weber wrote in Politics as a Vocation that a necessary condition of statehood is the retention of such a monopoly. His expanded definition was that something is "a 'state' if and insofar as its administrative staff successfully upholds a claim on the monopoly of the legitimate use of violence (German: das Monopol legitimen physischen Zwanges) in the enforcement of its order."[1][2]
According to Weber, the state is the source of legitimacy for any use of violence.[citation needed] The police and the military are its main instruments, but this does not mean that only public force can be used: private force (as in private security) can be used too, as long as it has legitimacy derived from the state.
Weber applied several caveats to this basic principle.
Weber intended his statement as an observation, stating that it has not always been the case that the connection between the state and the use of violence has been so close. He uses the examples of feudalism, where private warfare was permitted under certain conditions, and of Church courts, which had sole jurisdiction over some types of offenses, especially heresy (from the religion in question) and sexual offenses (thus the nickname "bawdy courts").
The actual application of violence is delegated or permitted by the state. Weber's theory is not taken to mean that only the government uses violence, but that the individuals and organizations that can legitimize violence or adjudicate on its legitimacy are precisely those authorized to do so by the state. So, for example, the law might permit individuals to use violence in defense of self or property, but in this case, as in the example of private security above, the ability to use force has been granted by the state, and only by the state.
One implication of the above is that states that fail to control the use of coercive violent force (e.g., those with unregulated militias) are essentially not functional states. Another is that all such "functional" states function by reproducing the forms of violence that sustain existing social power relationships, and suppressing the forms of violence that threaten to disrupt them.[citation needed]
Anarchism
Anarchism has been variously defined by sources. Most often, the term describes the political philosophy which considers the state undesirable, unnecessary, and harmful, and instead promotes a stateless society, or anarchy,[1][2] while others have defined it as opposing authority in the conduct of human relations.[3][4][5][6][7]Anarchists oppose the idea that power and domination are necessary for society, and instead advocate more co-operative, anti-hierarchical forms of social, political and economic organization.[8]
Click for more truth about Anarchism
From Wikipedia, the free encyclopedia
The monopoly on violence (German: Gewaltmonopol des Staates) is the conception of the state expounded by Max Weber in Politics as a Vocation. According to Weber, the state is that entity which claims a monopoly on violence, which it may therefore elect to delegate as it sees fit. Weber's conception of the state as holding a monopoly on violence has figured prominently in philosophy of law and political philosophy in the twentieth century.
It defines a single entity, the state, as exercising authority on violence over a given territory; territory was also deemed by Weber to be a prerequisite feature of a state. Such a monopoly, according to Weber, must occur via a process of legitimation, wherein a claim is laid which legitimises the state's use of violence.
[edit]Max Weber's theory
Max Weber wrote in Politics as a Vocation that a necessary condition of statehood is the retention of such a monopoly. His expanded definition was that something is "a 'state' if and insofar as its administrative staff successfully upholds a claim on the monopoly of the legitimate use of violence (German: das Monopol legitimen physischen Zwanges) in the enforcement of its order."[1][2]
According to Weber, the state is the source of legitimacy for any use of violence.[citation needed] The police and the military are its main instruments, but this does not mean that only public force can be used: private force (as in private security) can be used too, as long as it has legitimacy derived from the state.
Weber applied several caveats to this basic principle.
Weber intended his statement as an observation, stating that it has not always been the case that the connection between the state and the use of violence has been so close. He uses the examples of feudalism, where private warfare was permitted under certain conditions, and of Church courts, which had sole jurisdiction over some types of offenses, especially heresy (from the religion in question) and sexual offenses (thus the nickname "bawdy courts").
The actual application of violence is delegated or permitted by the state. Weber's theory is not taken to mean that only the government uses violence, but that the individuals and organizations that can legitimize violence or adjudicate on its legitimacy are precisely those authorized to do so by the state. So, for example, the law might permit individuals to use violence in defense of self or property, but in this case, as in the example of private security above, the ability to use force has been granted by the state, and only by the state.
One implication of the above is that states that fail to control the use of coercive violent force (e.g., those with unregulated militias) are essentially not functional states. Another is that all such "functional" states function by reproducing the forms of violence that sustain existing social power relationships, and suppressing the forms of violence that threaten to disrupt them.[citation needed]
Anarchism
Anarchism has been variously defined by sources. Most often, the term describes the political philosophy which considers the state undesirable, unnecessary, and harmful, and instead promotes a stateless society, or anarchy,[1][2] while others have defined it as opposing authority in the conduct of human relations.[3][4][5][6][7]Anarchists oppose the idea that power and domination are necessary for society, and instead advocate more co-operative, anti-hierarchical forms of social, political and economic organization.[8]
Click for more truth about Anarchism
Maybe you should know about - The State #Secrets privilege
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It appears that even if we were to catch the government or Federal Reserve Bank red-handed in tyrannical or dictatorial behavior 'they' would still have an easy out..
Another fine example of how we continually surrender our freedoms through the use of law..
---
From Wikipedia, the free encyclopedia
The state secrets privilege is an evidentiary rule created by United States legal precedent. Application of the privilege results in exclusion of evidence from a legal case based solely on affidavits submitted by the government stating that court proceedings might disclose sensitive information which might endanger national security.[1][2][3][4][5][6] United States v. Reynolds,[7] which involved military secrets, was the first case that saw formal recognition of the privilege.
Following a claim of "state secrets privilege", the court rarely conducts an in camera examination of the evidence to evaluate whether there is sufficient cause to support the use of this doctrine. This results in court rulings in which even the judge has not verified the veracity of the assertion.[1] The privileged material is completely removed from the litigation, and the court must determine how the unavailability of the privileged information affects the case.[3][5]
Continue reading
It appears that even if we were to catch the government or Federal Reserve Bank red-handed in tyrannical or dictatorial behavior 'they' would still have an easy out..
Another fine example of how we continually surrender our freedoms through the use of law..
---
From Wikipedia, the free encyclopedia
The state secrets privilege is an evidentiary rule created by United States legal precedent. Application of the privilege results in exclusion of evidence from a legal case based solely on affidavits submitted by the government stating that court proceedings might disclose sensitive information which might endanger national security.[1][2][3][4][5][6] United States v. Reynolds,[7] which involved military secrets, was the first case that saw formal recognition of the privilege.
Following a claim of "state secrets privilege", the court rarely conducts an in camera examination of the evidence to evaluate whether there is sufficient cause to support the use of this doctrine. This results in court rulings in which even the judge has not verified the veracity of the assertion.[1] The privileged material is completely removed from the litigation, and the court must determine how the unavailability of the privileged information affects the case.[3][5]
Continue reading
Borrower is Slave to the Lender - Remember?
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"The rich rule over the poor, and the borrower is slave to the lender." (Proverbs 22:7)
The above verse seems so pertinent to current events in the U.S economy and the average American consumer right now. Here are some thoughts:
Proverbs 22:7 is direct and self explanatory. Whether we are living in 8th century B.C. Judea or in modern America, the lender will most likely charge interest or demand some sort of compensation. If we borrow something, we are now subject to the will of the lender and are forced to comply with their terms.
Every time we pay interest, we are WORKING for the lender - in effect becoming their slave. We must work just to support that debt. Not only has the lender become the master in this regard, he/she is becoming wealthier at the same time.
This is one important way that the rich become richer, and the poor become poorer. (See Matthew 25:29 - "For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him.")
The "rich" put money to work for themselves in the form of lending and investments. They earn money from their loans, just as Jesus encourages in the parable of the talents. (Matthew 25:14 - 30 ) The "rich" are masters of their money, not servants to it, as it works and multiplies for them.
Those that are "poor" not only fail to make money work for them (lend/invest), but they are losing money/net-worth by paying out interest. One borrows when they want to spend more than they actually have. The price, according to Proverbs, is servitude.
The rich, who are wise with their earnings, just keep getting richer as they continually master their use of money.
On a side note:
Its interesting that the Hebrew word translated as 'borrow' is lavah which, in addition to referring to borrowing/lending, is often used throughout the Bible to mean "to cleave" or to "entwine" or "join." For example, in Genesis 29:34 Leah desires Jacob to be "joined" with her - as an intimate lover. Hmmm...
Do we want to be joined with the lender?! Being cleaved to or entwined is the opposite of being independent. We lose our freedom at the moment we allow debt to make us the servant.
(By the way, I am not saying that all debt is bad...just trying to make observations based on Proverbs)
SO, what does this mean for Americans?
Personal spending on credit is at record levels. The average American household, has $6,000 to $15,000 in credit card debt alone (according to various statistics - who knows which to believe?) Keep in mind that this is not including mortgage debt - only consumer spending. The banks, and their investors, are getting rich by lending us money to fulfill our consumeristic desires. Are we serving Mammon?
Have we been living beyond our means????
The United States certainly has. Today, the US total government debt is over $14 Trillion Dollars. Most of the US National Debt is foreign financed, with China holding a large percentage. Is our economy becoming a slave to foreign countries? With this much debt, the lenders have the power to affect the value of our currency/markets.
Does anyone have any further thoughts on this?
Click here for the source of this post
"The rich rule over the poor, and the borrower is slave to the lender." (Proverbs 22:7)
The above verse seems so pertinent to current events in the U.S economy and the average American consumer right now. Here are some thoughts:
Proverbs 22:7 is direct and self explanatory. Whether we are living in 8th century B.C. Judea or in modern America, the lender will most likely charge interest or demand some sort of compensation. If we borrow something, we are now subject to the will of the lender and are forced to comply with their terms.
Every time we pay interest, we are WORKING for the lender - in effect becoming their slave. We must work just to support that debt. Not only has the lender become the master in this regard, he/she is becoming wealthier at the same time.
This is one important way that the rich become richer, and the poor become poorer. (See Matthew 25:29 - "For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him.")
The "rich" put money to work for themselves in the form of lending and investments. They earn money from their loans, just as Jesus encourages in the parable of the talents. (Matthew 25:14 - 30 ) The "rich" are masters of their money, not servants to it, as it works and multiplies for them.
Those that are "poor" not only fail to make money work for them (lend/invest), but they are losing money/net-worth by paying out interest. One borrows when they want to spend more than they actually have. The price, according to Proverbs, is servitude.
The rich, who are wise with their earnings, just keep getting richer as they continually master their use of money.
On a side note:
Its interesting that the Hebrew word translated as 'borrow' is lavah which, in addition to referring to borrowing/lending, is often used throughout the Bible to mean "to cleave" or to "entwine" or "join." For example, in Genesis 29:34 Leah desires Jacob to be "joined" with her - as an intimate lover. Hmmm...
Do we want to be joined with the lender?! Being cleaved to or entwined is the opposite of being independent. We lose our freedom at the moment we allow debt to make us the servant.
(By the way, I am not saying that all debt is bad...just trying to make observations based on Proverbs)
SO, what does this mean for Americans?
Personal spending on credit is at record levels. The average American household, has $6,000 to $15,000 in credit card debt alone (according to various statistics - who knows which to believe?) Keep in mind that this is not including mortgage debt - only consumer spending. The banks, and their investors, are getting rich by lending us money to fulfill our consumeristic desires. Are we serving Mammon?
Have we been living beyond our means????
The United States certainly has. Today, the US total government debt is over $14 Trillion Dollars. Most of the US National Debt is foreign financed, with China holding a large percentage. Is our economy becoming a slave to foreign countries? With this much debt, the lenders have the power to affect the value of our currency/markets.
Does anyone have any further thoughts on this?
Click here for the source of this post
Thursday, September 1, 2011
Long term view $SPX - 20 year charts
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I feel like the charts below demonstrate, quite well, the boom / bust cycles created by fiscal and monetary policy in the United States (and elsewhere).
These generated cycles allow large investment banks to make mucho fiat.. "Banks" like J P Morgan Chase, Goldman Sachs, Bank of America, Wells Fargo, Citigroup, so on so forth.. (here is a list of large banks I found)
These banks, with the complicit assistance of the Federal Reserve Bank, have used these boom / bust cycles to generate predictable profits for decades, game the system, if you will, as *I* think these charts clearly indicate.
In my humble opinion we are currently in a bust cycle and it appears, to me, to have further to go before it completes.
In part the big banks / FED depend on YOU being on the wrong side of the trade.. Don't do it anymore..
---
SPX 20 year / monthly candles
Alternative view (SPY)
I feel like the charts below demonstrate, quite well, the boom / bust cycles created by fiscal and monetary policy in the United States (and elsewhere).
These generated cycles allow large investment banks to make mucho fiat.. "Banks" like J P Morgan Chase, Goldman Sachs, Bank of America, Wells Fargo, Citigroup, so on so forth.. (here is a list of large banks I found)
These banks, with the complicit assistance of the Federal Reserve Bank, have used these boom / bust cycles to generate predictable profits for decades, game the system, if you will, as *I* think these charts clearly indicate.
In my humble opinion we are currently in a bust cycle and it appears, to me, to have further to go before it completes.
In part the big banks / FED depend on YOU being on the wrong side of the trade.. Don't do it anymore..
---
SPX 20 year / monthly candles
Alternative view (SPY)
The #Economic #Game explained
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DEFLATION? WHY IT WILL NEVER HAPPEN <-- source
Economic commentary: why we won't have deflation in the United States
If we really had deflation, it would mean that the value of savings would RISE. Precisely the conditions throughout most of the 19th century in the US and UK that led to unprecedented growth.
Commodity prices fell gradually. The buying power of money kept rising. Investment was rewarded including long term investment. So private companies raised money for building things like railroads and canals.
Of course, it was exploited by the Powers That Be to reward their cronies, but nothing is perfect. Government is always manipulated this way, but at least government was a small share of GDP throughout *most* of the century.
Deflation is IMPOSSIBLE now. It is a bogeyman used by the powers that be, the banksters, to scare people.
They are all dependent upon the following game:
1. Borrow unlimited fiat through central banking scam
2. Buy assets like equities, real estate, financial things
3. Inflation makes those assets rise in value
4. Pay back the money in depreciated currency
They get everyone playing it, including Joe Homeowner. Saving is no fun. Nobody likes to save. And they know that the gubmint, the biggest debtor of all, will inevitably, always depreciate the currency. So it is foolhardy to save and nobody does it except through pension schemes and insurance and other forms of mandated capital pools.
This cycle is going to repeat because there is unlimited ability to print money and there is widespread public participation in the game. That is the essence of democracy. In Weimar it was the industrialists and up-in-comers who played this game. The Weimar hyperinflation was purposefully created and the blame was affixed wrongly onto the peace treaties and reparations.
This time around, the blame is affixed on greed. Demogoguery would be greater but the public is more sophisticated now and notices that those greedy banksters are in power. During FDR's time they read the mainstream papers and didn't pick up on this, stupidly.
People have been long hooked on the above game. In the end, Joe Homeowner doesn't come out ahead because he doesn't exit in time. But he wants to try again. Because his credit card debts are oh so high and he is losing his job and has no savings to worry about.
There MUST be another inflation of some kind because Americans won't tolerate things without it. And the gubmint already has committed to it.
Deflation has never happened in a fiat regime. Technically you might have a month or two, but it is complete BS.
What does happen is that assets lose value, but the loans against those assets remain. The future ability of the banking system to inflate, to create more money, diminishes.
But if you notice, the reserves are there now and the banks can lend like crazy if they want to. There is unlimited ability for banks to lend more money into existence. And the ultimate borrower, the US gubmint, will either borrow directly from the banks, thus creating this money, or else, the gubmint will guarantee private sector loans.
I think people complicate this a bit talking about other methods of creating currency depreciation. The fundamental way is the simplest and it is going on right now.
This is not deflationary because no real money is disappearing. In the early 1930s, money disappeared because banks went under.
I have said before that defaults do NOT create deflation. The money that was borrowed is already in the economy, little amoebas spreading around. But the one default that creates deflation is a default of a bank because that does in fact destroy money and is deflationary.
But banks are no longer allowed to default. The only defaults are by borrowers, and these are not deflationary, only (temporarily) dis-inflationary.
So people in the Administration and the Federal Reserver, such as Mr. Summers and Mr. Bernanke, are either completely stupid, brainwashed, or is just propagandizing. Probably all three. He is a bright man with a terrible agenda.
DEFLATION? WHY IT WILL NEVER HAPPEN <-- source
Economic commentary: why we won't have deflation in the United States
If we really had deflation, it would mean that the value of savings would RISE. Precisely the conditions throughout most of the 19th century in the US and UK that led to unprecedented growth.
Commodity prices fell gradually. The buying power of money kept rising. Investment was rewarded including long term investment. So private companies raised money for building things like railroads and canals.
Of course, it was exploited by the Powers That Be to reward their cronies, but nothing is perfect. Government is always manipulated this way, but at least government was a small share of GDP throughout *most* of the century.
Deflation is IMPOSSIBLE now. It is a bogeyman used by the powers that be, the banksters, to scare people.
They are all dependent upon the following game:
1. Borrow unlimited fiat through central banking scam
2. Buy assets like equities, real estate, financial things
3. Inflation makes those assets rise in value
4. Pay back the money in depreciated currency
They get everyone playing it, including Joe Homeowner. Saving is no fun. Nobody likes to save. And they know that the gubmint, the biggest debtor of all, will inevitably, always depreciate the currency. So it is foolhardy to save and nobody does it except through pension schemes and insurance and other forms of mandated capital pools.
This cycle is going to repeat because there is unlimited ability to print money and there is widespread public participation in the game. That is the essence of democracy. In Weimar it was the industrialists and up-in-comers who played this game. The Weimar hyperinflation was purposefully created and the blame was affixed wrongly onto the peace treaties and reparations.
This time around, the blame is affixed on greed. Demogoguery would be greater but the public is more sophisticated now and notices that those greedy banksters are in power. During FDR's time they read the mainstream papers and didn't pick up on this, stupidly.
People have been long hooked on the above game. In the end, Joe Homeowner doesn't come out ahead because he doesn't exit in time. But he wants to try again. Because his credit card debts are oh so high and he is losing his job and has no savings to worry about.
There MUST be another inflation of some kind because Americans won't tolerate things without it. And the gubmint already has committed to it.
Deflation has never happened in a fiat regime. Technically you might have a month or two, but it is complete BS.
What does happen is that assets lose value, but the loans against those assets remain. The future ability of the banking system to inflate, to create more money, diminishes.
But if you notice, the reserves are there now and the banks can lend like crazy if they want to. There is unlimited ability for banks to lend more money into existence. And the ultimate borrower, the US gubmint, will either borrow directly from the banks, thus creating this money, or else, the gubmint will guarantee private sector loans.
I think people complicate this a bit talking about other methods of creating currency depreciation. The fundamental way is the simplest and it is going on right now.
This is not deflationary because no real money is disappearing. In the early 1930s, money disappeared because banks went under.
I have said before that defaults do NOT create deflation. The money that was borrowed is already in the economy, little amoebas spreading around. But the one default that creates deflation is a default of a bank because that does in fact destroy money and is deflationary.
But banks are no longer allowed to default. The only defaults are by borrowers, and these are not deflationary, only (temporarily) dis-inflationary.
So people in the Administration and the Federal Reserver, such as Mr. Summers and Mr. Bernanke, are either completely stupid, brainwashed, or is just propagandizing. Probably all three. He is a bright man with a terrible agenda.
The Coming Deflationary Contraction - Learn some #truth about #deflation
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By Peter Raymond (source --> AmericanThinker)
Determining when the next great liquidation will occur is impossible to predict with any degree of certainty; nevertheless it is fair to say the sooner the better. Economic liquidation is a restorative process that corrects the harm done by inflationary policies. If accepting of this premise, then liquidations or deflationary depressions cannot be considered the disease in need of cure which unfortunately has been the position of economic interventionists since the early 1920's.
Instead, they are a necessary and unavoidable adjustment after years of excessive credit expansions have destabilized the economy. Efforts to further delay these self-corrections by instituting a series of escalating inflationary policies only needlessly extends and deepens economic woes and increases the size and scope of the inevitable adjustment. With the increasingly aggressive actions of the world's central banks and governments over the last decade to inflate the monetary supply, it seems a safe bet the next liquidation phase, when it does finally take place, will be a very large and abrupt correction.
Already, the ominous signs of economic stress caused by historic intervention measures are becoming evident. Despite the extraordinary monetary and fiscal policies to ward off deflationary pressures and economic contraction, prices are once again signaling that certain sectors of the economy would quickly liquidate if the stabilization programs in place were lifted. Home and auto prices for example have been pushing through a series of price support schemes and headed to lower levels in spite of a rapidly depreciating dollar. Also, the recent increase in volatility in both the commodity and currency markets is suggestive of price distortions generated by the Federal Reserve's ongoing quantitative easing programs.
The combined initiatives of policymakers and central bankers to suspend economic forces to create the impression of a recovery and price stability can go on for only so long before the building wave of deflation can no longer be contained. Not even the most ambitious plans to flood the economy with easy money can prevent the eventual contraction of the economy and a general fall in prices. It has been tried before and it does not work. There is of course a cost for such heavy-handed intervention. The longer and more aggressively a market correction is delayed by predictably ad hoc measures of panicking policymakers, the greater the size and duration of the liquidation.
Perhaps most concerning is the continued arrogance of the present day interventionists. They are never in want of self-confidence or devotion to their policies. Unfortunately, their conventional wisdom continues to justify radical inflationary measures as a means to indefinitely hold off a liquidation cycle and miraculously jumpstart another period of economic expansion. Nearly four years after the first indications of looming economic trouble appeared in the second half of 2007, these tinkering central planners now seem willing to sacrifice the dollar in order to defeat the deflationary pressures their previous inflationary policies fostered in the first place. Needless to say, it will be utterly demoralizing to witness the expected ramp up of desperate actions by these frustrated interventionists utterly dumbfounded by their repeated failures to stimulate economic growth. Of course, they will never acknowledge their actions prolonged and aggravated economic decline.
So what happens when the liquidation process of a depression begins in spite of the slew of much touted countermeasures that are soon followed by heated accusations of interventionists looking to assign fault to hapless scapegoats? It entails a dramatic fall in prices and production of nearly every non-essential good and service until price and production reach levels supported by market conditions. Wages, durables, equities, and real estate will plunge at an alarming rate. Labor unions and major industrialists will unsuccessfully try to shield themselves from deflation and job losses by demanding the government implement price and production controls. But government can do nothing long term to bolster artificially high price levels and will only further decimate the economy by trying. In fact, stabilization efforts during a liquidation period often cause prices to sink far below where they would otherwise have been under a passive policy. Sadly, unemployment does spike, especially in high order industries until wages adjust much lower. This is truly an unpleasant affair, but completely necessary and usually short lived.
Although it is counterintuitive and obviously controversial, it is imperative to allow the monetary supply to contract and interest rates to rise while simultaneously reducing public spending. Without such action or, in many instances, inaction, the economy will only be further disrupted and recovery delayed. Even something as innocuous and seemingly compassionate as extending unemployment income has the unintended consequence of delaying reemployment and economic recovery. It is interesting to note that prior to the New Deal, private charitable organizations strongly opposed government funding of humanitarian efforts including unemployment income. They correctly argued charity was best left in the private sector.
Such austerity and money tightening measures employ exactly the opposite philosophy cooked up by Secretary of Commerce Herbert Hoover, and later expanded upon while president, to "counter attack" depressions and supposedly avert economic ruin. Amazingly, Hoover's basic premise that government action is the "better option" has not lost any of its appeal to this day.
By the way, do not believe the revisionists' false portrayal of Hoover as ever favoring a laissez faire approach with the economy before or during the depression. Hoover was an enthusiastic central planner who frequently boasted of his intervention successes in 1931 when it was thought government stopped the depression with its numerous command and control programs. And records prove the Federal Reserve was pouring cash into the reserves of national banks trying in vain to expand credit. The shrinking of bank reserves was the result of a justifiable loss of faith in the banking industry leading to abnormally high demand for physical possession of legal tender.
To his credit, Hoover ignored the rather stunning proposals put forth by leading industrialists and labor leaders to institute full blown national planning, much of which was supposed to emulate the then en vogue Soviet model. Many of their ideas would emerge later under the disastrous New Deal policies of the FDR administration. Had he complied with their requests, Hoover would have joined the ranks of other prominent Marxist leaders of that period and not just another failed interventionist who spent the remainder of his life vigorously defending his actions to the very end.
Some unexpected developments can occur as a result of liquidation, barring any massive government intervention. First, there is normally a strengthening of the currency as the monetary base contracts. So in our case, the dollar's current downward trajectory would conceivably reverse course, causing the price of dollar-based commodities to fall as a result. Surprisingly, gold and silver prices fall as well in response to rising interest rates on savings and the strengthening currency. There recent selling of gold holdings by George Soros and other large hedge funds may presage a reversal of gold prices and dollar valuation. Second, falling wages do not automatically translate into a loss of purchasing power. This is because the drop in prices for most goods and services will normally outpace wages declines. Those lucky enough to remain employed throughout a depression will enjoy an increase in purchasing power even when adjusting for wage reductions. This phenomenon is just the opposite of what occurs in an inflationary environment where wage earners experience an erosion of purchasing power over time. Allowed to run its course, liquidation is very rapid and the majority of unemployed return to work in less than a year, albeit at much lower wages and mercifully without much change to the average standard of living.
It is the affluent investors that bear both the immediate and long term brunt of the losses since the price of equities, hard assets, and real estate collapse and remain suppressed for quite some time. This outcome seems rather fitting since the wealthy are the primary beneficiaries and supporters of inflationary policies.
The all-important point is that the disruptive oscillations of the economy are the unfortunate consequence of interventionism and inflationary monetary policies generating boom and bust cycles. The policymakers and central bankers deserve the total blame for these swings of the entire economy and not speculators, consumers, or producers. These cycles are certainly not attributable to some ludicrous theory citing mysterious shifts in overall consumption causing over or under consumption. Until such time government is prevented from manipulating the economy and the monetary supply, inflationary expansions followed by deflationary contractions, along with the misery they produce, will be a permanent and inescapable part of our future.
Admittedly, nearly a century of indoctrination has created the expectation and confidence governments can and must take action in every economic crisis. It would be politically untenable for all but the staunchest non-interventionists to maintain a passive stance during a depression. By far the majority of policymakers succumb to the demands of hard pressed constituents, even if it is known such actions would ultimately hurt the people they are meant to assist.
This brings me to the recent remarks made by the economist Joseph Stiglitz where he declared austerity measures are essentially a failed "experiment that has been tried before" which destroys jobs and undermines economic recovery. Naturally, the first question that comes to mind is: Where and when have austerity measures been proven to be ineffective in dealing with economic contractions? During the last depression, government actions incorporating most of Stiglitz's preferred spending policies yielded an unmitigated humanitarian disaster that dragged on for nearly a decade. Surely, it would seem unreasonable for Stiglitz to consider the New Deal "experiment" as even remotely effective in ending or even shortening the depression, let alone creating or saving jobs. Then again, nothing about the public intellectuals from the left shocks me anymore.
The conspicuous flaw with the interventionist logic is the fundamental belief wealth is created by consumption; the more that is consumed, the greater the wealth creation. Therefore, economic interventionism is centered on maintaining wage and price levels in order to maintain a targeted rate of consumption. In reality, it is production that creates wealth. And the wealth created by production is what results in greater consumption. Interventionists have the cart before the horse.
It is this nonsensical reversal in the order of wealth creation that leads to the erroneous conclusion that net prosperity is increased by more evenly redistributing wealth and expanding public spending. Since both are thought to increase overall consumption, interventionists reason the national prosperity will grow as a result of their economic and social engineering schemes. Interventionists are so beholden to the idea of wealth being created by consumption that they have derived out of thin air a formula to calculate how much government "investments" will grow the GNP. Somehow a dollar confiscated from the private sector through taxation magically produces more than a dollar in economic activity when spent by government.
In practice, such government spending sprees have a highly corrosive effect on the economy and employment by removing much-needed funds normally set aside for productive purposes, and instead using them for consumption. Since government, by and large, is a massive consumer of goods and services that uses the funds taken from the private sector, it contributes relatively little to production or investment no matter the level of spending.
The idea that government spending acts as an additional factor in the economy, and thus a productive investment, most likely comes from its odd inclusion in the GNP numbers. This undoubtedly obscures the negative impact public spending has on economic growth and prosperity. That fact that GNP was first introduced in 1934 in the midst of the New Deal era should arouse the suspicion of critical thinkers, however.
Because government spending is largely representative of consumption and not production, the coerced private sector contributions funding public spending is in fact a burden on the private sector that actually reduces overall production and wealth creation. This is why during any economic downturn it is best to reduce and not increase government spending in order to lessen the drain on private sector capital. Otherwise, there is less private capital available to invest in production and aid in the recovery process. Advocates of consumption-oriented economic policies are unwilling to accept that no manner or amount of government spending, whether or not it is referred to as an investment, can duplicate let alone outperform the positive return of voluntary private sector investment in production.
The overriding issue that will complicate our economic recovery is the massive national debt. A drop in tax revenues and any increase in the value of the dollar that normally accompanies a liquidation cycle will push the nation closer to insolvency as the economy works its way through monetary excesses. Also, the interest on the national debt will become an inescapable and growing drag on the private sector as interest rates rise from historic lows. These are the unfortunate consequences of a fiscally reckless government continuously accruing debt for over a generation. There is little doubt the Federal Reserve will continue their crusade to depreciate the dollar in order to facilitate deficit spending and lower the cost burden of the national debt. However, these inflationary efforts will likely fail to hold off a deflationary contraction for much longer.
Contrary to the predictions for the complete ruination of the dollar, I anticipate quite the opposite. In the near term, inflationary pressures will certainly continue to build and may surge for a short time, just before a sudden reversal occurs marking the beginning of a liquidation cycle and rapid deflation. Strange as it may sound, I believe the onset of a deflationary depression offers the best hope of salvaging the dollar and ending the reign of the inflationists. Growing public awareness and displeasure over the harm done by inflationary policies and runaway government spending may leave no option available to policymakers other than returning to the gold standard thereby forcing fiscal and monetary restraint.
By Peter Raymond (source --> AmericanThinker)
Determining when the next great liquidation will occur is impossible to predict with any degree of certainty; nevertheless it is fair to say the sooner the better. Economic liquidation is a restorative process that corrects the harm done by inflationary policies. If accepting of this premise, then liquidations or deflationary depressions cannot be considered the disease in need of cure which unfortunately has been the position of economic interventionists since the early 1920's.
Instead, they are a necessary and unavoidable adjustment after years of excessive credit expansions have destabilized the economy. Efforts to further delay these self-corrections by instituting a series of escalating inflationary policies only needlessly extends and deepens economic woes and increases the size and scope of the inevitable adjustment. With the increasingly aggressive actions of the world's central banks and governments over the last decade to inflate the monetary supply, it seems a safe bet the next liquidation phase, when it does finally take place, will be a very large and abrupt correction.
Already, the ominous signs of economic stress caused by historic intervention measures are becoming evident. Despite the extraordinary monetary and fiscal policies to ward off deflationary pressures and economic contraction, prices are once again signaling that certain sectors of the economy would quickly liquidate if the stabilization programs in place were lifted. Home and auto prices for example have been pushing through a series of price support schemes and headed to lower levels in spite of a rapidly depreciating dollar. Also, the recent increase in volatility in both the commodity and currency markets is suggestive of price distortions generated by the Federal Reserve's ongoing quantitative easing programs.
The combined initiatives of policymakers and central bankers to suspend economic forces to create the impression of a recovery and price stability can go on for only so long before the building wave of deflation can no longer be contained. Not even the most ambitious plans to flood the economy with easy money can prevent the eventual contraction of the economy and a general fall in prices. It has been tried before and it does not work. There is of course a cost for such heavy-handed intervention. The longer and more aggressively a market correction is delayed by predictably ad hoc measures of panicking policymakers, the greater the size and duration of the liquidation.
Perhaps most concerning is the continued arrogance of the present day interventionists. They are never in want of self-confidence or devotion to their policies. Unfortunately, their conventional wisdom continues to justify radical inflationary measures as a means to indefinitely hold off a liquidation cycle and miraculously jumpstart another period of economic expansion. Nearly four years after the first indications of looming economic trouble appeared in the second half of 2007, these tinkering central planners now seem willing to sacrifice the dollar in order to defeat the deflationary pressures their previous inflationary policies fostered in the first place. Needless to say, it will be utterly demoralizing to witness the expected ramp up of desperate actions by these frustrated interventionists utterly dumbfounded by their repeated failures to stimulate economic growth. Of course, they will never acknowledge their actions prolonged and aggravated economic decline.
So what happens when the liquidation process of a depression begins in spite of the slew of much touted countermeasures that are soon followed by heated accusations of interventionists looking to assign fault to hapless scapegoats? It entails a dramatic fall in prices and production of nearly every non-essential good and service until price and production reach levels supported by market conditions. Wages, durables, equities, and real estate will plunge at an alarming rate. Labor unions and major industrialists will unsuccessfully try to shield themselves from deflation and job losses by demanding the government implement price and production controls. But government can do nothing long term to bolster artificially high price levels and will only further decimate the economy by trying. In fact, stabilization efforts during a liquidation period often cause prices to sink far below where they would otherwise have been under a passive policy. Sadly, unemployment does spike, especially in high order industries until wages adjust much lower. This is truly an unpleasant affair, but completely necessary and usually short lived.
Although it is counterintuitive and obviously controversial, it is imperative to allow the monetary supply to contract and interest rates to rise while simultaneously reducing public spending. Without such action or, in many instances, inaction, the economy will only be further disrupted and recovery delayed. Even something as innocuous and seemingly compassionate as extending unemployment income has the unintended consequence of delaying reemployment and economic recovery. It is interesting to note that prior to the New Deal, private charitable organizations strongly opposed government funding of humanitarian efforts including unemployment income. They correctly argued charity was best left in the private sector.
Such austerity and money tightening measures employ exactly the opposite philosophy cooked up by Secretary of Commerce Herbert Hoover, and later expanded upon while president, to "counter attack" depressions and supposedly avert economic ruin. Amazingly, Hoover's basic premise that government action is the "better option" has not lost any of its appeal to this day.
By the way, do not believe the revisionists' false portrayal of Hoover as ever favoring a laissez faire approach with the economy before or during the depression. Hoover was an enthusiastic central planner who frequently boasted of his intervention successes in 1931 when it was thought government stopped the depression with its numerous command and control programs. And records prove the Federal Reserve was pouring cash into the reserves of national banks trying in vain to expand credit. The shrinking of bank reserves was the result of a justifiable loss of faith in the banking industry leading to abnormally high demand for physical possession of legal tender.
To his credit, Hoover ignored the rather stunning proposals put forth by leading industrialists and labor leaders to institute full blown national planning, much of which was supposed to emulate the then en vogue Soviet model. Many of their ideas would emerge later under the disastrous New Deal policies of the FDR administration. Had he complied with their requests, Hoover would have joined the ranks of other prominent Marxist leaders of that period and not just another failed interventionist who spent the remainder of his life vigorously defending his actions to the very end.
Some unexpected developments can occur as a result of liquidation, barring any massive government intervention. First, there is normally a strengthening of the currency as the monetary base contracts. So in our case, the dollar's current downward trajectory would conceivably reverse course, causing the price of dollar-based commodities to fall as a result. Surprisingly, gold and silver prices fall as well in response to rising interest rates on savings and the strengthening currency. There recent selling of gold holdings by George Soros and other large hedge funds may presage a reversal of gold prices and dollar valuation. Second, falling wages do not automatically translate into a loss of purchasing power. This is because the drop in prices for most goods and services will normally outpace wages declines. Those lucky enough to remain employed throughout a depression will enjoy an increase in purchasing power even when adjusting for wage reductions. This phenomenon is just the opposite of what occurs in an inflationary environment where wage earners experience an erosion of purchasing power over time. Allowed to run its course, liquidation is very rapid and the majority of unemployed return to work in less than a year, albeit at much lower wages and mercifully without much change to the average standard of living.
It is the affluent investors that bear both the immediate and long term brunt of the losses since the price of equities, hard assets, and real estate collapse and remain suppressed for quite some time. This outcome seems rather fitting since the wealthy are the primary beneficiaries and supporters of inflationary policies.
The all-important point is that the disruptive oscillations of the economy are the unfortunate consequence of interventionism and inflationary monetary policies generating boom and bust cycles. The policymakers and central bankers deserve the total blame for these swings of the entire economy and not speculators, consumers, or producers. These cycles are certainly not attributable to some ludicrous theory citing mysterious shifts in overall consumption causing over or under consumption. Until such time government is prevented from manipulating the economy and the monetary supply, inflationary expansions followed by deflationary contractions, along with the misery they produce, will be a permanent and inescapable part of our future.
Admittedly, nearly a century of indoctrination has created the expectation and confidence governments can and must take action in every economic crisis. It would be politically untenable for all but the staunchest non-interventionists to maintain a passive stance during a depression. By far the majority of policymakers succumb to the demands of hard pressed constituents, even if it is known such actions would ultimately hurt the people they are meant to assist.
This brings me to the recent remarks made by the economist Joseph Stiglitz where he declared austerity measures are essentially a failed "experiment that has been tried before" which destroys jobs and undermines economic recovery. Naturally, the first question that comes to mind is: Where and when have austerity measures been proven to be ineffective in dealing with economic contractions? During the last depression, government actions incorporating most of Stiglitz's preferred spending policies yielded an unmitigated humanitarian disaster that dragged on for nearly a decade. Surely, it would seem unreasonable for Stiglitz to consider the New Deal "experiment" as even remotely effective in ending or even shortening the depression, let alone creating or saving jobs. Then again, nothing about the public intellectuals from the left shocks me anymore.
The conspicuous flaw with the interventionist logic is the fundamental belief wealth is created by consumption; the more that is consumed, the greater the wealth creation. Therefore, economic interventionism is centered on maintaining wage and price levels in order to maintain a targeted rate of consumption. In reality, it is production that creates wealth. And the wealth created by production is what results in greater consumption. Interventionists have the cart before the horse.
It is this nonsensical reversal in the order of wealth creation that leads to the erroneous conclusion that net prosperity is increased by more evenly redistributing wealth and expanding public spending. Since both are thought to increase overall consumption, interventionists reason the national prosperity will grow as a result of their economic and social engineering schemes. Interventionists are so beholden to the idea of wealth being created by consumption that they have derived out of thin air a formula to calculate how much government "investments" will grow the GNP. Somehow a dollar confiscated from the private sector through taxation magically produces more than a dollar in economic activity when spent by government.
In practice, such government spending sprees have a highly corrosive effect on the economy and employment by removing much-needed funds normally set aside for productive purposes, and instead using them for consumption. Since government, by and large, is a massive consumer of goods and services that uses the funds taken from the private sector, it contributes relatively little to production or investment no matter the level of spending.
The idea that government spending acts as an additional factor in the economy, and thus a productive investment, most likely comes from its odd inclusion in the GNP numbers. This undoubtedly obscures the negative impact public spending has on economic growth and prosperity. That fact that GNP was first introduced in 1934 in the midst of the New Deal era should arouse the suspicion of critical thinkers, however.
Because government spending is largely representative of consumption and not production, the coerced private sector contributions funding public spending is in fact a burden on the private sector that actually reduces overall production and wealth creation. This is why during any economic downturn it is best to reduce and not increase government spending in order to lessen the drain on private sector capital. Otherwise, there is less private capital available to invest in production and aid in the recovery process. Advocates of consumption-oriented economic policies are unwilling to accept that no manner or amount of government spending, whether or not it is referred to as an investment, can duplicate let alone outperform the positive return of voluntary private sector investment in production.
The overriding issue that will complicate our economic recovery is the massive national debt. A drop in tax revenues and any increase in the value of the dollar that normally accompanies a liquidation cycle will push the nation closer to insolvency as the economy works its way through monetary excesses. Also, the interest on the national debt will become an inescapable and growing drag on the private sector as interest rates rise from historic lows. These are the unfortunate consequences of a fiscally reckless government continuously accruing debt for over a generation. There is little doubt the Federal Reserve will continue their crusade to depreciate the dollar in order to facilitate deficit spending and lower the cost burden of the national debt. However, these inflationary efforts will likely fail to hold off a deflationary contraction for much longer.
Contrary to the predictions for the complete ruination of the dollar, I anticipate quite the opposite. In the near term, inflationary pressures will certainly continue to build and may surge for a short time, just before a sudden reversal occurs marking the beginning of a liquidation cycle and rapid deflation. Strange as it may sound, I believe the onset of a deflationary depression offers the best hope of salvaging the dollar and ending the reign of the inflationists. Growing public awareness and displeasure over the harm done by inflationary policies and runaway government spending may leave no option available to policymakers other than returning to the gold standard thereby forcing fiscal and monetary restraint.
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