The More Things Change...

It's as true today as it was then...people don't know history...they are clueless about how the economy works...and don't know or care about the consequences of the way they vote.  People STILL believe that the Great Depression was a failure of the Free Market.  Why?  Because those really at fault, government, told them so.  But Friedman tells a different story:

"So the Great Depression was not produced by a failure of business.  On the contrary, it was produced by a failure of government...and a failure of government in an area in which responsibility had been assigned to government since the founding of this country...We have learned from that failure.  The Federal Reserve will not fail in the same way again.  This time it will fail in a different way.  This time it has been failing, not by producing a Great Depression, but by producing an inflation.  Because just as you will hear the story that it was business that was responsible for the depression, so you will today  hear the story that it is labor and management that are responsible for inflation.  It is the same kind of a myth."

The inflation he is speaking of here is in the 1970s when interest rates were in the double-digits and much of the American manufacturing base, such as steel, collapsed.  President Gerald Ford ran on a W.I.N. platform, which stood for Whip Inflation Now.  It was a time of what was being called "hyper-inflation," and it was devastating to our economy.

Today, we are on the verge of another devastation to our economy.  The Federal Reserve is printing more and more money.  This causes the value of the dollar to drop, and therefore, prices to raise...this is inflation.  But who is to blame.  Once again, Friedman tells it like it is:

"Inflation is made in one place, and one place only...Washington D.C.  And in Washington D.C., the chief source...immediate source of inflation...is a Greek temple on Constitution Avenue, which houses the Federal Reserve Board.  An accomplice, and a major accomplice of course, sits in the halls of Congress in Washington.  They are a major accomplice because you tell 'em to be.  The American people have been telling Congress for many years, 'Spend more money on us, please.'  But they've been telling us, 'Don't raise our taxes.'  Congress has been listening.  It's been spending more money on you, but, on the other hand, its been very unwilling to raise taxes.  As a result, its imposed inflation as a tax. That's one tax you don't have to vote for...but you have to pay."

I fear, though, that things are building to be even worse.  With the debt as high as it is, many in government today seem to have no problem both causing inflation and increasing taxes.

Watch the whole video.  It's an interesting history lesson, one that is very relevant for today.

"Stimulus" Doesn't Stimulate

Facts are facts.

Serfdom? ... Or Worse?

This video by Stefan Molyneaux of Freedomain Radio puts our national debt and the oligarchical Federal Government in grim focus.  It asks the important question, "Where is your government going to get the money to pay off its creditors?"  The answer is chilling..."Governments have only one asset that they can use as collateral. Your leaders are selling you."



For text of video, CLICK HERE.

Two Sides of the Same Coin

Once again, Andrew Klavan has hit the nail on the head.  In this short animated video, he shows that both the Wall Street Occupiers and the Wall Street Crony Capitalists want, in effect, the same thing...taxpayers' money.   Both want the government to subsidize them, and for that subsidy, they will give all power to government...which is what the politicians want.  So, everybody's happy...right?  Well, everybody except the vast middle class, the honest entrepreneurs, those of us who pay the taxes.

Both are evil...both must be stopped.

What's All The Fuss With The Fed?

There are good reasons why twice in the history of our country central banks were dismantled.  Through most of our history, Americans have been very wary of large banks and their control on government.  This short video clip of G. Edward Griffin, author of The Creature From Jekyll Island, gives some of the background on the founding of the Federal Reserve.

The National Debt in Perspective

There's been a lot of discussion about the national debt recently.  Everyone seems to have an opinion about the severity of the problem and the solutions that should be used.  The root cause, though, seems to be very clear… government is spending more that it brings in.

The current debt level is more than $14 Trillion.  This is a very…very large number. That’s fourteen followed by 12 zeros.  But, let’s add a little more perspective.  $14 Trillion is more than $47,000 dollars for every man, woman and child in the country, based on the most recent U.S Census data. According to numbers from the U. S. Treasury, this would be more than $131,000 for every US taxpayer. If the government stopped spending any other money, and put $100 Million-a-day toward paying off the debt, it would take more than 384 years. This doesn't even consider interest payments...You do the math.

In 2010, The US government spent more than $413 Billion on interest payments alone. This is more than was spent on The Department of Health and Human Services…The Departments of Transportation, Energy, Veterans Affairs, Housing and Urban Development, Justice, Homeland Security, Agriculture, Commerce…hold on, I’m almost done…The Department of Treasury, Department of Labor and the Small Business Administration …COMBINED. Just to service current debt. And, according to the non-partisan Congressional Budget Office, the interest payments on the debt are projected to be $1.1 Trillion a year by 2021, a mere 10 years from now.

If the government stopped spending any other money, and put $100 Million-a-day toward paying off the debt, it would take more than 384 years.

Many people say that the amount of debt, in dollars, is not what’s important, but rather what percentage of the over-all economy, or Gross Domestic Product (GDP), it represents. Even from this perspective, though,  the debt is high. At nearly 70% of the US GDP, the debt is at its highest level since World War II. Some current projections have the debt exceeding 100% GDP by around 2025.

Regardless of your view on the seriousness of the debt...or whether you believe that the it is necessary or not...the root cause is simply that the government is spending more money than it is receiving. The difference between revenues and outlays is known as the deficit. To make up for this deficit, the US borrows money every year from many different sources, including foreign countries like China. As historian and economist, Dr. Thomas E. Woods, Jr. says in his book Rollback, "Every year $250 billion is borrowed from China so the U.S. government can play superpower."

Government spending has been on an upward trajectory for many years…through Republican and Democratic control. While median household income has increased 27% (in inflation adjusted dollars) from 1970 to 2009, government spending increased 299% during the same time period. In 2011, the government is expected to take in about $2.15 Trillion in revenues while spending $3.77 Trillion. This is a deficit of about $1.62 Trillion.

Many different solutions to the debt problem have been proposed. Some say that we need to attack the problem from a revenue perspective. But, there is disagreement on how this should be done. Some say that taxes should be raised…but which taxes…and who should pay these taxes? Others say that lowering taxes will actually increase the revenues by boosting the economy. They point to previous tax rate cuts such as those championed by President Kennedy and President Reagan as proof.

"Every year $250 billion is borrowed from China so the U.S. government can play superpower."

Other people believe we should attack the problem from a spending standpoint. The largest block of spending is on what is generally known as Entitlements, including Social Security, Medicare and Medicaid. Entitlements together make up approximately 58% of the budget. National Defense makes up about 19%. These areas of the budget are very politically sensitive. Any proposed cuts in these areas meet with strong opposition from one group or another.

There are even those who believe that the government should spend more, believing that increased government spending will stimulate the economy and therefore increase revenues. This is the basis of the so-called Stimulus packages that have been enacted and proposed.

And, many believe that some balance between revenue and spending solutions are necessary due to the scale of the problem.

There are consequences of a large national debt. As the debt grows, so does the interest payments required to service that debt. As I mentioned before, interest payments last year alone were more than $413 Billion. When the budget continues to be in deficit, it becomes more and more difficult to pay this growing interest. In effect, the government is borrowing money to pay the interest of previous loans…never getting a chance to pay down the loans.  When Congress proposes new spending, it is actually calling for more borrowing...since we don't have enough revenues to pay for our current spending.

If the lenders’ faith that the United States can pay back the loans and interest diminishes as the debt grows, the country’s credit rating can be downgraded, as recently happened when Standard & Poor’s changed their rating of the US from triple A (AAA) to Double A plus (AA+). This can, as with individuals, effect interest rates the government has to pay and its ability to borrow.  Ultimately, if the problem gets too large, the country can fail to make necessary payments and default on its loans. This can have even worse consequences to the economy.

When Congress proposes new spending, it is actually calling for more borrowing...since we don't have enough revenues to pay for our current spending.

The scale of the debt issue is very large…almost too large to understand. There is very little agreement on what should be done, but it is a problem that must be addressed. This debt can affect all of our futures and the future of our country. I hope I have been able to offer just a little perspective to a complex issue.

Competing Money

Friedrich A. Hayek, famous economist and author of The Road To Serfdom, said the following concerning money in an interview:

"Oh, I am absolutely convinced that no government is capable of...politically or intellectually...of providing the exact amount of money that is needed for economic development. And, I should be all in favor...in fact, I'm convinced we shall never have decent money in name before we take from government the monopoly of issuing money and allow competing institutions...of course under different names...not issue the the same money, but competing monies...and let people decide which kind of money they prefer to use."

This may seem pretty radical.  Many people think that if the government doesn't control the issue of money,  poverty and anarchy will ensue.  But, we already have competing monies on a global basis and it all works fine. The markets decide, based on many factors, what the exchange rate is between the Dollar and the Yen...or between the Yuan.   In fact, when the European Union decided that they needed to consolidate their monies into a single currency, the Euro, it helped some countries and hurt others...so less currency competition is not necessarily best.

A century ago we had competing monies in this country. As Lawrence H. White writes on the Library of Economics and Liberty, "Much more competition in money has existed in the past. Under 'free banking' systems, private banks competitively issued their own paper currency notes, called 'bank notes,' that were redeemable for underlying 'real,' or 'basic,' monies like gold or silver. And competition among those basic monies pitted gold against silver and copper."

But, some will say, we had to get to a single currency to stop the cycle of bank panics and boom and bust.  The way we attempted to do this  is to give the Federal Reserve a government-granted monopoly on creating money.  And how has that worked?  Well, as Dr. Thomas E Woods Jr. points out in his book Rollback, "Since the Fed opened it's doors in 1914 following the passage of the Federal Reserve Act in December 1913, the dollar has lost more than 95 percent of its value, after having held its value in tact from the beginning of the republic until the creation of the Fed."  That is not a very good track record of itself, but what about the Fed's stabilization of the economy?  As you might guess, this also isn't necessarily the case.  "Some recent research finds the two periods (pre- and post-Fed) to be approximately equal in volatility," says Woods, "and some finds the post-Fed period in fact to be more volatile, once faulty data are corrected for."  So, taken as a whole, the Federal Reserve, and its monopoly on money creation, has been a over-all negative.

Many economists believe that we should return to "hard money" in the United States, and indeed across the world.  Hard money is a currency that is based on something with an intrinsic value, such as gold or silver.  What we have now is known as "fiat money."  Investopia defines fiat money as, "Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith."  Investopia further explains that, "Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation's paper currency, the money will no longer hold any value."  If the markets lose faith in the paper money you get what we have now, a greatly devalued dollar and lowered credit ratings.

Since fiat money is not based on any real assets, the government monopoly is free to just print more to finance their increasing lust for power.  They don't really care if it devalues, they can just print more.  It's "monopoly money" anyway, so to speak.  What do they care?  But we should care.  Every time they devalue our money by printing more, the value of your savings and investments go down, your purchasing power goes down and the over all economy declines as corporate investments and purchasing power also suffers.

So, government has had its monopoly for 97 years now and have done a terrible job at it.  The only real solution for monopoly is...wait for it...COMPETITION!  Imagine that.  And the market and States are beginning to take matters into their own hands.  Dan Armstrong of ConnectMidichigan.com reports that "New types of money are popping up across Mid-Michigan and supporters say, it's not counterfeit, but rather a competing currency."  The International Business Times reports that "Utah just became the first US state to recognize gold as legal tender. Its Legal Tender Act of 2011 allows U.S. minted gold and silver coins to be recognized as legal tender in the value that reflects the market price for gold and silver."  Minnesota, North Carolina South Carolina, Idaho and Georgia are also considering similar  legislation.  I believe this is a good sign that the States are willing to do what is necessary for the welfare of their own people.  Competition is good.

Hayek said, "Abolishing the government monopoly on issuing money would deprive governments of persuing monetary policies...that's what I want to see."  And, so do I.

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