The Weimar Way
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“The best way to destroy the capitalist system is to debauch the currency,” said Lord Keynes.
Ben Bernanke disagrees. A student of the Depression, the Fed chair appears far more fearful of deflation — a vicious cycle of falling prices, debt defaults, home foreclosures and rising unemployment.
Deflation is what America underwent in the 1930s. A Fed-created bubble burst, causing margin calls to go out to stockholders, who ran to their banks that, besieged, collapsed, wiping out a third of our money. As Milton Friedman, who won a Nobel for his thesis that the Federal Reserve caused the Great Depression, told PBS in 2000:
“For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing … with millions of people having their savings essentially washed out, that decline was utterly unnecessary.
“(T)he Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were … urging them to do that. So it was … clearly a mistake of policy that led to the Great Depression.”
Is Bernanke fighting the war of 1929 in 2009? Surely, today, with the explosion in M1, the basic money supply, there is no shortage of dollars out there, even if they are not circulating fast enough.
To end our recession, Bernanke may be running an even greater risk: hyper-inflation. This has destroyed more nations than deflation or even depression.
Recall: It was French military intervention in the Ruhr in 1923, to force payment of war reparations, and Weimar’s decision to let the currency fall and pay the French in cheap marks that led to the wipeout of the German middle class, the discrediting of that democratic republic and the Munich beer-hall putsch of Adolf Hitler.
“The first panacea for a mismanaged nation,” said Ernest Hemingway, “is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”
Which brings us to last week’s shocker.
The Fed will buy up $300 billion in long-term Treasury bonds and spend $750 billion more buying sub-prime mortgages to remove them from the balance sheets of ailing big banks, to get the banks lending again.
Bernanke is printing money to buy U.S. bonds.
This new gusher from the Fed, after the $700 billion TARP bailout, comes on top of a Congressional Budget Office estimate that this year’s deficit will be $1.85 trillion, 13.1 percent of gross domestic product, more than twice the share of the U.S. economy of the largest previous postwar deficit.
Concluding the dollar is being abandoned in a frantic Fed effort to stop the recession, markets reacted instantly. The dollar plunge was the steepest since the Plaza Agreement of 1985. Gold shot up to $950 an ounce. Silver had a 12 percent run-up, the sharpest ever. Oil prices surged above $50 a barrel. Commodity markets advanced.
The Fed seems to have confirmed the fears of Premier Wen Jiabao, who said that China is “definitely a little worried” about the value of the U.S. bonds Beijing has purchased with the dollars piled up from her trade surpluses with the United States.
Can one blame the Chinese? They have already been burned on their U.S. investments. And if the defense of the dollar against its ancient enemy inflation is being abandoned, and protecting the dollar is to take a back seat to the Fed’s fight to avoid deflation, than it is indeed time to get out of the dollar and dollar-denominated assets.
For inflation is theft. It make liars and cheats of governments. By eroding the value of a currency, inflation punishes savers and creditors and rewards debtors. And what nation is the biggest debtor of them all? The United States of America.
Insidiously, inflation consumes the value of cash, savings, municipal bonds, corporate bonds, Treasury bonds, and T-bills. Friends who lent America money, who bought our debt in good faith, are robbed and made fools of, while speculators who bet against America by shorting the dollar in the currency markets are vastly rewarded.
Given the $3.6 trillion budget Obama plans, the $1.8 trillion in red ink he will run by Oct. 1 and the trillions the Fed is pumping into the economy, gross domestic product should spike, as it did after the far smaller stimulus package of 2008
We will feel a healthy glow, and folks will begin to sing, “Happy Days Are Here Again.”
Yet one senses that we are doing again exactly what we have done before in this generation. Rather than endure the pain and accept the sacrifices to cure us of our addiction, we are going back to the heroin. And this time, with Dr. Bernanke handling the needle, we may just overdose.
COPYRIGHT 2009 CREATORS SYNDICATE INC.
Filed under: Economics
Brilliant!
As usual, an excellent article by Pat. I would even say he even sounds ehem….austrian! Go Pat go!
Sounds Rothbardian to me. Love this article. There’s something stirring out there, and real change could be coming in the near future if enough folks are properly informed about the biggest Ponzi Scheme of them all (The Federal Reserve.
Bernanke makes the elementary mistake of equating cash with liquidity. It doesn’t matter how much money people have in their pockets, liquidity depends on their willingness to transact business.
A bank today, sitting on a couple dozen billion dollars of freshly-inflated money from helicopter Ben, has a choice to make: lend it out with no ability to assess risk, since the Fed is insisting on keeping failed businesses around as zombies without telling anyone who’s getting the juice, or sit on the cash and wait.
The banks are wisely choosing to sit on the sidelines.
Quote:
clearly a mistake of policy that led to the Great Depression
I do not think it was a mistake- it was an intentional infliction intended to enrich the central banksters. Same people are doing the same once again. What absolute evil.
We can also draw parallels with this corrupt (baby boom) generation and that of 1913 progressives (liberals). The Wilsonian progressives permanently corrupted our form of government with the 16′th, 17′th, and the Fed Reserve Act. The 16′th allowed income taxation, the 17′th turned our senators into populists, and the Federal reserve act allowed central bankers access to the levers of power. If your system predicates the output, then you want an unimpeachable system with good checks and balances. We used to have that, but it has been corrupted by destructive (selfish) generations. We are now reaping the rewards of systemic failure, and it won’t get fixed until we have some way to undo the systemic damage.
So Mr. Buchanan, does this mean you support HR 1207, The Federal Reserve Transparency Act, and will tell your Congressional representatives that you want *them* to support it? The books of this organization need to be thrown open to the purview of the American population.
How about HR 833, End the Fed?
Yes, Bernanke & Co. refuse to tell us who’s getting our money – the largest transfer of wealth (to the already rich) in the History of the World.
Are “we the people” done putting up with this crap, yet?
I’ve tested the winds, and I smell the 2nd American Revolution in the air.
For at least a couple of years now I have been noticing an alarming phenomenon: I keep agreeing with Pat Buchanan. Is he changing, or am I? Either way, I am delighted.
Maybe we can encourage states like New Hampshire,along with Neveda and California to start making one tenth coins made out of silver,gold pallatium,and anyother combination metals to circulate along side our USD currency.Then folks could decide how they can be paid.Give people an option….
So, we are to get Happy Days, again, courtesy of B.S. Bernanke and his clever, do-gooding ilk.
But what loometh after the next spike in GDP?
What looms? ‘Tis war, and this next big one, too, will be pinned on international conspirators in money and finance by hysterical demagogues who will go too far in claiming that these conspirators also wanted the war. Yet a germ of truth will remain in what the demagogues say, politically incorrect though it may be to admit it.
In the meantime, the Muslims will strive for and get a single currency for Islamic republics. Do-gooders from the West will claim that it will be good for world peace and regional development. Maybe someone will convince them to back it with gold, silver, or other precious metal.
So, let’s see now. The Chinese will want to protect their interests in American assets to offset their losses in depreciating US debt. The Muslims will swell with pride at their new currency and have in it the means to develop industry, e.g. shipbuilding and aircraft. Muslims hate the Chinese who in turn are contemptuous of Americans most of whom in turn have the good sense to distrust Islam which calls for a single, global religion.
War looms, and preparing for it will be good for business and prosperity. The great war will come and go, leaving in its wake humanity’s first global state, the first language of which will be English, the language already common to all. It’ll be a multicultural eutopia.
Another excellent analysis of our confiscatory Federal Reserve system and the exposure of the tyranny of incompetence we all live under.
[...] The rest is here: The American Conservative » The Weimar Way [...]
Only a portion of PJB’s article is actually Rothbardian. Milton Freidman’s “explanation” of the cause of the 1929 Crash and Great Depression is, to be charitable, childishly simplistic. Benochio, who subscribes to Freidman’s view, belives that it was the failure of the Fed to inject cheap money into the system at some critical point in time which caused the Crash. That opinion completely ignores the prior cheap money policies undertaken by the Fed during the earlier 20s and their eventual tightening of money which caused the bubble to burst. To accept the Freidman explanation would be to accept that the cause of death, of a 500lb diabetic, was the failure to receive a dose of insulin at some critical point in time. While that may be superficially true, it totally ignores the prior lifestyle habits which resulted in the breakdown of the natural insulin-producing mechanism of the patient. For a genuine analysis of the causes of the 29 Crash and the Great Depression, you should consult Murray Rothbard’s: America’s Great Depression as well as his essay: “Milton Freidman Unraveled”. PJB does not specifically say that he personally accepts Freidman’s view of the causes, but does point out that Benochio Bernanke is taking Freidman’s “analysis” to heart and injecting massive amounts of baseless fiat currency into the economy as if he were administering even larger amounts of a drug to an addict.
Mr. Buchanan has common sense and MORALS. Sad that neither GW Butch nor Obama-butch-on-steroids has neither…
Pat Buchanan for President!!!!!!
Franklin Sanders of http://www.the-moneychanger.com reports that in Georgia, “Georgia Rep. Bobby Franklin entered the act (Constititutional Tender Act) which requires the state to perform its duty under US Constitution Art. I, Section 10 to make nothing but gold and silver coin a tender in payment of debt.
Today the House Committee on Banks & Banking held a hearing, & the bill’s supporters asked me to testify. Needless to say, the banks will fight it tooth & toenail, because they don’t understand it. If they did, they would support it as it offers the only chance for them to survive.
Listening to the banking lobbyists specious objections, it dawned on me: Their time is past. A wave of revulsion against fiat money & uncontrolled fractional reserve banking will become a tidal wave as the economic crisis deepens. Within two decades at most, the fiat system will be dead, and with it, banking as we know it today.”
The way I see it:
I have an 18-year-old son whom I have been raising by myself for 16.5 years. At best, the U.S. government wants to destroy his future; at worst to use him as cannon fodder (kill him).
It’s not difficult to be an Anarchist.
Seems to me Buchanan could have given a little more credit to what I suspect is Bernanke’s view. After all I don’t think Bernanke *wants* to be doing what he is, printing all this money and etc. After all he knows what inflation is.
My suspicion is that Bernanke feels he’s somewhat in the situation of a paramedic at the scene of an emergency: You got a guy hit by a falling timber in a burning house about to collapse who says he can’t move his legs. If you move him quick you risk causing permanent paralysis but if you don’t he’s gonna get burned to death anyway. What you do is move him obviously to avert the immediate and just hope you can cope with the subsequent.
Lots of similar situations appear all the time in medicine and indeed in life generally.
Scares hell out of me thinking that Bernanke apparently does think the house is about to collapse given that he undoubtedly knows lots more than we do.
Cheers,
What a great quote by Hemingway. For many years I have wondered why Pat didn’t write about the Fed and inflation and our fiat money system. He just didn’t get the issue I guess. But he gets it now, no doubt influenced by Ron Paul and Lew Rockwell. Bravo Pat!
American Freedom Note Amendment
The fractional-reserve banking system, established by the Federal Reserve Act of 1913 to oversee a debt-based currency, is obsolete and destructivel to the needs of the American people in the 21st Century. The very act of creating money by debt-assumption on the part of the citizenry gives unwarranted power to the present banking structure and erodes the very foundations of the American Republic. The constantly increasing debt with its associated interest acts as a millstone around the neck of industry and stifles economic creativity.
Therefore—-by amendment to the US Constitution, establish a new currency, the American Freedom Note.
All debt instruments (loan contracts, bonds, govt debt, etc.) originating in Federal Reserve banks, all existing Federal Reserve Notes and checking account balances, are exchanged for American Freedom Notes. Creditors forgo liens and are cashed out 100%. Debt is exonerated, and debtors assume 100% ownership of any encumbered assets, including—and most importantly—the productive assets of the country (factories, farms, productive enterprises in general).
A fixed quantity of AFNs results from this system-wide exchange and these fresh accounts can be loaned at interest rates determined freely in the marketplace, with the strict proviso that fractional-reserve lending is considered fraud (which it most assuredly is—-even the Romans of the Republic era knew this intimately and passed laws against it) and is prohibited by law from that point forward.
Over time a natural deflation occurs as the economy grows and the American Freedom Notes, fixed in quantity by this Amendment, acquire increasing purchasing power.
Debt forgiveness, greed forgiveness. Lenders are bought out (even though in a fractional-reserve banking system these loans were made without “consideration”, in the sense of contract law), the rest of us indentured servants are freed, and most importantly, no blood in the streets. We get to keep America.
Great stuff, folks. I think one clarification might be needed. It sounds like PJB is confusing deflation with falling prices. My understanding is that deflation is a contraction in the money supply, and falling prices are actually the cure. In other words, less money to go around means people pay less, including for wages, but that’s okay, because everything costs less.
I’m not sure how exactly, but I’ve read suggestions that the Obamas are trying to prevent falling prices rather than allowing them to sink to the level of the money supply. I think I read they’re doing this because falling prices for assets and wages increases the burden of debt, and also because they believe Keynes’ assertion that constant, controlled inflation leads to constant growth(?)
I have not yet had a chance to read Rothbard, but he’s now at the top of my summer reading list, especially after a glowing biographical sketch I read on Mises.org.
Nice plug for Dr Paul’s “Audit the Fed” legislation. It’s hard for Lib’s/Neo’s/Prog’s to argue that the “Free Market” is the source of inequity when they are confronted with the government-granted privilege of the Fed to be the sole source of legal tender (paper-only no less) in the US. It his hard for them to accept, but the twisted reality of the financial sector is not the result of “cowboy capitalism” or free market “ideology”, but the result of those businesses being the first stop for money created out of thin air by a government-mandated monopoly.
Forget, please, “conservatism.” It has been, operationally, de facto, Godless and therefore irrelevant. Secular conservatism will not defeat secular liberalism because to God both are two atheistic peas-in-a-pod and thus predestined to failure. As Stonewall Jackson’s Chief of Staff R.L. Dabney said of such a humanistic belief more than 100 years ago:
“[Secular conservatism] is a party which never conserves anything. Its history has been that it demurs to each aggression of the progressive party, and aims to save its credit by a respectable amount of growling, but always acquiesces at last in the innovation. What was the resisted novelty of yesterday is today .one of the accepted principles of conservatism; it is now conservative only in affecting to resist the next innovation, which will tomorrow be forced upon its timidity and will be succeeded by some third revolution; to be denounced and then adopted in its turn. American conservatism is merely the shadow that follows Radicalism as it moves forward towards perdition. It remains behind it, but never retards it, and always advances near its leader. This pretended salt bath utterly lost its savor: wherewith shall it be salted? Its impotency is not hard, indeed, to explain. It is worthless because it is the conservatism of expediency only, and not of sturdy principle. It intends to risk nothing serious for the sake of the truth.”
Our country is collapsing because we have turned our back on God (Psalm 9:17) and refused to kiss His Son (Psalm 2).
John Lofton, Editor, TheAmericanView.com
Recovering Republican
JLof@aol.com
PS – And “Mr. Worldly Wiseman” Rush Limbaugh never made a bigger ass of himself than at CPAC where he told that blasphemous “joke” about himself and God.
John Lofton wrote:
“Our country is collapsing because we have turned our back on God….”
Say John, not wanting to be on the wrong side of the Big Guy can you tell me which way he faces on the capital gains tax issue? Yes it should be lower than that on regular gain, or no it should be the same or even higher because mostly fat-cats make their money that way?
Maybe he said it in the Book of Numbers and I just missed it, but I’m *damned* sure he didn’t say anything about the AMT either so ….
Cheers,