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Trump Man of the Century

Happy New Year! There is much to celebrate!

Clearly President Donald J. Trump is the man of the year. But history will call him the man of the century as President Trump has begun to not only resurrect America but to redirect all of humanity.

“I am asking you to believe in yourself again and I am asking you to believe in America. And if we do that then all together we will make America strong again, we will make America wealthy again, we will make America safe again, and we will make America great again. God bless you!” – Donald J Trump

The Voice of God 

I will never forget that chilling moment when Donald Trump was accepting the GOP nomination for President of the United States at the RNC Convention. It was as though the voice of God was speaking through this man when Donald Trump said – “I am your voice”.

Some say that Trump cant’ handle the storm. I say, Trump is the storm! Batten down the hatches and get ready for an unprecedented 2019 as Trump takes on the deep state and shadow government of this world.

We’re just getting started. 2019 will prove to be an unprecedented and historical year with what lies ahead. Remain connected. Stay the course, Spread the truth. And know this – we are winning!

Fear not we are on God’s side and dealing in truths. They are on the side of evil and dealing with all that evil dishes out. Fear? The opposite of love is not hate, it is fear. Don’t go there. Chose love. Surround yourself with like minded people who understand the times and expand this circle of influence. Get involved in the business of resurrecting America. What  can be more important than that?

May God continue to provide protection, good health and wisdom to our amazing leader, Donald Trump, the man of the century. 

America’s Second Revolution

Remain connected and informed. Subscribe to John Michael Chamber’s free blog. Receive in your e-mail in box, notifications of John’s weekly articles. Let your voice be heard. Chat with John. FREE SUBSCRIPTION. 

EDITORS NOTE: This column with images is republished with permission.

Trump, Money and the Fed

So who are these guys in this picture?Legendary author of The Creature from Jekyll Island”, researcher and film producer G. Edward Griffin, my good friend and founder of PollMole Dr.Richard Davis, (R.I.P.), Mad Max Mullen and oh a yeah, a much younger me, John Michael Chambers. This post, Trump, Money and the Fed lay the important groundwork and understanding for what President Trump has begun to take on.

Back in 2009 as the founder of the Save  America Foundation a 501(c)(4), we held a large convention in Tampa, Florida sounding the alarm bells in our desperate individual and collective attempts to save America. fast forward. Donald Trump has blasted onto  the scene. Some say he cannot handle the storm when in fact he is the storm. This really is a very important article. Please read on and share this post. People need to know to secure and expand our supportive base for President Trump for what lies ahead by end of Q1 2019, will be challenging.

The following has been excerpted and somewhat revised and edited from a book I wrote in 2014-2015 while in Belize and mostly in Thailand titled, “Misconceptions and Course Corrections”. Since Trump has begun taking on the Fed (Federal Reserve), I thought it would be good to gain a better understanding of what money actually is, who the Fed is, how they came to be and what it is that they have done. This is about to come to be challenged and changed forever beginning after in 2019. I will be writing about this historical event as it unfolds. It has already begun. But for those that need a better understanding of the Fed, I have resurrected this chapter. Here goes…

What is Money?

What is money? Money is an idea backed by confidence,which is used as a means of exchange, rather than say barter. Today we live in a debt based monetary system. Some say that money is the root of all evil; I disagree with this. There was a period of time many a moon ago where money did not exist, yet there was plenty of evil around. My best guess (I could be wrong), is that people who misuse life’s energy are the root of all evil, not money. Money is not evil and abundance is wonderful; there are evil people.

In this world it seems we have assigned power to money. It’s a pretty big agreement since everyone seems to be trying to acquire the stuff. So to that end, money is power in the sense that it is the means by which one can acquire tangible items, own things, have things,influence people and agendas, as well as affording perhaps better healthcare,better food, some things luxury, and all things essential to survival. Money allows one to participate in many things as well as to travel. The person with money can also take advantage of various opportunities to explore many new aspects and experiences in life than a person without money. Having said all that, money is still not the measure of the man (woman).

Money can’t buy contentment or happiness or love, but it can ease the experience of life and living if handled properly.There is nothing wrong with acquiring great wealth. It’s what you do with this great wealth that helps determine the character of the person. Some people, as we know, become very greedy and misuse the power that comes with having lots ofmoney, and this can be seen in many ways. Others put that money to good use,such as a quality home, education for children and young adults, trust accountsfor posterity, and many are philanthropic or charitable.

History, Digging in a Little Deeper

Presently and since 1944, the U.S. dollar is the world’s reserve currency, and this, coupled with a great change that is currently taking place which will affect every person on the planet (which we will discuss a bit further on), is why we must understand more about the U.S.dollar and the debt based monetary system.

Many Americans and people throughout the world believe that the Federal Reserve in the United States is part of the Federal government. Nothing could be further from the truth. The Federal Reserve is no more a government agency than Federal Express! Check this video at marker1:09. Even former Fed chairman AlanGreenspan agrees.Freedom to Fascism, in case you missed all those years ago, can be viewed here. An absolute must see.

It is imperative if you want to understand how the money system works that you procure a copy of “The Creature from Jekyll Island,” a second look at the Federal Reserve by the legendary author, researcher, and film producer, Mr. G.Edward Griffin. This book will outline in great detail the formation of the Federal Reserve System.Below is a summary.

1910

In November of 1910, on Jekyll Island,Georgia, seven men who represented directly or indirectly one fourth of the world’s wealth, met in secrecy for nine days. It is there, at this location,where the Charter of the Federal Reserve was drafted. The Federal Reserve is a privately held for profit corporation,a banking cartel. The main objective for a corporation is to make a profit, and they do indeed make a profit. Let’s take a brief stroll through history as we look into the formation of the Federal Reserve and the results of the Federal Reserve Charter that was enacted into law by the U.S. Congress in1913.

J.P. Morgan, Senator Nelson Aldrich, Piatt Andrews, Frank Vanderlip, Henry P. Davison, Paul Warburg, and Charles D.Norton arranged for hundreds of millions of dollars to be poured into the campaigns of the most powerful members of Congress. In 1912, they backed an obscure Princeton professor for President of the United States, Woodrow Wilson.He later became President.

The Coup’ of 1913

Late on Tuesday December 23, 1913, just days after the Christmas recess had commenced, a secret Senate vote was“arranged” with only a few Senators remaining in Washington D.C.The act passed with 43 voting “yea” and 25 voting “nay.” 27 did not vote since they had not been notified and had already left town to go home for the Holidays. All had previously expressed their opposition to the act. So on Dec 23, 1913, their plan worked by one of the most cunning manipulations in parliamentary history;Congress passed the Federal Reserve Act of 1913.In its charter, the act clearly states as its main objective: “To provide the action with a safer,more flexible, and more stable monetary and financial system.”

This means of a fractional reserve debt system controlled by a private for Profit Corporation has not worked out too well for the American people and thus the world to a greater or lesser extent.I mean we do not have a more stable monetary financial system at all.What we have is a debt based monetary system no longer backed by gold or silver. We have a currency that will soon be replaced as the world’s reserve currency. The Federal debt alone is $19 trillion dollars. It is mathematically impossible topay off this debt which will in a couple of short years will soon reach $22trillion and will make the U.S. situation look like Greece on steroids! Therefore “a safer, more flexible and more stable monetary and financial system” as set forth in this charter clearly has not worked out so well. And so by this means of fractional reserve banking,governments may secretly and unobserved, confiscate the wealth of the people and not one man in a million will detect the theft. This system of fractional reserve banking and the printing of all this fiat (now digital fiat) currency,is purely inflationary and the U.S. dollar has lost over 95% of its purchasing power since its inception.

1944 The Bretton Wooods Agreement

Another critical factor, which contributed to the rise of power in America, was the Bretton Woods agreement of1944. The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world’s major industrial states in the mid-20th century. The BrettonWoods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states. It is through the Breton Woods agreement that the U.S. dollar became the world’s “reserve currency. 

Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods,New Hampshire, United States, for the United Nations Monetary and Financial Conference. 

The delegates deliberated upon and signed the Bretton Woods Agreements during the first three weeks of July 1944. Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at the Bretton Woods Agreements during the first three weeks of July 1944. Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD),which today is part of the World BankGroup. These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary payments. Simply stated, the power centers of the world met in Bretton Woods, New Hampshire and it was decided that international trade and settlements such as the purchase of oil for example, must be exchanged with the U.S. dollars. This meant that the central banks of these nations were required to have sufficient U.S. dollars.

As a result, the increasing global demand for the U.S. dollar continued and based on supply and demand this kept the dollar strong. Another reason for this decision in 1944 is due to the fact that up until that point in history, America’s currency was kept under control without runaway inflation as the U.S. dollar was backed by gold and silver and  the trust and confidence in the US.Dollar was strong. Confidence is the critical underlying factor that keeps the financial structures and systems in place.Including confidence in the currency itself. In fact it can be stated that money is nothing more than an idea backed by confidence and a means to easily facilitate trade and keep order. What happens when this confidence is shattered?

1971 – The Nixon Shock

On August 15, 1971, the United States unilaterally terminated convertibility of the dollar to gold. As a result, the Bretton Woods system officially ended and the dollar became fully ‘fiat currency,’backed by nothing but the promise of the federal government. This action, referred to as the Nixon shock, created the situation in which the United States dollar became a reserve currency used by many states. From the1970’s and forward, Americans enjoyed what is considered to be a lavish lifestyle in comparison to most countries around the world.

Lesson from the Dustbin of History

 “Give me control of a nation’s money supply, and I care not who makes its laws.”– Amschel Rothschild, Mayer and German banker. He was the founder of the Rothschild family international banking dynasty.

The best way to destroy the capitalist system is to debauch its currency.” “The best way to crush the bourgeoisie (middle class), Is to grind between the millstones of taxation and inflation.” – Vladimir Lenin, Chairman of Russia’s Council of peoples Commissars 1917-1924

“By a continuing process of inflation,government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” –John MaynardKeynes, Fabian Socialist and father of Keynesian Economics

“The dirty little secret is that both houses of Congress are irrelevant. Both   congress is now being run by Alan Greenspan (Ben Bernanke today) and the Federal Reserve and America’s foreign policy is now being run by the IMF. When the President decides to go to war he no longer needs a declaration of war  Money in our current system is nothing more than debt, and we have lots of it!.“ – Robert Reich 22nd U.S.labor Secretary

“The government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of the consumers. The privilege of creating and issuing money is not only   prerogative of government, but it is the government’s greatest  .” –President Abraham Lincoln

“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.” President Thomas Jefferson

“Inflation has now been institutionalized at a fairly constant 5% per year. This has been determined to be the optimum level for generating the most   causing public alarm. A 5% devaluation applies, not only to the money earned this year, but to all that is left over from previous years. At the end of the first year, a dollar is worth 95 cents.At the end of the second year, the 95cents is reduced again by 5%, leaving its worth at 90 cents, and so on. By the time a person has worked 20 years, the government will have confiscated 64%of every dollar he saved over those years. By the time he has worked 45 years,the hidden tax will be 90%. The government will take virtually everything a person saves over a lifetime.” – American Author, Researcher and Filmmaker, G. Edward Griffin

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are   hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” – President Woodrow Wilson, aftersigning the Federal Reserve into existence

Money in our current system is nothing more than debt, and we have lots of it! Weeks away from http://usadebtclock.com/$22Trillion and that’s just the Federal debt alone!

Concluding Remarks

So the Federal Reserve, a private for profit baking cartel,comes to the table with no “skin in the game.” They unleash what is now digital fiat currency with no tangible backing or accountability into the banking system and this is then leveraged by Fractional Reserve Banking. The banks then can loan out these dollars (with a multiplier of 10 or 100 or more times the amount than they received from the Fed.), to other banks, to governments, corporations, and individuals and charge an interest rate. They typically own title for example, as in a mortgage or car loan. And when they decide to“reap the harvest,” they seize the assets when the consumer is unable to survive in a jobless inflationary climate (which they helped to create). They also fund both sides of all wars for huge profits as the innocent little children are laid in shallow graves and billed as nothing more than collateraldamage”.

This subject of Fractional Reserve Banking is also defined in great detail in a simple to understand format in the DVD titled“ Money as Debt”

This Federal Reserve Act of 1913,although passed by congress, was in contradiction to the United States Constitution which in Article 1, Section 8, Phrase5. It clearly states the following regarding money that “  have power to coin money, regulate the Value thereof, and of foreign Coin, and fix the standard of weights and measures.“ This power was given to a private bank called the Federal Reserve in 1913. Congressman Charles A. Lindbergh Sr. back then said – “This Federal Reserve Act establishes the most gigantic trust on earth. When President Wilson signs this bill, the invisible government of the monetary power will be legalized. This is the worst legislative crime of the ages that has been perpetuated by this banking and currency bill. From now on, all depressions will be scientifically created.”

And since the inception of the Federal Reserve, the U.S. Dollar has lost over 97% of its purchasing power. I believe the U.S. Dollar may experience a false sense of stability for the short to near term as the Euro and other currencies falter and fail, but once the U.S. dollar loses its world reserve currency status (at least as we know it) as the global financial reset is now upon us just a few short months from now (It is December23, 2018 as I write today), Trump will make his move against the Fed. Watch for my article on this in the coming days.

2019 and Beyond

It is because of this power and control which money affords that you will come to realize why governments and banks around the world are moving towards a cashless society. That’s right, a cashless society. If governments can control your money they can control your life. There are more and more laws, rules, and regulations in the U.S., Europe,and many places around the world restricting the amount of cash you can withdraw from your own accounts. Banks are now beginning to charge negative interest to hold your money.

Pulling cash from your bank or excessive international bank wires in any amount over a few thousand dollars, the banks can report you to the government as a “suspicious person,” potential money launderer, or terrorist, and a series of such withdrawals can put you in violation of criminal structuring/money laundering regulations, with huge fines and jail sentences. The ultimate goal of the global socialists is to eliminate all cash on a global basis and force everyone on the planet into the computerized electronic banking/credit card system. Cryptocurrencies have gained much momentum (albeit very volatile).

This will eventually lead to the National ID card, then the Global ID card, and then the chip through injection. This is the ultimate control and this is the direction the world is presently heading.I recommend getting a copy of the McAlvany Intelligence Advisor report May 2015 titled “War on Cash”, orread more about this in my archived articles section under “financial”.

So What to Do About All This?

There will be quite the bloodbath in the stock, bond and real estate markets. In fact, this has just begun. Support President Trump. Stay the course. Awaken others. Turn off the fake news. It is poisoning your mind, thoughts and feeling world and making you miserable. Follow Q-There is a plan.Stay informed. Sign up to receive my weekly articles to your in box via this FREE RSS Feed.

Surveys indicate that people no longer trust the media for news, politicians for the truth, or that Wall Street has Main Street’s best interest in mind. The John Michael Chambers Report informs and empowers individuals in a changing world. Sign up. Be informed and empowered. Stay connected.

As to your personal finances? The time for action is now. While so many others will continue to operate in the deceitful and flawed modalities being advised by an industry they no longer trust, critical thinkers see the dangers and opportunities. But you must act. A great change is on the near term horizon. The time for action is now. You can survive and thrive through the battle that has just begun for global currency supremacy. Got questions? I can help. Contact me.

Video Commentary

Beginning 2019, I will be providing a short weekly commentary video reflecting on the state of affairs as they unfold weekly. There will be unprecedented events occurring in 2019 and 2020. We will make sense of the madness as Trump takes on the Fed and the Deep State. The first video will be launched here on January 6, 2019 and each Sunday thereafter. Until then, have a Merry Christmas!
See you soon!

60% of the Financial System Now Has a Bailout Guarantee by Jeffrey A. Miron

More than Half of Private Liabilities Are Backed By the Government.

According to many politicians and pundits, new financial regulation adopted since 2008 means that financial crises are now less likely than before. President Barack Obama, for example, has suggested,

Wall Street Reform now allows us to crack down on some of the worst types of recklessness that brought our economy to its knees, from big banks making huge, risky bets using borrowed money, to paying executives in a way that rewarded irresponsible behavior.

Similarly, Paul Krugman writes,

financial reform is working a lot better than anyone listening to the news media would imagine. … Did reform go far enough? No. In particular, while banks are being forced to hold more capital, a key force for stability, they really should be holding much more. But Wall Street and its allies wouldn’t be screaming so loudly, and spending so much money in an effort to gut the law, if it weren’t an important step in the right direction. For all its limitations, financial reform is a success story.

Krugman is right that, other things equal, forcing banks to issue more capital should reduce the risk of of crises.

But other things have not remained equal. According to Liz Marshall, Sabrina Pellerin, and John Walter of the Richmond Federal Reserve Bank, the federal government is now protecting a much higher share of private financial sector liabilities than before the crisis:

If more private liabilities are explicitly or implicitly guaranteed, private parties will at some point take even greater risks than in earlier periods. And experience from 2008 suggests that government will always bailout major financial intermediaries if risky bets turn south.

So, some of the new regulation may have reduced the risk of financial crises; but other government actions have done the opposite. Time will tell which effect dominates.

This post first appeared at Cato.org.

Jeffrey A. MironJeffrey A. Miron

Jeffrey Miron is a Senior Lecturer and Director of Undergraduate Studies in the Department of Economics at Harvard University, as well as a senior fellow at the Cato Institute.

3 Kinds of Economic Ignorance by Steven Horwitz

Nothing gets me going more than overt economic ignorance.

I know I’m not alone. Consider the justified roasting that Bernie Sanders got on social media for wondering why student loans come with interest rates of 6 or 8 or 10 percent while a mortgage can be taken out for only 3 percent. (The answer, of course, is that a mortgage has collateral in the form of a house, so it is a lower-risk loan to the lender than a student loan, which has no collateral and therefore requires a higher interest rate to cover the higher risk.)

When it comes to economic ignorance, libertarians are quick to repeat Murray Rothbard’s famous observation on the subject:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Economic ignorance comes in different forms, and some types of economic ignorance are less excusable than others. But the most important implication of Rothbard’s point is that the worst sort of economic ignorance is ignorance about your economic ignorance. There are varying degrees of blameworthiness for not knowing certain things about economics, but what is always unacceptable is not to recognize that you may not know enough to be speaking with authority, nor to understand the limits of economic knowledge.

Let’s explore three different types of economic ignorance before we return to the pervasive problem of not knowing what you don’t know.

1. What Isn’t Debated

Let’s start with the least excusable type of economic ignorance: not knowing agreed-upon theories or results in economics. There may not be a lot of these, but there are more than nonspecialists sometimes believe. Bernie Sanders’s inability to understand why uncollateralized loans have higher interest rates would fall into this category, as this is an agreed-upon claim in financial economics. Donald Trump’s bashing of free trade (and Sanders’s, too) would be another example, as the idea that free trade benefits the trading countries on the whole and over time is another strongly agreed-upon result in economics.

Trump and Sanders, and plenty of others, who make claims about economics, but who remain ignorant of basic teachings such as these, should be seen as highly blameworthy for that ignorance. But the deeper failing of many who make such errors is that they are ignorant of their ignorance. Often, they don’t even know that there are agreed-upon results in economics of which they are unaware.

2. Interpreting the Data

A second type of economic ignorance that is, in my view, less blameworthy is ignorance of economic data. As Rothbard observed, economics is a specialized discipline, and nonspecialists can’t be expected to know all the relevant theories and facts. There are a lot of economic data out there to be searched through, and often those data require careful statistical interpretation to be easily applied to questions of public policy. Economic data sources also requiretheoretical interpretation. Data do not speak for themselves — they must be integrated into a story of cause and effect through the framework of economic theory.

That said, in the world of the Internet, a lot of basic economic data are available and not that hard to find. The problem is that many people believe that certain empirical facts are true and don’t see the need to verify them by actually checking the data. For example, Bernie Sanders recently claimed that Americans are routinely working 50- and 60-hour workweeks. No doubt some Americans are, but the long-term direction of the average workweek is down, with the current average being about 34 hours per week. Longer lives and fewer working years between school and retirement have also meant a reduction in lifetime working hours and an increase in leisure time for the average American. These data are easily available at a variety of websites.

The problem of statistical interpretation can be seen with data on economic inequality, where people wrongly take static snapshots of the shares of national income held by the rich and poor to be evidence of the decline of the poor’s standard of living or their ability to move up and out of poverty.

People who wish to opine on such matters can, again, be forgiven for not knowing all the data in a specialized discipline, but if they choose to engage with the topic, they should be aware of their own limitations, including their ability to interpret the data they are discussing.

3. Different Schools of Thought

The third type of economic ignorance, and the least blameworthy, is ignorance of the multiple perspectives within the discipline of economics. There are multiple schools of thought in economics, and many empirical questions and historical facts have a variety of explanations. So a movie like The Big Short that clearly suggests that the financial crisis and Great Recession were caused by a lack of regulation might be persuasive to people who have never heard an alternative explanation that blames the combination of Federal Reserve policy and misguided government intervention in the housing market for the problems. One can make similar points about the Great Depression and the difference between Hayekian and Keynesian explanations of business cycles more generally.

These issues involving schools of thought are excellent examples of Rothbard’s point about the specialized nature of economics and what the nonspecialist can and cannot be expected to know. It is, in fact, unrealistic to expect nonexperts to know all of the arguments by the various schools of thought.

Combining Ignorance and Arrogance

What is missing from all of these types of economic ignorance — and what is often missing from knowledgeable economists themselves — is what we might call “epistemic humility,” or a willingness to admit how little we know. Noneconomists are often unable to recognize how little they know about economics, and economists are often unable to admit how little they know about the economy.

Real economic “expertise” is not just mastery of theories and facts. It is a deeper understanding of the variety of interpretations of those theories and facts and humility in the face of our limits in applying that knowledge in attempting to manage an economy. The smartest economists are the ones who know the limits of economic expertise.

Commentators with opinions on economic matters, whether presidential candidates or Facebook friends, could, at the very least, indicate that they may have biases or blind spots that lead to uses of data or interpretive frameworks with which experts might disagree.

The worst type of economic ignorance is the type of ignorance that is the worst in all fields: being ignorant of your own ignorance.

Steven HorwitzSteven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

Rand Paul ‘Baffled’ by Evangelicals’ Preference for ‘War-Mongering GOP Candidates’

FAYETTEVILLE, NC /PRNewswire/ — In an exclusive interview with FTMDaily’s Jerry Robinson, U.S. Senator and Republican presidential candidate Rand Paul discusses the recent Senate vote on his “Audit the Fed” bill, as well as the lack of support of his candidacy within the American evangelical community.

Sen. Paul explains that the message in the New Testament is one of peace and that Jesus never encouraged his followers to rebel against the government or to instigate war. Therefore, Sen. Paul’s message of peace through prosperity should resonate within evangelical groups during this presidential election cycle. But when asked why many evangelicals in America prefer militarism over peace, Sen. Paul is truly baffled.

Sen. Paul comments:

“I think it is really an irony, and I continue to be baffled by it, but it’s not always true. I do remind them [religious and evangelical groups] that the sermon on the mount and the beatitudes were ‘blessed are the peacemakers’. Jesus didn’t say, ‘Oh, let’s gather some rebels and overturn the government that’s collaborating with the Romans’. Really, his message was a much different one.”

Jerry Robinson, a Christian economist and host of Follow the Money radio, recognizes that Sen. Paul’s message of a humble foreign policy, sound money, and fiscal transparency within government is in step with the teachings of the New Testament. And although Sen. Paul’s Audit the Fed bill was narrowly defeated by Senate Democrats on Tuesday, he promises that the fight for an audit is not over.

Sen. Paul concedes that he has worked for five years to get the bill up for a vote in the Senate, but that despite Tuesday’s defeat, he will continue to push his agenda.

Ultimately, Sen. Paul explains that his desire is to not only see a thorough audit of the Federal Reserve’s massive and opaque balance sheet, but also to allow interest rates to be set by the marketplace rather than the Federal Reserve. He claims that had interest rates been allowed to rise prior to the housing bubble of 2008, investors would have heeded the market signal that they had over-built and the bubble could have been avoided altogether.

About FTMDaily

FTMDaily, or Follow the Money Daily, is an online media company delivering cutting-edge financial commentaries, unique economic strategies, and informed geopolitical analysis. FTMDaily.com was created in 2010 by Christian economist and best-selling author, Jerry Robinson. Since then, FTMDaily.com has grown exponentially with readers and subscribers from all around the world.

Our mission at Follow the Money Daily is simple. We exist to help people understand the global economic and geopolitical realities that face them. For our paid subscribers, we provide real-time, actionable investing ideas and income strategies, along with cutting-edge geopolitical analysis, designed to prepare them for the difficult challenges that lie ahead for America and the world.

RELATED ARTICLE: Why the Freedom Caucus Wants to Declare War on ISIS

VIDEO: How Do We Get Rid of the Fed? by Jeffrey A. Tucker

When, if ever, will there be reform of the money system?

Smart people have been urging sound money — and calling for the restraint or abolition of the Federal Reserve System — for a century. It became apparent early on that this new machinery did not serve the cause of science, as promised, but rather the state and its friends.

Something needs to change.

The problem is this: interest groups benefit from the status quo. The largest banks, the top-tier bond dealers, a deeply indebted government, and myriad special interests all benefit from the power to print. They have an investment in discretionary monetary policy and in fiat money.

F.A. Hayek’s thesis in his 1974 essay “The Denationalization of Money” was that liberty won’t be safe as long as the central bank controls money. At the same time, nationalized money will never be reformed, because all the wrong people love the system as it is. Hayek’s solution: total privatization through displacing rather than reforming the Fed.

Still, the cries for reform are growing ever louder and ever more passionate.

As they should.

Jackson Hole, Wyoming, has emerged as the implausible center for the most important debate in economics and politics today. For 35 years, world central bankers have met there in August to discuss strategies and methods. In the past, they have met alone. This year, their monopoly on ideas was challenged head on.

I saw it as I stepped off the plane into the airport in Jackson Hole. There were the greeters from the Federal Reserve, welcoming dignitaries and big shots. Close by, there were greeters for the people who invited me: sound-money advocates for free markets, many influenced by the supply-side school. Our group was made up of economists, journalists, historians, and other independent intellectuals.

Then there was a third group made up of left-wing activists who want the power to print democratized — inflationists who see the Fed as their magical tool to bring about their dream of an egalitarian utopia.

The Sound Money Camp

The talks at our opposition conference were exceptional — the best two-day conference on gold and sound money I’ve attended. Speaker after speaker chronicled the problems with the Fed. The board of governors meets, and the whole world waits to see whether rates will go higher, lower, or stay the same.

Billions and trillions are held hostage to their whims, purportedly rooted in science but actually based on no more or less knowledge of the future than you and I have.

It is incredible how much our economic structures have become dependent on the whims of this group of unelected monetary dictators. But their main dependent is actually government itself. The Fed stands ready to print all the money government needs in the event of any crisis. That promise itself has meant the elimination of all fiscal discipline.

Politicians talk and talk about restraint, about cutting the budget, about bringing revenue in line with spending. But as long as the Fed is there, it’s all talk. There is no need for authentic discipline. In a strange way, the Fed has usurped even the power of the president and the Congress.

Consider the effects. Without a Fed, the US would have been far less likely to invade Iraq because the government would not have been able or willing to pay for it (at least without politically impossible tax hikes). And without that invasion, there would have been no rise of ISIS and no refugee crisis in Europe today. The crisis is giving both the radical right and left in Europe a huge political boost, displacing not only the establishment but the classical liberals, too.

The spillover effects are endless.

It’s been the same with every war in the last hundred years. They’ve all been underwritten by the power to print.

To see the relationship between the rise of Leviathan and the power of the central bank requires a few steps of logic, and some economic understanding. Even more difficult to comprehend is the relationship between the Fed and economic instability. When the Fed monkeys with interest rates, it distorts investment patterns, diverting resources from rational economic ends toward those with far less merit.

People think of the Fed as the benefactor who saved us from the housing crash. But to get at the truth, look at the history leading up to the crash. What provided the implicit bailout guarantee for the entire banking sector? What incentivized the reckless lending that goosed up housing prices for so long? However you ask the question, the answers point back to the central bank.

The institution that caused the problem cannot also be a reliable fix for the problem.

Can the System Be Reformed?

What reforms? At the conference I attended, there were many ideas, from gold-price rules to full privatization.

Solving the problem from the point of view of economics is not difficult: get rid of central banking.

The real problem is political: how do we get from here to there?

None of the existing presidential contenders are capable to forming two coherent sentences on the topic. In fact, they are more frightened by the subject of monetary policy than they are of the civil war in Iraq. And journalists don’t ask about the subject because their own economic ignorance exceeds even that of the candidates.

My own contribution to this conference was to discuss the innovation of cryptocurrency and bitcoin. Hayek had a glimpse of the possibility that private markets could reinvent money. He speculated that it could happen with the initiative of banks. What he could not have imagined was the invention of a distribution network and an open-source protocol that has no central point of failure. It is “owned” by everyone and no one. It is the basis of a monetary system for the world.

When? Not soon but eventually.

I sat on a panel with the mighty George Gilder, one of the truly prophetic voices over the last three decades. He rightly sees the potential of this technology, and he is super excited about it.

These monetary reformers who organized the event deserve congratulations for understanding the crucial role of digital technology in reforming money. I’m all for the gold standard, but never has the prospect of sensible monetary reform seemed more remote. Meanwhile, the reality of bitcoin is all around us.

Bonus: Here’s an outstanding interview with the author of the best single book on the topic in print today:

Jeffrey A. Tucker
Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook.

Market Corrections Inspire Dangerous Political Panic by Jeffrey A. Tucker

Some kinds of inflation people really hate, like when it affects food and gas. But now, with the whole of the American middle class heavily invested in stocks, there is another kind inflation people love and demand: share prices that increased forever.

Just as with real estate before 2008, people seem addicted to the idea that they should never go anywhere but up.

This is the reason that stock market corrections are so dangerous. The biggest danger is not economic. It is political. Such corrections push politicians and central bankers to undertake ever-more nutty political in do order to fix them.

To make the point, Donald Trump immediately blamed China, which has the temerity to sell Americans excellent products at low prices. Bernie Sanders blamed “free trade,” even though the United States is among the most protectionist in the world.

Nothing in this world is more guaranteed to worsen a correction that a trade war. But so far, that’s what’s been proposed.

Tolerance for Downturns

It was not always so. In the 1982 recession, the Reagan administration argued that it was best to let the market clear and grow calm. Once the recession cleaned up misallocations of resources, the economy would be well prepared for a growth path. Incredibly, the idea was sold to the American people, and it proved wise.

That was the last time in American history we’ve seen anything like a laissez-faire attitude prevail. After the 1990s dot com boom and bust, the Fed intervened in an effort to repeal gravity. After 9/11, the Fed intervened again, using floods of paper money to rebuild national pride. That created a gigantic housing bubble that exploded 7 years later.

By 2008, the idea of allowing markets to clear became intolerable, and so Congress spent hundreds of billions of dollars and the Fed created trillions in phony money, all to forestall what desperately needed to happen.

Now, with dramatic declines in stock markets around the world, we are seeing what happens when governments and central banks attempt to counter market forces.

Markets win. Every time. But somehow it doesn’t matter anymore. There’s no more science, no more rationality, no more concern for the long term, so far as the Fed is concerned. The Fed is maniacally focused on its member banks’ balance sheets. They must live and thrive no matter what. And the Fed is in the perfect position now to use public sentiment to bolster its policies.

The Right and Wrong Question 

In the event of a large crash, the public discussion going forward will be: What can be done to re-boost stock prices? This is the wrong question. The right question should be: What were the conditions that led to the unsustainable boom in the first place? This is the intelligent way to address a global meltdown. Sadly, intelligence is in short supply when people are panicked about losing their retirement funds they believed were secure.

Back when people thought about such things, the great economic Gottfried von Haberler was tapped by the League of Nations to write a book that covered the whole field of business cycle theory as it then existed. Prosperity and Depressioncame out in 1936 and was republished in 1941. It is a beautiful book, rooted in rationality and the desire to know.

The book covers six core theories: purely monetary (now called Chicago), overinvestment (now called Austrian), sudden changes in cost (related to what is now called Real Business Cycle), underconsumption (now called Keynesian), psychological (popular in the financial press), and agricultural theories (very old fashioned).

Each one is described. The author then turns to solutions and their viability, assessing each. The treatise leans toward the view that permitting the recession (or downturn or depression) run its course is a better alternative than any large policy prescription applied with the goal of countering the cycle.

Haberler is careful to say that there is not likely one explanation that applies to all cycles in all times and in all places. There are too many factors at work in the real world to provide such an explanation, and no author has ever attempted to provide one. All we can really do is look for the primary causes and the factors that are mostly likely to induce recurring depressions and recoveries.

He likened the business cycle a rocking chair. It can be still. It can rock slowly. Or an outside force can come along to cause it to rock more violently and at greater speed. Detangling the structural factors from the external factors is a major challenge for any economist. But it must be done lest policy authorities make matters worse rather than better.

The monetary theory posits that the quantity of money is the key factoring in generating booms and busts. The more money that flows into an economy via the credit system, the more production increases alongside consumption. This policy leads to inflation. The pullback of the credit machine induces the recession.

The “overinvestment” theory of the cycle focuses on the misallocation of resources that upsets the careful balance between production and consumer. Within the production structure in normal times, there is a focus on viability in light of consumer decisions. But when more credit is made available, the flow of resources is toward the capital sector, which is characterized by a multiplicity of purposes. The entire production sector mixes various time commitments and purposes. Each of them corresponds with an expectation of consumer behavior.

Haberler calls this an overinvestment theory because the main result is an inflation of capital over consumption. The misallocation is both horizontal and vertical. When the consumer resources are insufficient to realize the plans of the capitalists, the result is a series of bankruptcies and an ensuing recession.

Price Control by Central Banks

A feature of this theory is to distinguish between the real rate of interest and the money rate of interest. When monetary authorities push down rates, they are engaged in a form of price control, inducing a boom in one sector of the production structure. This theory today is most often identified with the Austrian school, but in Haberler’s times, it was probably the dominant theory among serious specialists throughout the world.

In describing the underconsumption theory of the cycle, Haberler can hardly hide his disdain. In this view, all cycles result from too much hoarding and insufficient debt. If consumer were spend to their maximum extent, without regard to issues of viability, producers would feel inspired to produce, and the entire economy could run off a feeling of good will.

Habeler finds this view ridiculous, based in part on the implied policy prescription: endlessly inflate the money supply, keep running up debts, and lower interest rates to zero. The irony is that this is the precisely the prescription of John Maynard Keynes, and his whole theory was rooted in a 200-year old fallacy that economic growth is based on consumption and not production. Little did Haberler know, writing in the early 1930s, that this theory would become the dominant one in the world, and the one most promoted by governments and for obvious reasons.

The psychological theory of the cycle observes the people are overly optimistic in a boom and overly pessimistic in the bust. More than that, the people who push this view regard these states of mind as causative of economic trends. They both begin and end the boom.

Haberler does not deny that such states of mind are important and contributing elements to making the the cycle more exaggerated, but it is foolish to believe that thinking alone can bring about systematic changes in the macroeconomic structure. This school of thought seizes on a grain of truth, and pushes that grain too far to the exclusion of real factory. Interestingly, Haberler identifies Keynes by name in his critique of this view.

Haberler’s treatise is the soul of fairness but the reader is left with no question about where his investigation led him. There are many and varied causes of business cycles, and the best explanations trace the problem to credit interventions and monetary expansions that upset the delicate balance of production and consumption in the international market economy.

Large-scale attempts by government to correct for these cycles can result in making matters worse, because it has no control over the secondary factors that brought about the crisis in the first place. The best possible policy is to eliminate barriers to market clearing — that is to say, let the market work.

The Fed is the Elephant in the Room

And so it should be in our time. For seven years, the Fed, which controls the world reserve currency, has held down interest rates to zero in an effort to forestall a real recession and recreate the boom. The results have been unimpressive. In the midst of the greatest technological revolution in history, economic growth has been pathetic.

There is a reason for this, and it is not only about foolish monetary policy. It is about regulation that inhibits business creation and economic adaptability. It’s about taxation that pillages the rewards of success and pours the bounty into public waste. It is about a huge debt overhang that results from the declaration that all governments are too big to fail.

Whether a correction is needed now or later or never is not for policymakers to decide. The existence of the business cycle is the market’s way of humbling those who claim to have the power and intelligence to outwit its awesome and immutable forces.

Jeffrey A. Tucker
Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook.

Driverless Money by George Selgin

Last week I was contemplating a post having to do with driverless cars when, wouldn’t you know it, I received word that the Bank of England had just started a new blog called Bank Underground, and the first substantive post on it had to do with — you guessed it — driverless cars.

As it turned out, I needn’t have worried that Bank Underground had stolen my fire. The post, you see, was written by some employees in the Bank of England’s General Insurance Supervision Division, whose concern was that driverless cars might be bad news for the insurance industry.

The problem, as the Bank of England’s experts see it, is that cars like the ones that Google plans to introduce in 2020 are much better drivers than we humans happen to be — so much better, according to research cited in the post, that “the entire basis of motor insurance, which mainly exists because people crash, could … be upended.”

Driverless cars, therefore, threaten to “wipe out traditional motor insurance.”

It is, of course, a great relief to know that the Bank of England’s experts are keeping a sharp eye out for such threats to the insurance industry. (I suppose they must be working as we speak on some plan for addressing the dire possibility — let us hope it never comes to this — that cancer and other diseases will eventually be eradicated.)

But my own interest in driverless cars is rather different. So far as I’m concerned, the advent of such cars should have us all wondering, not about the future of the insurance industry, but about the future of…the Bank of England, or rather of it and all other central banks.

If driverless cars can upend “the entire basis of motor insurance,” then surely, I should think, an automatic or “driverless” monetary system ought to be capable of upending “the entire basis of monetary policy,” as such policy is presently conducted.

And that, so far as I’m concerned, would be a jolly good thing.

Am I drifting into science fiction? Let’s put matters in perspective. Although experiments involving driverless or “autonomous” cars have been going on for decades, until as recently as one decade ago, the suggestion that such cars would soon be, not only safe enough to replace conventional ones, but far safer, would have struck many people as fantastic.

Consider for a moment the vast array of contingencies such a vehicle must be capable of taking into account in order to avoid accidents and get passengers to some desired destination. Besides having to determine correct routes, follow their many twists and turns, obey traffic signals, and parallel park, they have to be capable of evading all sorts of unpredictable hazards, including other errant vehicles, not to mention jaywalkers and such.

The relevant variables are, in fact, innumerable. Yet using a combination of devices tech wizards have managed to overcome almost every hurdle, and will soon have overcome the few that remain.

All of this would be impressive enough even if human beings were excellent drivers. In fact, they are often very poor drivers indeed, which means that driverless cars are capable, not only of being just as good, but of being far better —  90 percent better, to be precise, since that’s the percentage of all car accidents attributable to human error.

Human beings are bad drivers for all sorts of reasons. They have to perform other tasks that take their mind off the road; their vision is sometimes impaired; they misjudge their own driving capabilities or the workings of their machines; some are sometimes inclined to show off, while others are dangerously timid. Occasionally, instead of relying on their wits, they drive “under the influence.”

Central bankers, being human, suffer from similar human foibles. They are distracted by the back-seat ululations of commercial bankers, exporters, finance ministers, and union leaders, among others. Their vision is at the same time both cloudy and subject to myopia.

Finally, few if any are able to escape altogether the disorienting influence of politics. The history of central banking is, by and large, a history of accidents, if not of tragic accidents, stemming from these and other sorts of human error.

It should not be so difficult, then, to imagine that a “driverless” monetary system might spare humanity such accidents, by guiding monetary policy more responsibly than human beings are capable of doing.

How complicated a challenge is this? Is it really more complicated than that involved in, say, driving from San Francisco to New York? Central bankers themselves like to think so, of course — just as most of us still like to believe that we are better drivers than any computer.

But let’s be reasonable. At bottom central bankers, in their monetary policy deliberations, have to make a decision concerning one thing, and one thing only: should they acquire or sell assets, and how many, or should they do neither?

Unlike a car, which has numerous controls — a steering wheel, signal lights, brakes, and an accelerator — a central bank has basically one, consisting of the instrument with which it adjusts the rate at which assets flow into or out of its balance sheet. Pretty simple.

And the flow itself? Here, to be sure, things get more complicated. What “target” should the central bank have in mind in determining the flow? Should it consist of a single variable, like the inflation rate, or of two or more variables, like inflation and unemployment? But the apparent complexity is, in my humble opinion, a result of confusion on monetary economists’ part, rather than of any genuine trade-offs central bankers face.

As Scott Sumner has been indefatigably arguing for some years now (and as I myself have long maintained), sound monetary policy isn’t a matter of having either a constant rate of inflation or any particular level of either employment or real output. It’s a matter of securing a stable flow of spending, or Nominal GNP, while leaving it to the marketplace to determine how that flow breaks down into separate real output and inflation-rate components.

Scott would have NGDP grow at an annual rate of 4-5 percent; I would be more comfortable with a rate of 2-3 percent. But this number is far less important to the achievement of macroeconomic stability than a commitment to keeping the rate — whatever it happens to be — stable and, therefore, predictable.

So: one goal, and one control. That’s much simpler than driving from San Francisco to New York. Heck, it’s simpler than managing the twists and turns of San Franscisco’s Lombard Street.

And the technology? In principle, one could program a computer to manage the necessary asset purchases or sales. That idea itself is an old one, Milton Friedman having contemplated it almost forty years ago, when computers were still relatively rare.

What Friedman could not have imagined then was a protocol like the one that controls the supply of bitcoins, which has the distinct advantage of being, not only automatic, but tamper-proof: once set going, no-one can easily alter it. The advantage of a bitcoin-style driverless monetary system is that it is, not only capable of steering itself, but incapable of being hijacked.

The bitcoin protocol itself allows the stock of bitcoins to grow at a predetermined and ever-diminishing rate, so that the stock of bitcoins will cease to grow as it approaches a limit of 21 million coins.

But all sorts of protocols may be possible, including ones that would adjust a currency’s supply growth according to its velocity — that is, the rate at which the currency is being spent — so as to maintain a steady flow of spending, à la Sumner. The growth rate could even be made to depend on market-based indicators of the likely future value of NGDP.

This isn’t to say that there aren’t any challenges yet to be overcome in designing a reliable “driverless money.” For one thing, the monetary system as a whole has to be functioning properly: just as a driverless car won’t work if the steering linkage is broken, a driverless monetary system won’t work if it’s so badly tuned that banks end up just sitting on any fresh reserves that come their way.

My point is rather that there’s no good reason for supposing that such challenges are any more insuperable than those against which the designers of driverless cars have prevailed. If driverless car technology has managed to take on San Francisco’s Lombard Street, I see no reason why driverless money technology couldn’t eventually tackle London’s.

What’s more, there is every reason to believe that driverless money would, if given a chance, prove to be far more beneficial to mankind than driverless cars ever will.

For although bad drivers cause plenty of accidents, none has yet managed to wreck an entire economy, as reckless central bankers have sometimes done. If driverless monetary systems merely served to avoid the worst macroeconomic pileups, that alone would be reason enough to favor them.

But they can surely do much better than that. Who knows: perhaps the day will come when, thanks to improvements in driverless monetary technology, central bankers will find themselves with nothing better to do than worry about the future of the hedge fund industry.

Cross-posted from Alt-M.org and Cato.org.

George Selgin

The Other Half of the Inflation Story

Credit expansion adds noise to price signals by Sandy Ikeda.

More money means higher prices. It’s too bad not everyone understands that connection. Even some economists don’t get it. Readers of the Freeman do, I’m sure. And they also understand why that’s a bad thing.

Increasing the supply of money and credit, other things equal, will cause a general rise in wages and prices across an economy. When the Federal Reserve, the central bank of the United States, excessively “prints money,” the result is “inflation” as it’s now commonly called. For those who get the new money after everyone else has spent theirs, inflation means incomes will now buy fewer goods, and every dollar lent before prices rose will be worth less when it’s returned.

If inflation continues, people will eventually learn to demand more for what they sell and lend in order to compensate for the purchasing power that inflation keeps eating away. That, in turn, will cause prices to rise faster, which makes planning for households and businesses even more difficult. In the past, that difficulty has led to hyperinflation and a breakdown of the entire economic system.

But as awful as all this may be, it’s really only half the story, and perhaps not even the worse half. What follows is a highly simplified story of what happens.

The structure of production

If you’d like to build a sturdy house, you’ll need to have some kind of blueprint or plan that will tell you two things:

  1. how the frame, floor, walls, roof, plumbing, and electrical system will all fit together; and
  2. the order in which to put these components together.

Even if the house was made entirely of identical stones, you would need to know how to fit them together to form the floor, walls, chimney, and other structural components. No two stones would serve exactly the same function in the overall plan.

The economy is like a house in the sense that each of its parts, which we might call “capital,” needs to mesh in a certain way if the eventual result will be order and not chaos. But there are two big differences between a house and an economy. The first is that the economy is not only much bigger, but it consists of a multitude of “houses” or private enterprises that have to fit together orcoordinate, and so it’s an unimaginably more complex phenomenon than even the most elaborate house.

The second major difference is that a house is consciously constructed for a purpose, typically for someone to live in it. But an economic system is neither consciously designed by anyone nor intended to fulfill any particular purpose, other than perhaps to enable countless people with plans to do the best they can to achieve success. It’s a spontaneous order.

The way all the pieces of capital, from all the diverse people in the economy who own them, fit together is called the capital structure of production.

Credit expansion distorts the structure of production

When people decide to spend a certain portion of their incomes on consumption today, they are at the same time deciding to save some portion for consumption for the future. The amount that they save then gets lent out to borrowers and investors in the market for loanable funds. The rate of interest is the price of making those transactions across time. That is, when you decide to increase your saving, other things equal, the rate of interest (what some economists call the “natural rate of interest”) will fall. The falling interest rate makes borrowing more attractive to producers who invest today to produce more goods in the future.

That’s great, because when the market for loanable funds is operating freely without distortions, that means when people who saved today try to consume more in the future, there actually is more in the future for them to consume . Businesses today invested more at the lower rates precisely in order to have more to sell in the future when consumers want to buy more.

Now, if the Federal Reserve prints more money and that money goes into the loanable funds market, that will also increase the supply of loans and lower the interest rate and induce more borrowing and investment for future output. The difference here is that the supply of loans increases not because people are saving more now in order to consume more in the future, but only because of the credit expansion. That means that in the future, when businesses have more goods to sell, consumers won’t be able to buy them (because they didn’t save enough to do so) at prices that will cover all of the businesses’ costs. Prices will have to drop in order for markets to clear. Sellers suffer losses and workers lose their jobs.

And, oh yes, all that credit expansion also causes inflation.

While this process sounds rather involved, it’s still a highly simplified version of what has come to be known as the Austrian business cycle theory. (For a more advanced version, see here.) Of course, each instance in reality is significantly different from any other, but the narrative is essentially the same: credit expansion distorts the structure of production, and resources eventually become unemployed.

The explanation is more involved than the typical inflation-is-bad story that we’re more familiar with. Indeed, that probably explains why it’s the less-well-known half of the story. Even Milton Friedman and the monetarists pay little attention to the capital structure, choosing instead to focus on the problems of inflationary expectations.

Again, for Austrians, the problem arises when credit expansion artificially lowers interest rates and sets off an unsustainable “boom”; the solution is when the structure of production comes back into alignment with people’s actual preferences for consumption and saving, which is the “bust.” Most modern macroeconomists see it exactly the opposite way: the bust is the problem, and the boom is the solution.

An intricate, dynamic jigsaw puzzle

To close, I’d like to use an analogy I learned from Steve Horwitz (whom I heartily welcome back as a fellow columnist here at the Freeman).

The market economy is like a giant jigsaw puzzle in which each piece represents a unique unit of capital. When the system is allowed to operate without government intervention, the profit-and-loss motive tends to bring the pieces together in a complementary way to form a harmonious mosaic (although in a dynamic world, it couldn’t achieve perfection).

Credit expansion, then, is like someone coming along and making too many of some pieces and too few of others — and then, during the boom, trying to force them together, severely distorting the overall picture. During the bust, people realize they have to get rid of some pieces and try to discover where the others actually fit. That requires challenging adjustments and may take some time to accomplish. But if the government tries to “help” by stimulating the creation of more superfluous pieces, it will only confuse matters and make the process of adjustment take that much longer.

Inflation is bad enough. Unfortunately, it’s only half the story.

Sandy Ikeda

Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

Our Inflated Thanksgiving by Chuck Grimmett

What does the Federal Reserve have to do with your Thanksgiving dinner?

INTERACTIVE GRAPH:

For the past 29 years, the American Farm Bureau Federation has conducted an informal survey of the price of a classic Thanksgiving dinner for 10 people. At first glance, it looks like the price of food has been steadily rising. But when you adjust the numbers for inflation, you get a different story. It isn’t the cost of our food that has been rising, but the amount of US currency in circulation.
This year, we’re thankful for technologies like bitcoin breaking the Federal Reserve’s grip on money.
Happy Thanksgiving!
The individual prices of a traditional Thanksgiving dinner this year:
(Hover for items and prices.)

20130829_CAGCHUCK GRIMMETT

Chuck Grimmett is a project manager at eResources. Previously, he was FEE’s director of web media. Get in touch with him on Twitter: @cagrimmett.

New York Federal Reserve: Higher Health Costs, More Part-Time Workers from Obamacare

Obamacare puts employers in a bind, two New York Federal Reserve surveys show. Employers’ health care costs continue to rise, and the health care law is driving them to hire more part-time labor, CNBC reports:

The median respondent to the N.Y. Fed surveys expects health coverage costs to jump by 10 percent next year, after seeing a similar percentage increase last year.

Not all firms surveyed said the Affordable Care Act (ACA) is to blame for those cost increases to date. But a majority did, and the percentage of businesses that predicted the ACA will hike such costs next year is even higher than those that said it did this year.

Obamacare’s higher costs will cascade down to consumers. The surveys found that “36 percent of manufacturers and 25 percent of service firms said they were hiking prices in response” to Obamacare’s effects.

The Empire State Manufacturing Survey polls New York State manufacturers, and the Business Leaders Survey polls service firms in the New York Federal Reserve District.

A June Gallup poll found that four in ten Americans are spending more on health care in 2014 than in 2013.

Let’s dig into the numbers.

When asked, “How would you say the ACA has affected the amount your firm is paying in health benefit costs per worker this year?” More than 73% of manufacturers and 58% of service firms said the health care law has increased costs this year.

Companies are also more pessimistic about Obamacare next year. Over 80% of manufacturers and 74% of service firms expect health plan costs to increase in 2015.

New York Federal Reserve Empire State Manufacturing and Business Leaders Surveys

Source: New York Federal Reserve. For a larger view click on the image.

Employers were also asked what effects Obamacare is having on their labor forces. Over 21% of manufacturers and nearly 17% of service firms say they reduced the number of employees because of the law, while only about 2% of each have hired more workers. What’s more, nearly 20% of both manufacturers and service firms say that Obamacare has pushed them to increase their proportion of part-time workers, but just under 5% of each type of firm said they have lowered them. Presumably this is due to the perverse incentives from Obamacare’s employer mandate.

This data fits with research from the Atlanta Federal Reserve that found that since the recession, 25% of firms have a greater share of part-time workers, while only 8% have a lower share. This data also fits with anecdotes from around the country of employers saying that they’re hiring more part-time workers because of Obamacare.

New York Federal Reserve Empire State Manufacturing and Business Leaders Surveys

Source: New York Federal Reserve. For a larger view click on the image.

The sad truth is the health care law is pushing higher health costs onto employers and incentivizing them to hire more part-time workers. Despite passing a law in 2010 loaded with rules, regulations, mandates, and taxes, health care reform is needed more than ever. For solutions that that will control health care costs, improve quality, and expand access, check out the U.S. Chamber’s Health Care Solutions Council report.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

Yellen: I Helped Blow Up The World

The most-destructive terrorists do not use guns or bombs.  They use their power and influence to lie in public, backed by force of law, destroying people, industry and even entire nations and their governments.  They are found in the halls of finance, and the more-powerful they are the worse they are.  Today, the head of same is found in the Federal Reserve, seated before Congress in the form of ChairSatan Janet Yellen.

First, let me acknowledge the important contributions of Chairman Bernanke. His leadership helped make our economy and financial system stronger and ensured that the Federal Reserve is transparent and accountable. I pledge to continue that work.

Uh huh.  The man who first claimed subprime is contained, who in fact invented and promoted the policies that led to the housing bubble in the first place (people seem to forget that) and then who invented and promoted the policies that have now led to the largest global asset bubble in history (second only to the one he built first, and which exploded in his face.)

The unemployment rate has fallen nearly a percentage point since the middle of last year and 1-1/2 percentage points since the beginning of the current asset purchase program. Nevertheless, the recovery in the labor market is far from complete.

There has been no recovery in employment rate of the population.  At all.

Since anyone driven from the workforce by Fed policy doesn’t count as “unemployed” Yellen’s statement is akin to arguing that the natural death rate has not gotten worse over time which may well be true but if you’re shooting people by the busload there are still more people dying — and you’re responsible for their deaths.

Among the major components of GDP, household and business spending growth stepped up during the second half of last year.

Uh huh.  All of it borrowed, I might add.  Median household income adjusted for inflation is not rising.  Therefore all of this increased spending must be borrowed money, which is not an improvement in the common man’s situation.

The same is true with businesses; they never saw their indebtedness decrease — not even in the depths of the recession.

We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook.

The Fed caused that volatility.

Our current program of asset purchases began in September 2012 amid signs that the recovery was weakening and progress in the labor market had slowed.

There has been no recovery.  Not in inflation-adjusted incomes nor in the employment rate of the population.  Neither has improved one iota since 2009.  Borrowing more money is not an “improvement” as incomes must rise net-net to service the new debt.  They haven’t.

The Committee has emphasized that a highly accommodative policy will remain appropriate for a considerable time after asset purchases end.

Of course you have.  The government is blowing more money than it takes in too, and you know full well that this can’t continue forever either, but you won’t take the candy away from the baby – even when told, point-blank as Bernanke was on multiple occasions over the last few years, that Congress is incapable of rational fiscal management on its own without being forced to do so by market-based borrowing costs.

Regulatory and supervisory actions, including those that are leading to substantial increases in capital and liquidity in the banking sector, are making our financial system more resilient. Still, important tasks lie ahead. In the near term, we expect to finalize the rules implementing enhanced prudential standards mandated by section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. We also are working to finalize the proposed rule strengthening the leverage ratio standards for U.S.-based, systemically important global banks. We expect to issue proposals for a risk-based capital surcharge for those banks as well as for a long-term debt requirement to help ensure that these organizations can be resolved. In addition, we are working to advance proposals on margins for noncleared derivatives, consistent with a new global framework, and are evaluating possible measures to address financial stability risks associated with short-term wholesale funding. We will continue to monitor for emerging risks, including watching carefully to see if the regulatory reforms work as intended.

This is the biggest lie of all.

Derivatives are nothing other than a scam intended to get around margin requirements that would otherwise be imposed by the market in the absence of government bailouts and guarantees.  The “financial system” has repeatedly demonstrated that it has both, with the most-outrageous example of same being when Paulson and Bernanke literally corralled Congresspeople into a room and threatened them with economic nuclear winter if they didn’t get a $700 billion blank check.

That “need” came about due to The Fed and Congressional willful blindness toward the outright fraudulent declarations of “adequate” margin supervision and reserves against said positions.  What 2008 laid bare on the table was that these claims were outright lies, that is, public frauds, and yet none were either prosecuted nor were the firms that had made such outrageous and false statements allowed to fail, with only a couple of exceptions.

The fundamental reality is that The Fed believes, despite decades of proof otherwise, that it can successfully “manage” the business cycle and continually pump up asset bubbles without consequence. The problem with such an assertion is that every time The Fed has done this to date throughout history the balloon has found a pin and popped with dramatic consequence, and what’s worse, the severity of those excursions in terms of real-world economic impact has risen with each successive attempt and failure.

The Market Ticker

Watch Out Florida Here Comes Our “Bubble Government”

Recently in a radio interview Robert Wiedemer co-author of America’s Bubble Economy and Aftershock and Edward J. Pinto, resident scholar at the American Enterprise Institute discussed the idea of the United States having a “bubble government”. Wiedemer stated that America has suffered through “a number of financial bubbles” and the “aftershock following each”. To date each of these bubbles, the most recent being the housing bubble, have burst and fallen onto two other looming bubbles. These two bubbles are the “dollar bubble” and the “debt bubble”.

These two bubbles are primed to burst and the pin is called inflation.

The Wall Street Journal headline for April 5, 2012 was “Markets Fear End of Stimulus” written by Jonathan Cheng and Charles Forelle. What is the great concern? According to Cheng and Forelle, “European Central Bank President Mario Draghi indicated he would be hesitant to undertake more monetary easing, citing concerns about inflation.” Monetary easing (a.k.a. government stimulus or quantitative easing) is governments printing money. Today American is awash in money due to our government printing it with no end in sight – the dollar bubble is upon us.

Congress has failed in their Constitutional duty to pass a budget in nearly four years. The U.S. government runs on continuing resolutions and Congress has raised the debt ceiling to an astounding $15+ trillion dollars. In 2011 Congress spent nearly 55% more than it collect in revenues. The debt ceiling will be breached yet again before the November 6, 2012 elections. This all has caused our government to borrow at an unprecedented rate of 40 cents of every dollar – the debt bubble.

What does that all have to do with Florida?

Florida is especially vulnerable to the aftershock of either a dollar or debt bubble burst. Florida’s barely recovering housing market and our large population of fixed income retirees are in the cross hairs should inflation increase even fractionally.

According to Edward J. Pinto, “One in four [Federal Housing Administration] FHA loans outstanding in Georgia and New Jersey are now thirty-days-plus delinquent, with eight additional states having delinquency rates above 20 percent. The national rate is 17.79 percent.” Florida has a delinquency rate of 23.07%. Pinto points out, “FHA is estimated to have a current net worth of -$16.923 billion, approximately $18 billion less than the ‘economic net worth’ set forth in FHA’s 2011 Actuarial Study.”

Pinto states, “The Government Mortgage Complex (GMC), consisting of FHA, Fannie Mae, Freddie Mac, the Veterans Administration and Federal Department of Agriculture, is bankrupt. The Government Mortgage Complex guarantees about $6 trillion in in home mortgages, yet has zero capital backing it. Fannie and Freddie do owe the government nearly $200 billion and counting.”

When inflation kicks in, as it is in Europe, the bond markets will tank, as they have in Spain, and Florida will be facing a double dip recession because many retirees have invested in bonds.

President Obama, the Federal Reserve and Congress will do everything they can to not let this collapse happen before the November 2012 elections. However, they may not be able to stop it, as the markets are already reacting to failed attempts at austerity in the EU and the rising cost of debt.

These two bubbles are coming home to roost in America.

When they burst the burden will fall most heavily upon the American taxpayer a rapidly diminishing species. There is not the political will to address either bubble until they burst and a national crisis occurs. As the argument goes “never let a good crisis go to waste” but this time the austerity solutions will be Draconian.

A possible scenario is a replay of the October surprise of 2008 – a meltdown of the financial markets. Are we being set up for another TARP or Stimulus III? Time will tell.