(Note: I originally wrote this article in Dec 2008. Upon review, I see that not only were my observations correct at the earlier date, but that the economic situation has worsened precipitously in the interviewing three years. The housing market has not recovered and has gotten worse, unemployment has continued rise, inflation is up, the price of gas is on the rise, and other commodities follow suit. Additionally, no one seems to have a plan on how to reverse the mess we’re in. The Treasury and the Fed seem to be going on hoping that throwing even more cash will make the problems dissapear. If only this were true. Never in history has it worked to try to spend your way out of debt. It won’t work this time either. But, absent any true leadership or focus on basic economic principles, the “try this” or “try that” methods seems to be the order of the day.
We don’t have to reinvent the wheel to solve this problem. In my opinion, the way this ship of state can be righted is to step back and really look at what is going on. Then reorient to the time-worn, basic economic principles (laws, rules, fundamentals) that have been proven workable in the past, then develop common-sense methods (established techniques and logical practices of consistently achieving certain ends) that align with the fundamental principles. Its not really that hard if you focus on the principles and adopt methods which empower them.
Here now, in its entirety, is my article.
– daniel w. jacobs, September 2011)
Mare incognito – uncharted waters – dangerous enough at sea, but exponentially worse when global economic and financial stability is at risk.
With so-called experts trying to outwit, outfox, and revise the proven basic laws of economics with their know-best, intellectual opinions and half-baked ideas, the roiling global situation is far worse than we know.
Witnessed by the precipitous deterioration of market values of investments, personal properties and the insecurity borne of lost jobs, the erstwhile “leaders” – starting with Greenspan (and Bernanke at the wheel of the Fed) – don’t seem to have a clue of how to stem the systemic risk of collapse of the global financial system.
Just because someone decides that the basic principle of the law of gravity doesn’t apply, does not change the inevitable consequence of violating that law. And it’s often far more painful than imagined.
True economic laws do exist – the Austrian Economic model for example – that trump the feeble attempts of individuals to disregard them with high-sounding verbiage from lofty ivory-tower positions. Try as they might, when laws are ignored or considered invalid – pretending that they are old, and don’t apply anymore – consequences will appear; the piper must be paid, and we’ll all suffer the unpleasant results.
Truth is truth. It knows no boundaries and answers to no authority. It can be altered, which of course, would make it an untruth. But it is truth alone that shines like Mars at Perihelion – undeniable and unstoppable.
Not to get off on a philosophical rant, but only to assert these simple, common sense facts:
Basic truths exist – when violated, result in painful consequences.
From an economic viewpoint this fact is evident:
Monetary inflation inevitably leads to price inflation.
One final observation:
This is exactly where we find ourselves right now as a country and a planet.
In these times and in the future, the worst assets to hang onto are paper assets and the best assets to hold are the “real things” of the world; hard assets, gold, silver, your home, tools of your trade and the like. These become far more valuable than fiat or paper money because they are things that can be used to create value and exchange.
Some months ago I wrote what soon became a popular article entitled: “FIAT MONEY: a primer.“ In this article, I explained that fiat money is a currency, arbitrarily declared to be legal by order of a government. “Fiat” money has no intrinsic value and is backed by nothing but the force of the government to make you accept it, or else.
Money is basically an idea backed only the by faith or confidence that it will actually be worth something when you want to spend it. When that is gone, so is the value of paper (fiat) money and so is the country. It’s a delicate game to play, as fiat money is convenient and flexible but open to the twin towers of abuses: greed and fear.
As an extension of my writing mentioned above I came upon a speech to Congress in November 2008, given by Congressman Ron Paul, who laid out precisely what is going. He is spot on the money (pun intended). The speech is accurate, truthful and in my opinion, only dangerous to the ones seeking to keep such information hidden or discredited.
I encourage you to read the article in its entirety. Then you decide if it’s true for you. If it is, then pass it along, as the only real defense against tyranny and deception is the spotlight of truth, freely disseminated and used the interested people of a country, or a world.
In the uncharted waters (mare incognito) which lie ahead, we’ll need all the help we can get to avoid ending up as just another failed attempt to establish and maintain a country based upon the principles of freedom. In spite of every invitation to do otherwise, I still hold out hope for the future. – daniel w. jacobs
The Austrians Were Right
by Congressman Ron Paul
Congressman Ron Paul speaking before the US House of Representatives, November 20, 2008
Madame Speaker, many Americans are hoping the new administration will solve the economic problems we face. That’s not likely to happen, because the economic advisors to the new President have no more understanding of how to get us out of this mess than previous administrations and Congresses understood how the crisis was brought about in the first place.
Except for a rare few, Members of Congress are unaware of Austrian Free Market economics. For the last 80 years, the legislative, judiciary and executive branches of our government have been totally influenced by Keynesian economics. If they had had any understanding of the Austrian economic explanation of the business cycle, they would have never permitted the dangerous bubbles that always lead to painful corrections.
Today, a major economic crisis is unfolding. New government programs are started daily, and future plans are being made for even more. All are based on the belief that we’re in this mess because free-market capitalism and sound money failed. The obsession is with more spending, bailouts of bad investments, more debt, and further dollar debasement. Many are saying we need an international answer to our problems with the establishment of a world central bank and a single fiat reserve currency. These suggestions are merely more of the same policies that created our mess and are doomed to fail.
At least 90% of the cause for the financial crisis can be laid at the doorstep of the Federal Reserve. It is the manipulation of credit, the money supply, and interest rates that caused the various bubbles to form. Congress added fuel to the fire by various programs and institutions like the Community Reinvestment Act, Fannie Mae and Freddie Mac, FDIC, and HUD mandates, which were all backed up by aggressive court rulings.
The Fed has now doled out close to $2 trillion in subsidized loans to troubled banks and other financial institutions. The Federal Reserve and Treasury constantly brag about the need for “transparency” and “oversight,” but it’s all just talk – they want none of it. They want secrecy while the privileged are rescued at the expense of the middle class.
It is unimaginable that Congress could be so derelict in its duty. It does nothing but condone the arrogance of the Fed in its refusal to tell us where the $2 trillion has gone. All Members of Congress and all Americans should be outraged that conditions could deteriorate to this degree. It’s no wonder that a large and growing number of Americans are now demanding an end to the Fed.
The Federal Reserve created our problem, yet it manages to gain even more power in the socialization of the entire financial system. The whole bailout process this past year was characterized by no oversight, no limits, no concerns, no understanding, and no common sense.
Similar mistakes were made in the 1930s and ushered in the age of the New Deal, the Fair Deal, the Great Society and the supply-siders who convinced conservatives that deficits didn’t really matter after all, since they were anxious to finance a very expensive deficit-financed American empire.
All the programs since the Depression were meant to prevent recessions and depressions. Yet all that was done was to plant the seeds of the greatest financial bubble in all history. Because of this lack of understanding, the stage is now set for massive nationalization of the financial system and quite likely the means of production.
Although it is obvious that the Keynesians were all wrong and interventionism and central economic planning don’t work, whom are we listening to for advice on getting us out of this mess? Unfortunately, it’s the Keynesians, the socialists, and big-government proponents.
Who’s being ignored? The Austrian free-market economists – the very ones who predicted not only the Great Depression, but the calamity we’re dealing with today. If the crisis was predictable and is explainable, why did no one listen? It’s because too many politicians believed that a free lunch was possible and a new economic paradigm had arrived. But we’ve heard that one before – like the philosopher’ s stone that could turn lead into gold. Prosperity without work is a dream of the ages.
Over and above this are those who understand that political power is controlled by those who control the money supply. Liberals and conservatives, Republicans and Democrats came to believe, as they were taught in our universities, that deficits don’t matter and that Federal Reserve accommodation by monetizing debt is legitimate and never harmful. The truth is otherwise. Central economic planning is always harmful. Inflating the money supply and purposely devaluing the dollar is always painful and dangerous.
The policies of big-government proponents are running out of steam.
Their policies have failed and will continue to fail. Merely doing more of what caused the crisis can hardly provide a solution.
The good news is that Austrian economists are gaining more acceptance every day and have a greater chance of influencing our future than they’ve had for a long time.
The basic problem is that proponents of big government require a central bank in order to surreptitiously pay bills without direct taxation. Printing needed money delays the payment. Raising taxes would reveal the true cost of big government, and the people would revolt. But the piper will be paid, and that’s what this crisis is all about.
There are limits. A country cannot forever depend on a central bank to keep the economy afloat and the currency functionable through constant acceleration of money supply growth. Eventually the laws of economics will overrule the politicians, the bureaucrats and the central bankers. The system will fail to respond unless the excess debt and mal-investment is liquidated. If it goes too far and the wild extravagance is not arrested, runaway inflation will result, and an entirely new currency will be required to restore growth and reasonable political stability.
The choice we face is ominous: We either accept world-wide authoritarian government holding together a flawed system, OR we restore the principles of the Constitution, limit government power, restore commodity money without a Federal Reserve system, reject world government, and promote the cause of peace by protecting liberty equally for all persons. Freedom is the answer.