Actually, he's been saying what we need to do for 30 years - but has generally been dismissed as a crank.
Some of the specifics he has been recommending have been:
- Reintroduce gold and silver as legal tender to compete with federal reserve notes (and abolish the Federal Reserve)
- Slash federal spending based on what the Constitution specifically authorizes Congress to spend money on
- Bring our troops home from around the world, close the 700+ military bases we have in 130 countries - which would save billions in money to fund them right now, and trillions in future money that our aggressive foreign policy costs us in foreign wars (not to mention precious American lives)
- Cut back on taxes (not these one or two percent "cutbacks" McCain/Obama is promising), repeal the income tax, abolish the IRS, make America a place businesses will want to operate in (which is how jobs are created!)
- Phase out entitlement programs (Social Security, Medicare, Medicaid, etc.) gradually with the proceeds of rolling back the "empire" and cut government out of such nationalizations that we absolutely cannot afford to fund (we are set to go broke as early as 2017 when the boomer retirement peaks)
- No intervention in the marketplace (let bad debt fall where it may), make businesses accountable for bad decisions
There are many other specifics, but I do agree that we need to 1) Shore up the dollar, 2) Reverse our debt spending, and 3) Foster a culture of not depending on government to provide cradle to grave security.
None of these things can be done overnight, but right now, the federal government needs to get out of a hole, but is not only continuing to dig, they've brought in steam-shovels to make the hole bigger!
The bailout was the absolute worst thing "we" could have done. The chickens will come home to roost on this one. If the country won't do what needs done, individuals and their families will simply have to take up the slack and prepare for another depression, some ideas:
- pay off debts
- save, don't spend
- be thrifty
- put some savings in gold, others in conservative investments unlinked to American dollars and other fiat currencies as far as that is possible
- If possible, start planting food gardens and becoming as energy efficient and independent as possible
In short, our families and our country need to live within our means, save, invest, and quit trying to "spend our way to prosperity."
We're basically bankrupt, and we have to mend our ways.
You know, I always thought Ron Paul was too much of a whiner, but by darn, he's the only one making any freaking sense of this mess. Geez, I feel like I'm living in a flippin' insane asylum, both in the country and in the synod. Everyone seems to have lost their minds. Or is it just me who is gone crazy?
Debate about the role of central banking goes back to the founding of the republic, Hamilton (for) and Jefferson (against), and takes its context in the larger debate about a strong or a weak central government at all, Hamilton (for) and Jefferson (against).
We're on our third central bank. The first one began with Hamilton in 1791 and ended in 1811. The second one began just five years later, 1816, and lasted until Jackson in 1836. Even with the creation of national banks in 1863 (mine being among the first, charter number 209 dated 26 August 1863) the financial panics of 1873, 1893 and 1907 brought demand for a return to central banking, and the usual strong/weak thing right back with it, right along party lines as if it were this morning.
We've been here before, and before, and before.
There isn't the slightest thing Socialist about it. It's American from Day One, and before.
You're right and wrong. You're right that this is our 3rd central bank, and that Hamilton a central bank from the beginning. You're wrong that it isn't socialism.
BTW, Thomas DiLorenzo has just written a book about the history of central banking in the U.S. called "Hamilton's Curse."
Article I section 10 of the U.S. Constitution denies the states the right to make anything other than "gold and silver coin" legal tender. The founders put this in the constitution because of their disastrous experience with the paper Continental Dollar ("Not worth a continental...").
But even the previous two central banks (which were both dismantled) were different than today's Fed. While they had control of the money supply, the dollar was still tied to gold. These were not IOUs like they are today.
Thanks to Roosevelt's 1932 seizure of private gold, the 1944 Bretton Woods agreement making the dollar the world's reserve currency, the removal of silver from coins in 1965, and Nixon's closing of the gold window in 1971, we have something entirely different today - a completely free-floating currency that is pure debt, absolutely nothing more than an IOU. It is nothing more than "monopoly money" that isn't backed by anything. Its value is completely manipulated, which is why we have these financial bubbles. Money is created out of thin air, and there is nothing to tie it to reality.
Socialism is when the government controls the means of production. Capital is a an important means of production. Without capital, the capitalist system grinds to a halt. Since federal reserve notes are the only legal tender, and since these are completely created (and manipulated) by the government, the result is that government controls capital! And it isn't even elected government, but rather appointed bureaucrats who work in the dark of night. We aren't even allowed to audit the Fed!
This is why a central bank was one of Marx's main tenets (the fifth plank of the ten-point Communist Manifesto, "centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly").
And we see it borne out today. The federal government has *nationalized* a good deal of the entire financial infrastructure. They have seized private property - property that is used to provide capital to investors and businesses.
The point of Socialism is to transfer wealth from one group to another. Central banks that operate with IOUs (such as does today's Fed), devalue currency, thus transferring wealth from savers to consumers - as well as to those high enough on the financial food-chain to borrow dollars and loan them out before the devaluation kicks in.
You present good arguments. Here is why I am not persuaded by them.
Really, the question is, what is money anyway? It seems obvious, but is actually quite profound.
Arguments over the gold standard too are as American as apple pie, and do not derive from Marx or socialism at all. They actually go back to antiquity.
Money is not a means of production, it is a means of exchange. Control of the means of exchange is not control of the means of production -- even though money itself is traded like any other product, but, unlike any other product, it is a means of exchange.
You can tie the value of your means of exchange to the value of something else, but it's simply a regress then -- who determines the value of that something else?
You can, say, equate the value of a dollar with the value of the skin of a buck -- exactly how we got the term "buck" for a dollar, btw -- but who then sets the value of the buckskin? No different when the something else is gold.
As another Nebraskan said a century ago, You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.
Gold has no inherent value either, other than that which someone assigns it. And historically, that someone is the monied ruling class, most especially to preserve its buying power in wartime, and such standards have always, always been deflationary since antiquity.
It's bailout by different means, but a bailout just the same.
There is no such thing as a free market. The money supply is out of the control of the people who work for it whether the Fed, or before it Wall Street, determines it. Either way, out of the hands of anyone elected or accountable to the electorate.
Which is why no Socialist finds anything remotely socialist about the Fed, the Democratic Party, or the left generally. In their view, the whole thing is an illusion: you may get to choose which of the ruling/class rules you, but that there is a ruling class does not change.
At least now my bank can't decide your bank is shaky and not honour your cheque to me on the face of it, which is hardly imaginable now but a reality some decades ago!
To quote Ben Stein -- who, if you must write someone in, would be my suggestion -- banking is too important to be left to gamblers. (You'd get your pro-life guy with Ben too!)
Parenthetically, the word dollar itself reflects some of this. Re who controls what, George (III, not Bush) was rather stingy about the amount of money he allowed to go to the colonies, so we had recourse to the Spanish money, the dolar, used in the Spanish colony Florida -- the dolar being the Spanish version of thaler, revolutionary in being silver rather than the gold florin.
Neither Gold (nor silver -- "silver certificates" rather than Federal Reserve Notes were the currency of my youth) nor the Fed solves anything, just relocates the issue, and the issue, not where it is located, is what socialism addresses.
Unsucessfully, IMHO, but that is not the point here. Nor am I a fan of the bailout in saying this. Like the SMP, what is it becoming is not what is was sold as -- just days ago the idea was for the government to buy shaky mortgage backed securities from lenders to clear up their books and get them lending again, now it seems more to buy non-voting stock in the banks to "inject" capital.
In Luke 10:7, our Lord says: "The laborer deserves his wages." That presumes that there is a way to measure those wages. The measurement must be constant, because a sliding measurement is unfair and dishonest (see Prov 11:1) - unless the sliding scale is agreed upon and the rate of change is constant - like the way prices were adjusted by the Israelites with relation to the Year of Jubilee.
So how do we determine a fair wage? We negotiate. I grow oranges, you change oil. I offer two dozen oranges per oil change, you ask for three. We settle on two and a half dozen as your wage for an oil change and my wage for orange farming. That formula might change based on growing seasons, or on how much you have to pay for oil. But for the time being, we have both set our price (this agreement is a contract or a covenant).
But what if you don't want oranges and I don't need an oil change? But we both want health care. So we negotiate all over again with the doctor.
Someone figured out we could "store" our labor into a token that we all agree on. We could use rocks or sticks, but we could all just stuff our pockets with an endless supply, and it would be impossible to measure our labor with those. We need something precious. Gold and silver work out well because they are precious. They can be coined, minted, stamped, weighed, and if necessary, assayed. They are harder to counterfeit than pieces of paper. It takes labor to mine them and coin them. Their value is intrinsic, because labor goes into them (not like an IOU or paper note where they can be created out of thin air, where as much labor goes into printing a note for a million dollars as it does to print one dollar).
So, I might set my wage at a hundred oranges per gold coin, you offer your services for five oil changes per coin, etc.
The measure is constant. Plus, we can loan gold coins to the young guy down the street who is starting a hot dog stand. He needs capital to start a business, and we can sell him capital at a price we agree on (interest). And when he gets his business going, he might hire our children as workers. Plus, we can buy a hot dog for lunch if we choose.
But if a bully comes along, a guy who has a grove of oak trees, and decides that we're all going to be compelled to use acorns as "legal tender," (because he has the means to force us, plus all the acorns)this is blantantly unfair - as he has an endless supply of new acorns, and we only have our labor. He gets something for nothing. We are forced to accept a token of diminishing value for our work.
This is not only a violation of Luke 10:7 and Prov 11:1, it is also the state with a central bank, legal tender laws, and a printing press.
In order for the system to be fair, the token of exchange must be precious, the supply must be restricted. Gold and silver have been used for 6,000 years. Gold was even so precious to be used, by God's command, in the Temple. It is malleable, and can be melted down. It is a natural element. Gold and silver are, in fact, the law of the land, as that part of the Constitution has never been amended. Doesn't Romans 13 oblige us to obey the law? Federal Reserve Notes (FRNs) unbacked by gold or silver are actually illegal. But the bully with the oak trees makes us use them. And, he has a printing press and runs off IOUs and calls them "legal tender" (which is how he pays his bills - good gig, huh?). He changes the scales to his advantage. We are always playing a game at adjusting our prices (inflation) to reflect the cheating going on (cost of living increases). This discourages saving and investment but encourages wasteful spending. If it gets bad enough, we can have hyperinflation - which is wholesale theft of our labor.
Is it any wonder we Americans now actually have "negative savings" and the average American is way over his head in consumer debt? Is it any wonder the USA is the worlds biggest debtor nation? Do we honestly think this can go on forever?
Of course, we don't have to use gold, but we have to use something stable - not government IOUs. Our Constitution specifies gold and silver. Those two metals have 6,000 years of history (by contrast, full-blown fiat money has only been universal around the world for 35 years, and we can see how well it has worked in places like Argentina and Weimar Germany, and soon, the Unitred States).
Hard currency is like a battery. You work, and store your labor into it. It is simply criminal for banks or governments to drain your battery while you wait to use it. It is a scam the banksters perfected in the middle ages (fractional reserve banking) and governments have picked up in the 20th century (debt-based fiat currency). Such a system, again, encourages spending and discourages savings. It leaves us with a lot of junk, but nothing to fall back on for a rainy day - and, the guy starting the hot dog stand is going to have a tougher time finding capital to start his business - and he just may not bother at all.
The whole scheme kills jobs, saps wealth, and destroys capital - but the inflation is largely not noticed, and the guy who never starts a hot dog stand doesn't get factored into the equation - because he never started his business in the first place, and so we don't notice what never happened. But it is a real cost (opportunity cost) of the "dishonest scales" of fiat money.
So are these "bubbles" and "bailouts." Paper money creates a false sense of security, and makes us lose a real sense of the value of our goods and services. When the IOUs come due, we are looking at a Ponzi-style collapse of the pyramid.
A Socialist bully wants to control the money supply as well as take away our right to negotiate our own wages. He will seize a high percentage of my oranges and make you do a certain number of oil changes for free - all for the purpose of redistribution (and the bureaucracy will get a cut, of course).
A Communist will just seize your oil change bay, my car, my oranges, your house, and all of our property (including our gold and our hot dog stands) in the name of equality.
The only economic solution to keep the bullies at bay is for us to be able to negotiate fair wages and to store those wages into a token that cannot be easily manipulated.
Soft currency is essentially legalized counterfeiting - and as any baseball card collector knows, a Hank Aaron card is worth more if it is rare. If Topps printed a million of them, they would be good for nothing but putting in between our spokes to make noise. And that's where the dollar is headed without monetary restraint. Asking the government to show fiscal restraint based on the honor system is like leaving your doors unlocked at night with a sign asking criminals to please not come in and steal.
I'm reminded of how, as a Series 7 investment rep trying to get people to buy stocks or mutual funds that invest in them (through me, of course) to sell against banking vehicles like savings account and CDs.
Have I got a stock for you. Can't miss. Now, the value of it has been declining for years and years, but don't worry about that, if goes really bad and you want to sell the government keeps a small proportion of it around and if you're lucky you'll be one of the few to get reimbursed your now worthless stock. God no, that's way too risky, in fact, it's a certain loss! Well, that's exactly what you get in your FDIC insured bank account!
There's still the regress. Specie currency, unlike fiat money, is backed by something precious -- but, who decides how precious is precious.
Fractional reserve banking is really what insurance companies, which some allege are simply invisible bankers anyway, do all the time. Just as not everybody is going to redeem their notes at the same time, so everyone is not going to die, get sick, have a car crash or a house fire or whatever is insured against, at the same time. So the banker no more keeps money on hand to cover all deposits than the insurer does to cover all claims, but keeps a fraction thought to cover what will happen at one time, and invests the rest or loans it out.
But that too orginally was about a "note" issued on the basis of a deposit in the standard. It is inescapable: hard money deflates, paper money inflates, and so we go back and forth in cycles with a little of each.
The bald fact is, there is no such thing as a free market. You and I don't negotiate bupkis. We simply settle for the best deal we can find from what somebody else offers.
Your bank deposit is no deposit at all, it is literally nothing more than a loan to the bank from you for which you get a fee, the interest paid on it, no different than the loan from the bank to you for which they get paid a fee, the interest charged on it. Do you or I negotiate this, sit down with the banker and arrive at a mutually agreeable fee he pays me for my money and fee I pay him for his? Hell no (to quote Chris Rock, I myself never use such over the top language as is well known thoroughout the blogosphere). The bank tells you both sides of it, yours and theirs -- and a good bit of the time the depositor doesn't even think interest paid is his side of it -- and the closest it ever gets to negotiation is finding a bank that will offer you the closest to what you want, but in no case will get through negotiation.
Same on the job. Your employer may announce higher prices due to higher costs for his product, but do you announce to your employer your higher price (wages) for your product (working for him). Hell no. Negotiating a raise is nothing like that, nor is there necessarily the option of walking across the street and doing the same thing for someone else who will pay what I want. Anymore than I negotiate the price at the pump. Spending more driving to that station that charges 2c less than I save filling up there is not freedom.
As the socialists say, you just get to make your choices from what the ruling class is offering. I'd be a socialist, except their alternative is worse yet.
I would be cautious with gold. Last time the price of gold was over $800/oz. was in the late 70s, and it dropped in the recession of the 80s, where it stayed in the $200-$300/oz. range until the past 6 years or so. With another recession here (or on the horizon, for those in denial), and with gold now falling under $700/oz., I would be cautious. Diversification, as you mentioned, is important, but gold is not foolproof. Some of the lower value of gold could have to do with the strength of the dollar, but that too will settle/drop as the recession comes, and gold may not rise again for a long time.
When gold goes up and down, most of the time, gold isn't moving, but the dollar. When the Fed inflates the money supply, gold becomes more "expensive" (though, more accurately, the dollar becomes worth less).
The difference between now and the recession of the 1980s is: then, the U.S. was the world's biggest creditor (and Americans had savings in the bank) whereas today, we are the world's biggest debtor (and our savings rate is actually negative!). Another difference is this unprecedented creation of $700,000,000,000 in "bailout" money.
We're more like Argentina of the 1990s right now than like the America of the 1980s.
As the gold dips right now along with other commodities, now might be a good time to buy some (though, as you say, diversification is a good idea - there are lots of good investment opportunities you can avail yourself of that are not attached to the dollar).
I can't think of any scenario in which the fed can create a 700 billion dollars out of thin air (what is that, a quarter of the annual budget of the U.S.?) and for the dollar to do anything other than lose value. Buying gold isn't as much an investment as it is a way to save - a way to keep the government from stealing from you by devaluing the currency.
The worst thing anyone can do right now is have dollars sitting in a savings account. If you check, you're probably paying more in "fees" than you are making in interest (thanks again to the manipulation of the Fed).
Look at the perversity of this situation: we're in trouble because we're irresponsibly in debt (as a nation and as individuals), and yet, the interest rates and the devaluation of the dollar punish thrift and reward consumption (not to mention speculation).
Glood for Ron Paul!
ReplyDeleteBut that's what we should NOT do. I wish he'd be more specdific on what we SHOULD do.
Maybe nobody knows. I certainly don't.
Except we know the thing nobody WANTS to do, of course, and that's clean up the corruption. Not just on Wall Street, either, but also in Washington.
Dear Anastasia:
ReplyDeleteActually, he's been saying what we need to do for 30 years - but has generally been dismissed as a crank.
Some of the specifics he has been recommending have been:
- Reintroduce gold and silver as legal tender to compete with federal reserve notes (and abolish the Federal Reserve)
- Slash federal spending based on what the Constitution specifically authorizes Congress to spend money on
- Bring our troops home from around the world, close the 700+ military bases we have in 130 countries - which would save billions in money to fund them right now, and trillions in future money that our aggressive foreign policy costs us in foreign wars (not to mention precious American lives)
- Cut back on taxes (not these one or two percent "cutbacks" McCain/Obama is promising), repeal the income tax, abolish the IRS, make America a place businesses will want to operate in (which is how jobs are created!)
- Phase out entitlement programs (Social Security, Medicare, Medicaid, etc.) gradually with the proceeds of rolling back the "empire" and cut government out of such nationalizations that we absolutely cannot afford to fund (we are set to go broke as early as 2017 when the boomer retirement peaks)
- No intervention in the marketplace (let bad debt fall where it may), make businesses accountable for bad decisions
There are many other specifics, but I do agree that we need to 1) Shore up the dollar, 2) Reverse our debt spending, and 3) Foster a culture of not depending on government to provide cradle to grave security.
None of these things can be done overnight, but right now, the federal government needs to get out of a hole, but is not only continuing to dig, they've brought in steam-shovels to make the hole bigger!
The bailout was the absolute worst thing "we" could have done. The chickens will come home to roost on this one. If the country won't do what needs done, individuals and their families will simply have to take up the slack and prepare for another depression, some ideas:
- pay off debts
- save, don't spend
- be thrifty
- put some savings in gold, others in conservative investments unlinked to American dollars and other fiat currencies as far as that is possible
- If possible, start planting food gardens and becoming as energy efficient and independent as possible
In short, our families and our country need to live within our means, save, invest, and quit trying to "spend our way to prosperity."
We're basically bankrupt, and we have to mend our ways.
I have my absentee ballot on the table here, and I'm writing in Ron Paul tomorrow, then sending it off.
ReplyDeleteYou know, I always thought Ron Paul was too much of a whiner, but by darn, he's the only one making any freaking sense of this mess. Geez, I feel like I'm living in a flippin' insane asylum, both in the country and in the synod. Everyone seems to have lost their minds. Or is it just me who is gone crazy?
ReplyDeleteDebate about the role of central banking goes back to the founding of the republic, Hamilton (for) and Jefferson (against), and takes its context in the larger debate about a strong or a weak central government at all, Hamilton (for) and Jefferson (against).
ReplyDeleteWe're on our third central bank. The first one began with Hamilton in 1791 and ended in 1811. The second one began just five years later, 1816, and lasted until Jackson in 1836. Even with the creation of national banks in 1863 (mine being among the first, charter number 209 dated 26 August 1863) the financial panics of 1873, 1893 and 1907 brought demand for a return to central banking, and the usual strong/weak thing right back with it, right along party lines as if it were this morning.
We've been here before, and before, and before.
There isn't the slightest thing Socialist about it. It's American from Day One, and before.
Dear PE:
ReplyDeleteYou're right and wrong. You're right that this is our 3rd central bank, and that Hamilton a central bank from the beginning. You're wrong that it isn't socialism.
BTW, Thomas DiLorenzo has just written a book about the history of central banking in the U.S. called "Hamilton's Curse."
Article I section 10 of the U.S. Constitution denies the states the right to make anything other than "gold and silver coin" legal tender. The founders put this in the constitution because of their disastrous experience with the paper Continental Dollar ("Not worth a continental...").
But even the previous two central banks (which were both dismantled) were different than today's Fed. While they had control of the money supply, the dollar was still tied to gold. These were not IOUs like they are today.
Thanks to Roosevelt's 1932 seizure of private gold, the 1944 Bretton Woods agreement making the dollar the world's reserve currency, the removal of silver from coins in 1965, and Nixon's closing of the gold window in 1971, we have something entirely different today - a completely free-floating currency that is pure debt, absolutely nothing more than an IOU. It is nothing more than "monopoly money" that isn't backed by anything. Its value is completely manipulated, which is why we have these financial bubbles. Money is created out of thin air, and there is nothing to tie it to reality.
Socialism is when the government controls the means of production. Capital is a an important means of production. Without capital, the capitalist system grinds to a halt. Since federal reserve notes are the only legal tender, and since these are completely created (and manipulated) by the government, the result is that government controls capital! And it isn't even elected government, but rather appointed bureaucrats who work in the dark of night. We aren't even allowed to audit the Fed!
This is why a central bank was one of Marx's main tenets (the fifth plank of the ten-point Communist Manifesto, "centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly").
And we see it borne out today. The federal government has *nationalized* a good deal of the entire financial infrastructure. They have seized private property - property that is used to provide capital to investors and businesses.
The point of Socialism is to transfer wealth from one group to another. Central banks that operate with IOUs (such as does today's Fed), devalue currency, thus transferring wealth from savers to consumers - as well as to those high enough on the financial food-chain to borrow dollars and loan them out before the devaluation kicks in.
This is pure, unadulterated socialism.
You present good arguments. Here is why I am not persuaded by them.
ReplyDeleteReally, the question is, what is money anyway? It seems obvious, but is actually quite profound.
Arguments over the gold standard too are as American as apple pie, and do not derive from Marx or socialism at all. They actually go back to antiquity.
Money is not a means of production, it is a means of exchange. Control of the means of exchange is not control of the means of production -- even though money itself is traded like any other product, but, unlike any other product, it is a means of exchange.
You can tie the value of your means of exchange to the value of something else, but it's simply a regress then -- who determines the value of that something else?
You can, say, equate the value of a dollar with the value of the skin of a buck -- exactly how we got the term "buck" for a dollar, btw -- but who then sets the value of the buckskin? No different when the something else is gold.
As another Nebraskan said a century ago, You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.
Gold has no inherent value either, other than that which someone assigns it. And historically, that someone is the monied ruling class, most especially to preserve its buying power in wartime, and such standards have always, always been deflationary since antiquity.
It's bailout by different means, but a bailout just the same.
There is no such thing as a free market. The money supply is out of the control of the people who work for it whether the Fed, or before it Wall Street, determines it. Either way, out of the hands of anyone elected or accountable to the electorate.
Which is why no Socialist finds anything remotely socialist about the Fed, the Democratic Party, or the left generally. In their view, the whole thing is an illusion: you may get to choose which of the ruling/class rules you, but that there is a ruling class does not change.
At least now my bank can't decide your bank is shaky and not honour your cheque to me on the face of it, which is hardly imaginable now but a reality some decades ago!
To quote Ben Stein -- who, if you must write someone in, would be my suggestion -- banking is too important to be left to gamblers. (You'd get your pro-life guy with Ben too!)
Parenthetically, the word dollar itself reflects some of this. Re who controls what, George (III, not Bush) was rather stingy about the amount of money he allowed to go to the colonies, so we had recourse to the Spanish money, the dolar, used in the Spanish colony Florida -- the dolar being the Spanish version of thaler, revolutionary in being silver rather than the gold florin.
Neither Gold (nor silver -- "silver certificates" rather than Federal Reserve Notes were the currency of my youth) nor the Fed solves anything, just relocates the issue, and the issue, not where it is located, is what socialism addresses.
Unsucessfully, IMHO, but that is not the point here. Nor am I a fan of the bailout in saying this. Like the SMP, what is it becoming is not what is was sold as -- just days ago the idea was for the government to buy shaky mortgage backed securities from lenders to clear up their books and get them lending again, now it seems more to buy non-voting stock in the banks to "inject" capital.
Judas H Priest on a raft.
Dear PE:
ReplyDeleteIn Luke 10:7, our Lord says: "The laborer deserves his wages." That presumes that there is a way to measure those wages. The measurement must be constant, because a sliding measurement is unfair and dishonest (see Prov 11:1) - unless the sliding scale is agreed upon and the rate of change is constant - like the way prices were adjusted by the Israelites with relation to the Year of Jubilee.
So how do we determine a fair wage? We negotiate. I grow oranges, you change oil. I offer two dozen oranges per oil change, you ask for three. We settle on two and a half dozen as your wage for an oil change and my wage for orange farming. That formula might change based on growing seasons, or on how much you have to pay for oil. But for the time being, we have both set our price (this agreement is a contract or a covenant).
But what if you don't want oranges and I don't need an oil change? But we both want health care. So we negotiate all over again with the doctor.
Someone figured out we could "store" our labor into a token that we all agree on. We could use rocks or sticks, but we could all just stuff our pockets with an endless supply, and it would be impossible to measure our labor with those. We need something precious. Gold and silver work out well because they are precious. They can be coined, minted, stamped, weighed, and if necessary, assayed. They are harder to counterfeit than pieces of paper. It takes labor to mine them and coin them. Their value is intrinsic, because labor goes into them (not like an IOU or paper note where they can be created out of thin air, where as much labor goes into printing a note for a million dollars as it does to print one dollar).
So, I might set my wage at a hundred oranges per gold coin, you offer your services for five oil changes per coin, etc.
The measure is constant. Plus, we can loan gold coins to the young guy down the street who is starting a hot dog stand. He needs capital to start a business, and we can sell him capital at a price we agree on (interest). And when he gets his business going, he might hire our children as workers. Plus, we can buy a hot dog for lunch if we choose.
But if a bully comes along, a guy who has a grove of oak trees, and decides that we're all going to be compelled to use acorns as "legal tender," (because he has the means to force us, plus all the acorns)this is blantantly unfair - as he has an endless supply of new acorns, and we only have our labor. He gets something for nothing. We are forced to accept a token of diminishing value for our work.
This is not only a violation of Luke 10:7 and Prov 11:1, it is also the state with a central bank, legal tender laws, and a printing press.
In order for the system to be fair, the token of exchange must be precious, the supply must be restricted. Gold and silver have been used for 6,000 years. Gold was even so precious to be used, by God's command, in the Temple. It is malleable, and can be melted down. It is a natural element. Gold and silver are, in fact, the law of the land, as that part of the Constitution has never been amended. Doesn't Romans 13 oblige us to obey the law? Federal Reserve Notes (FRNs) unbacked by gold or silver are actually illegal. But the bully with the oak trees makes us use them. And, he has a printing press and runs off IOUs and calls them "legal tender" (which is how he pays his bills - good gig, huh?). He changes the scales to his advantage. We are always playing a game at adjusting our prices (inflation) to reflect the cheating going on (cost of living increases). This discourages saving and investment but encourages wasteful spending. If it gets bad enough, we can have hyperinflation - which is wholesale theft of our labor.
Is it any wonder we Americans now actually have "negative savings" and the average American is way over his head in consumer debt? Is it any wonder the USA is the worlds biggest debtor nation? Do we honestly think this can go on forever?
Of course, we don't have to use gold, but we have to use something stable - not government IOUs. Our Constitution specifies gold and silver. Those two metals have 6,000 years of history (by contrast, full-blown fiat money has only been universal around the world for 35 years, and we can see how well it has worked in places like Argentina and Weimar Germany, and soon, the Unitred States).
Hard currency is like a battery. You work, and store your labor into it. It is simply criminal for banks or governments to drain your battery while you wait to use it. It is a scam the banksters perfected in the middle ages (fractional reserve banking) and governments have picked up in the 20th century (debt-based fiat currency). Such a system, again, encourages spending and discourages savings. It leaves us with a lot of junk, but nothing to fall back on for a rainy day - and, the guy starting the hot dog stand is going to have a tougher time finding capital to start his business - and he just may not bother at all.
The whole scheme kills jobs, saps wealth, and destroys capital - but the inflation is largely not noticed, and the guy who never starts a hot dog stand doesn't get factored into the equation - because he never started his business in the first place, and so we don't notice what never happened. But it is a real cost (opportunity cost) of the "dishonest scales" of fiat money.
So are these "bubbles" and "bailouts." Paper money creates a false sense of security, and makes us lose a real sense of the value of our goods and services. When the IOUs come due, we are looking at a Ponzi-style collapse of the pyramid.
A Socialist bully wants to control the money supply as well as take away our right to negotiate our own wages. He will seize a high percentage of my oranges and make you do a certain number of oil changes for free - all for the purpose of redistribution (and the bureaucracy will get a cut, of course).
A Communist will just seize your oil change bay, my car, my oranges, your house, and all of our property (including our gold and our hot dog stands) in the name of equality.
The only economic solution to keep the bullies at bay is for us to be able to negotiate fair wages and to store those wages into a token that cannot be easily manipulated.
Soft currency is essentially legalized counterfeiting - and as any baseball card collector knows, a Hank Aaron card is worth more if it is rare. If Topps printed a million of them, they would be good for nothing but putting in between our spokes to make noise. And that's where the dollar is headed without monetary restraint. Asking the government to show fiscal restraint based on the honor system is like leaving your doors unlocked at night with a sign asking criminals to please not come in and steal.
I'm reminded of how, as a Series 7 investment rep trying to get people to buy stocks or mutual funds that invest in them (through me, of course) to sell against banking vehicles like savings account and CDs.
ReplyDeleteHave I got a stock for you. Can't miss. Now, the value of it has been declining for years and years, but don't worry about that, if goes really bad and you want to sell the government keeps a small proportion of it around and if you're lucky you'll be one of the few to get reimbursed your now worthless stock.
God no, that's way too risky, in fact, it's a certain loss!
Well, that's exactly what you get in your FDIC insured bank account!
There's still the regress. Specie currency, unlike fiat money, is backed by something precious -- but, who decides how precious is precious.
Fractional reserve banking is really what insurance companies, which some allege are simply invisible bankers anyway, do all the time. Just as not everybody is going to redeem their notes at the same time, so everyone is not going to die, get sick, have a car crash or a house fire or whatever is insured against, at the same time. So the banker no more keeps money on hand to cover all deposits than the insurer does to cover all claims, but keeps a fraction thought to cover what will happen at one time, and invests the rest or loans it out.
But that too orginally was about a "note" issued on the basis of a deposit in the standard. It is inescapable: hard money deflates, paper money inflates, and so we go back and forth in cycles with a little of each.
The bald fact is, there is no such thing as a free market. You and I don't negotiate bupkis. We simply settle for the best deal we can find from what somebody else offers.
Your bank deposit is no deposit at all, it is literally nothing more than a loan to the bank from you for which you get a fee, the interest paid on it, no different than the loan from the bank to you for which they get paid a fee, the interest charged on it. Do you or I negotiate this, sit down with the banker and arrive at a mutually agreeable fee he pays me for my money and fee I pay him for his? Hell no (to quote Chris Rock, I myself never use such over the top language as is well known thoroughout the blogosphere). The bank tells you both sides of it, yours and theirs -- and a good bit of the time the depositor doesn't even think interest paid is his side of it -- and the closest it ever gets to negotiation is finding a bank that will offer you the closest to what you want, but in no case will get through negotiation.
Same on the job. Your employer may announce higher prices due to higher costs for his product, but do you announce to your employer your higher price (wages) for your product (working for him). Hell no. Negotiating a raise is nothing like that, nor is there necessarily the option of walking across the street and doing the same thing for someone else who will pay what I want. Anymore than I negotiate the price at the pump. Spending more driving to that station that charges 2c less than I save filling up there is not freedom.
As the socialists say, you just get to make your choices from what the ruling class is offering. I'd be a socialist, except their alternative is worse yet.
I would be cautious with gold. Last time the price of gold was over $800/oz. was in the late 70s, and it dropped in the recession of the 80s, where it stayed in the $200-$300/oz. range until the past 6 years or so. With another recession here (or on the horizon, for those in denial), and with gold now falling under $700/oz., I would be cautious. Diversification, as you mentioned, is important, but gold is not foolproof. Some of the lower value of gold could have to do with the strength of the dollar, but that too will settle/drop as the recession comes, and gold may not rise again for a long time.
ReplyDeleteDear Pastor:
ReplyDeleteWhen gold goes up and down, most of the time, gold isn't moving, but the dollar. When the Fed inflates the money supply, gold becomes more "expensive" (though, more accurately, the dollar becomes worth less).
The difference between now and the recession of the 1980s is: then, the U.S. was the world's biggest creditor (and Americans had savings in the bank) whereas today, we are the world's biggest debtor (and our savings rate is actually negative!). Another difference is this unprecedented creation of $700,000,000,000 in "bailout" money.
We're more like Argentina of the 1990s right now than like the America of the 1980s.
As the gold dips right now along with other commodities, now might be a good time to buy some (though, as you say, diversification is a good idea - there are lots of good investment opportunities you can avail yourself of that are not attached to the dollar).
I can't think of any scenario in which the fed can create a 700 billion dollars out of thin air (what is that, a quarter of the annual budget of the U.S.?) and for the dollar to do anything other than lose value. Buying gold isn't as much an investment as it is a way to save - a way to keep the government from stealing from you by devaluing the currency.
The worst thing anyone can do right now is have dollars sitting in a savings account. If you check, you're probably paying more in "fees" than you are making in interest (thanks again to the manipulation of the Fed).
Look at the perversity of this situation: we're in trouble because we're irresponsibly in debt (as a nation and as individuals), and yet, the interest rates and the devaluation of the dollar punish thrift and reward consumption (not to mention speculation).
This is how bubbles are made.