In the newest poll from Gallup, Ron Paul does very well against Obama:
President Barack Obama is closely matched against each of four possible Republican opponents when registered voters are asked whom they would support if the 2012 presidential election were held today. Mitt Romney leads Obama by two percentage points, 48% to 46%, Rick Perry and Obama are tied at 47%, and Obama edges out Ron Paul and Michele Bachmann by two and four points, respectively.
This poll partially highlights the weakness of the president. It's not inconceivable that Obama declines to run again, allowing the Democrats to appoint someone--such as Hillary--who doesn't reek of failure.
But it also reveals that Paul is a stronger candidate than Republicans are willing to admit. Moreover, he does well among independents. This is not surprising, since despite his radical views, on two very key issues, he is in agreement with the American populace.
He is almost virulently anti-war. Neo-cons insist he is an isolationist, but rolling back the Empire does not an isolationist make. We've spent about one billion dollars on a curious mission to overthrow Gaddafi in Libya; even if it succeeds, we have no assurances that the new government will be any better. We have wantonly destroyed life and become poorer in the process, a reasonable summation of U.S. foreign policy.
Paul is also right about the pernicious influence of the Federal Reserve and the role it plays in monetizing U.S. debt. Comparatively few Americans understand the power wielded by the central bank, but that minority is growing. Moreover, Paul is fully capable of explaining to the American people the dangers of inflation and the wisdom of sound money. It's true that his view of limited government is not in complete accord with the American people, but he offers a way back to solvency, something no other candidate offers. However much the citizenry may pine for a soft socialism, it is economically untenable. I cannot promise that the people accept what Paul offers; nonetheless, he explains what they need--though not necessarily want--to hear.
Still, the good doctor's first and toughest battle will be to obtain the nomination. After that, we will find out if he is truly "electable".
Monday, August 22, 2011
Sunday, August 14, 2011
Iowa straw poll
Let me offer a few quick thoughts. I don't think that it's worthwhile to put too much effort into breaking down the results: not only is it still very early in the campaign season, but it's pretty easy to do well in this event so long as one is willing to pony up the cash for tickets for one's supporters. This is actually reasonable shorthand for what Bachmann did.
Still, she has to be considered a winner here. The left has a visceral hatred of her, surpassed only, perhaps, by the same for Sarah Palin. As a libertarian, I don't care much for either lady, though from a foreign policy standpoint, Bachmann's views are less completely neo-conservative. These women are particularly loathed by the feminists. John Derbyshire's take on the matter, which I can't seem to find, is that women are not supposed to leave the reservation. The narrative has it that feminism has brought untold blessings to womankind--or at least those who avoided being put to death by their mothers. To identity oneself as a conservative or a Republican is to turncoat against the Democrats, purveyors of these essential blessings. That Bachmann and Palin are mothers only increases feminist rage. As Roissy put things:
There’s no better way to remind a hip clubgoing single chick in the city who loves to travel and sip pinot noir of her impending infertility and genetic obsolescence than with the image of a woman who’s chosen not to ignore her biological imperative in favor of playing the field indefinitely.
Critics of Palin and Bachmann insist that the women are not very bright. I've been less than impressed with Palin: not that she's necessarily unintelligent, but that she's not informed. She would have done well to spend her time reading books to increase her knowledge rather than waxing vapidly on Fox News. Bachmann appears to be smarter, though this won't stop the left from uttering endless bromides insisting that she, like every non-moderate Republican in history, is an imbecile.
Bachmann has thus emerged as a serious candidate. Hence she will face increasing scrutiny in the months to come. She's a polarizing figure, so her utility in an election depends on whether she can ratchet up more support among the tea partiers than she can convince Obama weary Democrats to punch the lever against her. She strikes me as a far more formidable candidate than others have supposed, though admittedly much can change in the next year or so.
Ron Paul was the other winner yesterday, as he finished just behind Bachmann. Most of the stories and commentary I have read have ignored Paul's accomplishment. I suspect that, just as in 2008, this will help Paul, as the perception that he is feared by the party elites--as indeed he is--reinforces the notion that he is different from the run of the mill politician.
One last point: it looks as if those party elites have drafted Perry, since it is becoming increasingly clear that Romney is not going to take. I have no idea why anyone suspects that the base will be receptive to Perry, but the elites were successful in getting people to vote for the lackluster McCain. It might seem, then, that a Perry-Bachmann ticket could be in the works, but Bachmann is a possible presidential nominee, whereas Palin only became so after she was plucked from obscurity by McCain.
None of the above should be taken as evidence that the republic is in anyway salvageable. The 2012 election is nothing more than political theater, but it succeeds wonderfully in that capacity, and therefore merits a modicum of attention.
Still, she has to be considered a winner here. The left has a visceral hatred of her, surpassed only, perhaps, by the same for Sarah Palin. As a libertarian, I don't care much for either lady, though from a foreign policy standpoint, Bachmann's views are less completely neo-conservative. These women are particularly loathed by the feminists. John Derbyshire's take on the matter, which I can't seem to find, is that women are not supposed to leave the reservation. The narrative has it that feminism has brought untold blessings to womankind--or at least those who avoided being put to death by their mothers. To identity oneself as a conservative or a Republican is to turncoat against the Democrats, purveyors of these essential blessings. That Bachmann and Palin are mothers only increases feminist rage. As Roissy put things:
There’s no better way to remind a hip clubgoing single chick in the city who loves to travel and sip pinot noir of her impending infertility and genetic obsolescence than with the image of a woman who’s chosen not to ignore her biological imperative in favor of playing the field indefinitely.
Critics of Palin and Bachmann insist that the women are not very bright. I've been less than impressed with Palin: not that she's necessarily unintelligent, but that she's not informed. She would have done well to spend her time reading books to increase her knowledge rather than waxing vapidly on Fox News. Bachmann appears to be smarter, though this won't stop the left from uttering endless bromides insisting that she, like every non-moderate Republican in history, is an imbecile.
Bachmann has thus emerged as a serious candidate. Hence she will face increasing scrutiny in the months to come. She's a polarizing figure, so her utility in an election depends on whether she can ratchet up more support among the tea partiers than she can convince Obama weary Democrats to punch the lever against her. She strikes me as a far more formidable candidate than others have supposed, though admittedly much can change in the next year or so.
Ron Paul was the other winner yesterday, as he finished just behind Bachmann. Most of the stories and commentary I have read have ignored Paul's accomplishment. I suspect that, just as in 2008, this will help Paul, as the perception that he is feared by the party elites--as indeed he is--reinforces the notion that he is different from the run of the mill politician.
One last point: it looks as if those party elites have drafted Perry, since it is becoming increasingly clear that Romney is not going to take. I have no idea why anyone suspects that the base will be receptive to Perry, but the elites were successful in getting people to vote for the lackluster McCain. It might seem, then, that a Perry-Bachmann ticket could be in the works, but Bachmann is a possible presidential nominee, whereas Palin only became so after she was plucked from obscurity by McCain.
None of the above should be taken as evidence that the republic is in anyway salvageable. The 2012 election is nothing more than political theater, but it succeeds wonderfully in that capacity, and therefore merits a modicum of attention.
Saturday, August 13, 2011
Prospects for a U.S. monetary collapse
My understanding of the debt crisis has led me to believe that the United States, and, indeed, much of the world, is on the short track to economic disaster. I base this primarily on the insight of the Austrian school: that since accumulating too much debt caused the problem, attempts to incur more debt will only exacerbate matters. Secondarily, our political class seems incapable of doing anything to address this problem; I expect economic conditions to worsen until either the currency is rendered worthless by too much inflation, or austerity measures are adopted, whereupon we shall find ourselves in the midst of a depression.
Thus I read with interest a piece which claims that things might be less dire. The author attempts to refute some of the myths of the doom and gloom crowd. Alas, I remain unpersuaded. His debunking shall thus be subsequently debunked.
Purported Myth: "Printing Money Does Not Create Wealth"
Explanation: "The example I like to give is that the Sovereign US Government can start this totally useless agency, yet the money will eventually flow to those who create wealth. Therefore, printing can eventually lead to wealth creation...
If the new ear pickers go into their communities and spend it at local businesses, the printed money goes from useless employees, into the accounts of productive businesses..."
Rebuttal: As one of the commenters has pointed out, this is a classic example of what Frederic Bastiat calls the broken window fallacy. It's true that any money which the government prints will go into the economy, but it only adds to wealth creation by simultaneously subtracting from wealth creation. If a government worked spends a dollar, he may pay a producer, but he has taken that dollar from the citizenry who would have spent it on something else. One could similarly argue that thieves participate in wealth creation by robbing from the rich so as to spend on themselves, which is actually reasonable shorthand for most government spending.
Wealth is created through production. Redistributing the currency--which is what inflation does--can alter the productive process by ensuring that different goods are produced, but it cannot increase the amount of goods provided.
Purported Myth: "Businesses and Foreigners Will Stop Accepting US Dollars"
Explanation: For some reason it is just assumed that the marketplace will all of a sudden stop accepting paper US dollars...
The US Government has determined that taxes are to be levied on owners of property and services, and those taxes will only become extinguished in the form of paper dollars. Failure to submit to this monster will require time in prison. So under the motivation to not spend time in jail, citizens work tirelessly, offering labor and goods in exchange for paper dollars so they can feed the tax monster."
Rebuttal: While it is true that the government monopoly on money ensures that people will use the dollar even when they would prefer to use something else, this ignores the potential for a black market to arise when the currency depreciates sufficiently. Excessive taxation and regulation actually make it more likely that a black market will develop, because in addition to dealing with that which cannot be devalued through inflation, one will also be able to avoid paying government for the privilege of engaging in mutually beneficial exchanges.
Purported Myth: "America Will Soon Not Be Able to Afford the Interest on the National Debt"
Explanation: "Burkett prophesied that America, by the turn of the century, would have so much debt that they could not afford the interest on the debt. Since his book made this claim, the debt has doubled. Now the current doom and gloom crowd is saying, yet again, that we will not be able to afford the interest on the debt."
Rebuttal: No one knows how long extend and pretend will last. What is clear, however, is that the more indebted a nation becomes, the higher the interest rate the market will demand. In a matter of months, Greece went from a nation which was seemingly economically sound to one which could only take on more debt at ever increasing rates of interest. The speed at which this occurred was astounding, even to economic pessimists.
Momentarily, the United States is better positioned than Greece, partially because our debt levels are smaller, and partially because we've been able to suppress interest rates thanks to a Federal Reserve which has made a habit of monetizing the debt.
We are probably still a fair ways from Greece, though ultimately no one knows. What is clear, however, is that a nation which refuses to reduce its insatiable appetite for debt will find it harder and harder to find willing borrowers. I think it likely that the current monetary system will collapse before we reach this stage, but the pessimists are correct in their reasoning, and right to be concerned.
Purported Myth: "Paper Dollars Are Worthless and Backed By Nothing"
Explanation: "Dollars are just worthless pieces of paper. It has no value by itself and is today backed by nothing. I agree with this argument. Consider this though: Oil in and of itself is also worthless. It is just sticky goo that could ruin the environment if it ends up in the wrong place...
The event that causes worthless oil to be in demand is when a company turns it into gasoline. The event that causes worthless paper dollars to be in demand is the prosecution process for failing to pay taxes."
Rebuttal: The first paragraph is basically sound. The error shows up in the next paragraph. It's preposterous to pretend that a nation can jail the citizenry for failing to pay taxes without destroying itself in the process. America, like any other nation, functions because of a relatively small group of people who produce goods and provide them for others. These are the same people who are taxed by the government, and maligned for failing to do more for the country. Jailing these citizens is the height of idiocy, for it turns a producer into someone who acts as a drain on the economy.
It is true that the government can force citizens to use their currency, giving superficial support to the dollar. But it can only do so if it is willing to wage war against the productive class. Expect to see an increase in tax evasion in the next few years, in which case it will be very interesting to see what the IRS decides to do to such "criminals." It is difficult to envision a response that would strengthen the regime.
There is another point which our author misses. If the dollar cannot buy as much, it will become less attractive to work as an agent of the IRS. Thus in late Rome, the soldiers refused to tolerate the currency which had been mixed with base metals; so the wise emperor paid them in coins which had not been debased. Without employees willing to accept the government's money, the government has no one with which to force the citizens to accept that same money.
Purported Myth: "Every Fiat Currency System Eventually Fails"
Explanation: "I hear (and used to believe myself), that the fiat currency system is about to collapse because all fiat currency systems in history have collapsed...
The problem is, these proponents are comparing apples with oranges. Never in history has the entire world been on a coordinated, floating exchange-rate, fiat-currency, system. Therefore, do they really have anything with which to compare today's situation?"
Rebuttal: To answer the question, yes, we do: we have the graveyard of fiat currencies. Countless times in the past, governments have debased their currencies until the populace escapes to anything and everything else. Traditionally, this has been gold and silver, but it could be alcohol, or ammunition, or canned food, or diesel fuel. It does not matter. When the government is printing money so quickly that one cannot make money fast enough to spend it, people will no longer use it; at this point, the currency has been destroyed.
Part of the confusion from which our author suffers is that he assumes that because every central bank is inflating its currency, people have nowhere to turn. Now, it's true that historically, when the British, say, inflated, people could fly to the dollar, thereby checking the British bankers. But the absence of this check--that is, any currency backed by gold--actually makes it far likelier that people will abandon the dollar. The confusion comes because he thinks people have to begin to use something that is already a currency; on the contrary, whatever good people begin to acquire will take hold as the new currency.
Now Bernanke has a good deal of inflating to do until we reach this point, but history is very clear about what happens when we do reach it.
Purported Myth: "Printing Money Will Cause the US Dollar to Lose Reserve-Currency Status"
Explanation: "The US economy is still the biggest in the world by a large margin. The military, which we are not afraid to use, is the most powerful. Until another country holds title to either one of these claims, our reserve currency status will likely remain intact."
Rebuttal: At this point, the dollars status as a reserve currency is only tangentially connected to our economic and military power. In fact, it was not long ago that the U.S. dollar was, at least theoretically, backed by gold. Other countries value the dollar because they know they can turn around and get something else for it. As that something else diminishes, countries will begin to look elsewhere to sell their products. Moreover, while the U.S. will probably remain the nation's largest economy, its diminished purchasing power will further incentivize sellers to look elsewhere for customers.
I suspect that in the next several decades, we will see a world without a reserve currency per se. Regional currencies will develop, regions which will not correspond exactly to the present boundaries of maps. This will greatly reduce international trade--though piracy will see a boost--and thus diminish the goods available to the average consumer. This is unfortunate, but if black market activity reduces the scope in which governments may interfere, I see it as an essentially inevitable result. Moreover, while the interim period will be rife with bloody conflict, a world of small, homogeneous regions should prove more stable than have our gargantuan nation states.
Purported Myth: "If Money Printing is Good, Then Just Print Enough To Give Everyone $1 Million"
Explanation: "If printing is not a big deal, then why not just print away? The doom and gloomers jump to the conclusion that if I think printing won't cause the collapse of America, it must be a good thing. So why not seek more of that good thing? The answer is simple...
There is a limit to the productive capacity of the economy."
Rebuttal: The author insists he is not a Keynesian, so I'll take him at his word, but I do note a curious resemblance. I suppose I see all inflationary systems as similar in nature: printing money is good, but only to a certain point; that point cannot be clearly delineated, and any inflation which does not produce the desired effect will be decried as too small, but a theoretical upper limit is recognized.
Of course, if the government did give everyone one million dollars, every one of the myths above would come true virtually overnight, but setting that aside, I want to focus on the last sentence of his explanation. For while this statement is undoubtedly true, it essentially undermines his entire argument.
Earlier, we learned that printing money can create wealth. Here we learn that wealth is not limited by money, but by something else entirely. As I have said, this is correct, but if it is correct, then printing money can do nothing whatsoever to increase wealth. It can only, as I have said, alter the distribution of that wealth.
If inflationists wish to be taken seriously, they need to explain how much inflation is needed to salvage a depressed economy. Typically, the response is to demand more inflation when a jolt of easy money fails to awaken the sleeping patient. But until we can be told with certitude that we are not inflating too much, I am far from certain that it can be safe to inflate at all.
Purported Myth: "The US Dollar Has Lost 96% of its Purchasing Power - Thus Printing Makes Us Poorer"
Explanation: "Instead of looking at how many dollars it takes to buy a candy bar today compared to 30 years ago, I would challenge you to instead value the candy bar in hours of labor to obtain it. While it might take many more dollars to buy that candy bar, you get many more dollars for each 60 minutes of work. So even though the candy bar costs 1000% more, it may take you 30% less work now to buy it. Therefore, you are in fact richer, even though the value of your dollar does not go as far."
Rebuttal: This is a curious way of looking at the debasement of the currency. The issue at hand is not whether we are richer than our ancestors were decades ago, for this is undoubtedly true, but whether or not inflation has made us poorer than we would have been had the Fed left the money supply alone.
It should be obvious that the Fed has stuck it to the American people, or at least some of them. I've covered this before, but inflation is a tax on savers; the beneficiaries of inflation are debtors, as well as anyone who is politically connected, for they receive the newly printed money before its debasement has been discovered by the market.
Savers provide the capital with which producers make the things which we can then buy. Our tax code attacks producers, while our central bank attacks savers; a more idiotic system would be hard to implement. The establishment class in Washington, as well as their friends from the banks and corporations, have benefited tremendously from the wealth redistribution that occurs courtesy of the Fed. Concomitantly, the people have been harmed. While it is true that, in general, and excepting the present, we have been getting richer as a society, this should not distract us from the real wrongs the people have suffered through inflation. It is the height of absurdity to suggest that the people should be happy that they are a little richer than before, while the banks make money hand over fist, courtesy of a central bank which takes wealth from the people.
In short, things look very bad indeed. Much can change, and the pessimists may be wrong about the timeline, but a sober reading of the tea leaves demands concern. It wouldn't hurt to have some precious metals lying around, either.
Thus I read with interest a piece which claims that things might be less dire. The author attempts to refute some of the myths of the doom and gloom crowd. Alas, I remain unpersuaded. His debunking shall thus be subsequently debunked.
Purported Myth: "Printing Money Does Not Create Wealth"
Explanation: "The example I like to give is that the Sovereign US Government can start this totally useless agency, yet the money will eventually flow to those who create wealth. Therefore, printing can eventually lead to wealth creation...
If the new ear pickers go into their communities and spend it at local businesses, the printed money goes from useless employees, into the accounts of productive businesses..."
Rebuttal: As one of the commenters has pointed out, this is a classic example of what Frederic Bastiat calls the broken window fallacy. It's true that any money which the government prints will go into the economy, but it only adds to wealth creation by simultaneously subtracting from wealth creation. If a government worked spends a dollar, he may pay a producer, but he has taken that dollar from the citizenry who would have spent it on something else. One could similarly argue that thieves participate in wealth creation by robbing from the rich so as to spend on themselves, which is actually reasonable shorthand for most government spending.
Wealth is created through production. Redistributing the currency--which is what inflation does--can alter the productive process by ensuring that different goods are produced, but it cannot increase the amount of goods provided.
Purported Myth: "Businesses and Foreigners Will Stop Accepting US Dollars"
Explanation: For some reason it is just assumed that the marketplace will all of a sudden stop accepting paper US dollars...
The US Government has determined that taxes are to be levied on owners of property and services, and those taxes will only become extinguished in the form of paper dollars. Failure to submit to this monster will require time in prison. So under the motivation to not spend time in jail, citizens work tirelessly, offering labor and goods in exchange for paper dollars so they can feed the tax monster."
Rebuttal: While it is true that the government monopoly on money ensures that people will use the dollar even when they would prefer to use something else, this ignores the potential for a black market to arise when the currency depreciates sufficiently. Excessive taxation and regulation actually make it more likely that a black market will develop, because in addition to dealing with that which cannot be devalued through inflation, one will also be able to avoid paying government for the privilege of engaging in mutually beneficial exchanges.
Purported Myth: "America Will Soon Not Be Able to Afford the Interest on the National Debt"
Explanation: "Burkett prophesied that America, by the turn of the century, would have so much debt that they could not afford the interest on the debt. Since his book made this claim, the debt has doubled. Now the current doom and gloom crowd is saying, yet again, that we will not be able to afford the interest on the debt."
Rebuttal: No one knows how long extend and pretend will last. What is clear, however, is that the more indebted a nation becomes, the higher the interest rate the market will demand. In a matter of months, Greece went from a nation which was seemingly economically sound to one which could only take on more debt at ever increasing rates of interest. The speed at which this occurred was astounding, even to economic pessimists.
Momentarily, the United States is better positioned than Greece, partially because our debt levels are smaller, and partially because we've been able to suppress interest rates thanks to a Federal Reserve which has made a habit of monetizing the debt.
We are probably still a fair ways from Greece, though ultimately no one knows. What is clear, however, is that a nation which refuses to reduce its insatiable appetite for debt will find it harder and harder to find willing borrowers. I think it likely that the current monetary system will collapse before we reach this stage, but the pessimists are correct in their reasoning, and right to be concerned.
Purported Myth: "Paper Dollars Are Worthless and Backed By Nothing"
Explanation: "Dollars are just worthless pieces of paper. It has no value by itself and is today backed by nothing. I agree with this argument. Consider this though: Oil in and of itself is also worthless. It is just sticky goo that could ruin the environment if it ends up in the wrong place...
The event that causes worthless oil to be in demand is when a company turns it into gasoline. The event that causes worthless paper dollars to be in demand is the prosecution process for failing to pay taxes."
Rebuttal: The first paragraph is basically sound. The error shows up in the next paragraph. It's preposterous to pretend that a nation can jail the citizenry for failing to pay taxes without destroying itself in the process. America, like any other nation, functions because of a relatively small group of people who produce goods and provide them for others. These are the same people who are taxed by the government, and maligned for failing to do more for the country. Jailing these citizens is the height of idiocy, for it turns a producer into someone who acts as a drain on the economy.
It is true that the government can force citizens to use their currency, giving superficial support to the dollar. But it can only do so if it is willing to wage war against the productive class. Expect to see an increase in tax evasion in the next few years, in which case it will be very interesting to see what the IRS decides to do to such "criminals." It is difficult to envision a response that would strengthen the regime.
There is another point which our author misses. If the dollar cannot buy as much, it will become less attractive to work as an agent of the IRS. Thus in late Rome, the soldiers refused to tolerate the currency which had been mixed with base metals; so the wise emperor paid them in coins which had not been debased. Without employees willing to accept the government's money, the government has no one with which to force the citizens to accept that same money.
Purported Myth: "Every Fiat Currency System Eventually Fails"
Explanation: "I hear (and used to believe myself), that the fiat currency system is about to collapse because all fiat currency systems in history have collapsed...
The problem is, these proponents are comparing apples with oranges. Never in history has the entire world been on a coordinated, floating exchange-rate, fiat-currency, system. Therefore, do they really have anything with which to compare today's situation?"
Rebuttal: To answer the question, yes, we do: we have the graveyard of fiat currencies. Countless times in the past, governments have debased their currencies until the populace escapes to anything and everything else. Traditionally, this has been gold and silver, but it could be alcohol, or ammunition, or canned food, or diesel fuel. It does not matter. When the government is printing money so quickly that one cannot make money fast enough to spend it, people will no longer use it; at this point, the currency has been destroyed.
Part of the confusion from which our author suffers is that he assumes that because every central bank is inflating its currency, people have nowhere to turn. Now, it's true that historically, when the British, say, inflated, people could fly to the dollar, thereby checking the British bankers. But the absence of this check--that is, any currency backed by gold--actually makes it far likelier that people will abandon the dollar. The confusion comes because he thinks people have to begin to use something that is already a currency; on the contrary, whatever good people begin to acquire will take hold as the new currency.
Now Bernanke has a good deal of inflating to do until we reach this point, but history is very clear about what happens when we do reach it.
Purported Myth: "Printing Money Will Cause the US Dollar to Lose Reserve-Currency Status"
Explanation: "The US economy is still the biggest in the world by a large margin. The military, which we are not afraid to use, is the most powerful. Until another country holds title to either one of these claims, our reserve currency status will likely remain intact."
Rebuttal: At this point, the dollars status as a reserve currency is only tangentially connected to our economic and military power. In fact, it was not long ago that the U.S. dollar was, at least theoretically, backed by gold. Other countries value the dollar because they know they can turn around and get something else for it. As that something else diminishes, countries will begin to look elsewhere to sell their products. Moreover, while the U.S. will probably remain the nation's largest economy, its diminished purchasing power will further incentivize sellers to look elsewhere for customers.
I suspect that in the next several decades, we will see a world without a reserve currency per se. Regional currencies will develop, regions which will not correspond exactly to the present boundaries of maps. This will greatly reduce international trade--though piracy will see a boost--and thus diminish the goods available to the average consumer. This is unfortunate, but if black market activity reduces the scope in which governments may interfere, I see it as an essentially inevitable result. Moreover, while the interim period will be rife with bloody conflict, a world of small, homogeneous regions should prove more stable than have our gargantuan nation states.
Purported Myth: "If Money Printing is Good, Then Just Print Enough To Give Everyone $1 Million"
Explanation: "If printing is not a big deal, then why not just print away? The doom and gloomers jump to the conclusion that if I think printing won't cause the collapse of America, it must be a good thing. So why not seek more of that good thing? The answer is simple...
There is a limit to the productive capacity of the economy."
Rebuttal: The author insists he is not a Keynesian, so I'll take him at his word, but I do note a curious resemblance. I suppose I see all inflationary systems as similar in nature: printing money is good, but only to a certain point; that point cannot be clearly delineated, and any inflation which does not produce the desired effect will be decried as too small, but a theoretical upper limit is recognized.
Of course, if the government did give everyone one million dollars, every one of the myths above would come true virtually overnight, but setting that aside, I want to focus on the last sentence of his explanation. For while this statement is undoubtedly true, it essentially undermines his entire argument.
Earlier, we learned that printing money can create wealth. Here we learn that wealth is not limited by money, but by something else entirely. As I have said, this is correct, but if it is correct, then printing money can do nothing whatsoever to increase wealth. It can only, as I have said, alter the distribution of that wealth.
If inflationists wish to be taken seriously, they need to explain how much inflation is needed to salvage a depressed economy. Typically, the response is to demand more inflation when a jolt of easy money fails to awaken the sleeping patient. But until we can be told with certitude that we are not inflating too much, I am far from certain that it can be safe to inflate at all.
Purported Myth: "The US Dollar Has Lost 96% of its Purchasing Power - Thus Printing Makes Us Poorer"
Explanation: "Instead of looking at how many dollars it takes to buy a candy bar today compared to 30 years ago, I would challenge you to instead value the candy bar in hours of labor to obtain it. While it might take many more dollars to buy that candy bar, you get many more dollars for each 60 minutes of work. So even though the candy bar costs 1000% more, it may take you 30% less work now to buy it. Therefore, you are in fact richer, even though the value of your dollar does not go as far."
Rebuttal: This is a curious way of looking at the debasement of the currency. The issue at hand is not whether we are richer than our ancestors were decades ago, for this is undoubtedly true, but whether or not inflation has made us poorer than we would have been had the Fed left the money supply alone.
It should be obvious that the Fed has stuck it to the American people, or at least some of them. I've covered this before, but inflation is a tax on savers; the beneficiaries of inflation are debtors, as well as anyone who is politically connected, for they receive the newly printed money before its debasement has been discovered by the market.
Savers provide the capital with which producers make the things which we can then buy. Our tax code attacks producers, while our central bank attacks savers; a more idiotic system would be hard to implement. The establishment class in Washington, as well as their friends from the banks and corporations, have benefited tremendously from the wealth redistribution that occurs courtesy of the Fed. Concomitantly, the people have been harmed. While it is true that, in general, and excepting the present, we have been getting richer as a society, this should not distract us from the real wrongs the people have suffered through inflation. It is the height of absurdity to suggest that the people should be happy that they are a little richer than before, while the banks make money hand over fist, courtesy of a central bank which takes wealth from the people.
In short, things look very bad indeed. Much can change, and the pessimists may be wrong about the timeline, but a sober reading of the tea leaves demands concern. It wouldn't hurt to have some precious metals lying around, either.
Monday, August 01, 2011
Debt deal
It is finished--like the American Republic. There is no real surprise here, as anyone who follows politics could have foreseen that pigs would fly before Congress considered cutting spending.
No attention should be paid to anyone who talks about spending cuts. For as we shall find out, they do not exist in any meaningful sense.
The only interesting part of this story is how dreadful the eventual compromise turned out to be. Naturally, Republicans and Democrats will argue over which side won; what is clear is that the American people did not. Karl Denninger has the details:
Lie once again about "cutting spending." It does no such thing. It increases spending - every year. Bogus and outright-fraudulent "baseline budgeting" means that if they intended to boost spending $300 billion but only increase it $200, that's a $100 billion "cut." If you ran your household like this you'd be broke in a week. For the US, it will take a bit longer.
No tax increases. That's nice, but let's not forget that while the Democrats scream about the "Bush Tax Cuts" the FICA tax cut was theirs. Obama signed it. You cannot keep reducing income and increasing spending forever.
The cuts, fraudulent though they are, aren't even real anyway - and not binding either. There's nothing before 2013, which means a downgrade is almost certain. Further, raising the debt ceiling now for the whole among but allegedly finding the "cuts" over 10 years is an outright fraud by a ratio of 10:1.
A 2013 timeline for actual changes means nothing, since the next Congress is not bound by what this one does. Period.
What a flaming pile of excrement. The Republicans rejoinder will be that they could only do so much with so little power. This is an insult to the intelligence of anyone who understands how representative government works. Since the Republicans controlled the House they could have prevented the debt ceiling from being raised. It's possible Obama could have ignored the debt ceiling, thereby instigating a Constitutional crisis; but this doesn't negate the fact that the Republicans had power; they merely lacked the courage to use it.
Now it's true that the banks would have ensured that the market tanked and that the ratings agencies followed through on threats to downgrade the credit rating--itself a ridiculous farce--of the United States. In other words, refusing to raise the debt ceiling would have been politically painful. But that doesn't mean it would have been the wrong thing to do.
Republicans could have explained that a painful recession was the cost of our profligacy; going deeper and deeper into debt hasn't helped our economy, and it cannot, for sooner or later the piper must be paid. We can do the manly and honorable thing and endure a recession, or we can keep debasing the currency until the financial system collapses. Those are our two options.
The Democrats are insistent on pursuing plan number two. Bernanke will keep printing money until he collapses in tears, having realized that the logical end of Keynesianism is hyperinflation. At which point we'll have ourselves a nice recession anyway, albeit without a functioning currency.
The Republicans had a chance to explain the shortcomings of this plan; predictably, they punted. It's certainly possible, indeed, probable, that Americans would reject honesty from their elected officials. Alas, we may never know, because with one exception, Republicans continue to insist that the problem has gotten better because of this dreadful compromise. The party has sacrificed a chance, perhaps its last one, to be forthright, instead hoping that the electorate will continue to pull the lever for the lesser evil.
The Obama presidency has been little more than an embarrassing joke. He has done nothing to address the debt problem which, admittedly, he inherited from our previous charlatan in chief. But by exacerbating the crisis, he has made it his own. There is no Democrat in Washington who is concerned in the slightest about our debt woes. The party is far more concerned that somewhere, some bureaucrat may have to forgo a raise, or that the bankrupt entitlement system is meddled with in the slightest. So the American people will get no help from them.
But the Republicans have sold them out, too. They insist that once Obama is defeated, all will be well. Yet there is no evidence whatsoever that the Republicans will reduce spending even if they control Congress completely. As recently as the Bush administration, they did possess such control, whereupon they racked up record deficits.
It could be argued that the Republicans have learned their lessons from the Bush years. If so, I fail to see any evidence for this supposition. In fact, all the data points the other way. The Republican house dutifully kicked the can for Obama so that no one in Congress has to deal with the debt ceiling until after the next election. In exchange for this exercise in irresponsibility, the Republicans were bought off by non-existent cuts and slightly more meaningful ones at a much later date.
It will be well into 2013 until Congress will consider addressing our debt woes. They will have worsened by then, making it likely that Congress will simply kick the can again, as it always does.
At least the Republicans are being recognized for magnanimously giving Obama a nice deal, right? Oh, wait, Vice President Biden is castigating the tea partiers as terrorists. So in addition to gaining nothing for the American people, it's unclear what political capital was gained by Boehner's Faustian bargain.
During the next year and a half, I recommend stocking up on whiskey. For one, it makes a useful commodity in the case of a collapse in the nation's currency. For another, it is the only thing I have found that makes it possible to stomach the pusillanimity of our supposed representatives.
No attention should be paid to anyone who talks about spending cuts. For as we shall find out, they do not exist in any meaningful sense.
The only interesting part of this story is how dreadful the eventual compromise turned out to be. Naturally, Republicans and Democrats will argue over which side won; what is clear is that the American people did not. Karl Denninger has the details:
What a flaming pile of excrement. The Republicans rejoinder will be that they could only do so much with so little power. This is an insult to the intelligence of anyone who understands how representative government works. Since the Republicans controlled the House they could have prevented the debt ceiling from being raised. It's possible Obama could have ignored the debt ceiling, thereby instigating a Constitutional crisis; but this doesn't negate the fact that the Republicans had power; they merely lacked the courage to use it.
Now it's true that the banks would have ensured that the market tanked and that the ratings agencies followed through on threats to downgrade the credit rating--itself a ridiculous farce--of the United States. In other words, refusing to raise the debt ceiling would have been politically painful. But that doesn't mean it would have been the wrong thing to do.
Republicans could have explained that a painful recession was the cost of our profligacy; going deeper and deeper into debt hasn't helped our economy, and it cannot, for sooner or later the piper must be paid. We can do the manly and honorable thing and endure a recession, or we can keep debasing the currency until the financial system collapses. Those are our two options.
The Democrats are insistent on pursuing plan number two. Bernanke will keep printing money until he collapses in tears, having realized that the logical end of Keynesianism is hyperinflation. At which point we'll have ourselves a nice recession anyway, albeit without a functioning currency.
The Republicans had a chance to explain the shortcomings of this plan; predictably, they punted. It's certainly possible, indeed, probable, that Americans would reject honesty from their elected officials. Alas, we may never know, because with one exception, Republicans continue to insist that the problem has gotten better because of this dreadful compromise. The party has sacrificed a chance, perhaps its last one, to be forthright, instead hoping that the electorate will continue to pull the lever for the lesser evil.
The Obama presidency has been little more than an embarrassing joke. He has done nothing to address the debt problem which, admittedly, he inherited from our previous charlatan in chief. But by exacerbating the crisis, he has made it his own. There is no Democrat in Washington who is concerned in the slightest about our debt woes. The party is far more concerned that somewhere, some bureaucrat may have to forgo a raise, or that the bankrupt entitlement system is meddled with in the slightest. So the American people will get no help from them.
But the Republicans have sold them out, too. They insist that once Obama is defeated, all will be well. Yet there is no evidence whatsoever that the Republicans will reduce spending even if they control Congress completely. As recently as the Bush administration, they did possess such control, whereupon they racked up record deficits.
It could be argued that the Republicans have learned their lessons from the Bush years. If so, I fail to see any evidence for this supposition. In fact, all the data points the other way. The Republican house dutifully kicked the can for Obama so that no one in Congress has to deal with the debt ceiling until after the next election. In exchange for this exercise in irresponsibility, the Republicans were bought off by non-existent cuts and slightly more meaningful ones at a much later date.
It will be well into 2013 until Congress will consider addressing our debt woes. They will have worsened by then, making it likely that Congress will simply kick the can again, as it always does.
At least the Republicans are being recognized for magnanimously giving Obama a nice deal, right? Oh, wait, Vice President Biden is castigating the tea partiers as terrorists. So in addition to gaining nothing for the American people, it's unclear what political capital was gained by Boehner's Faustian bargain.
During the next year and a half, I recommend stocking up on whiskey. For one, it makes a useful commodity in the case of a collapse in the nation's currency. For another, it is the only thing I have found that makes it possible to stomach the pusillanimity of our supposed representatives.
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