Thursday, March 19, 2009

Regulation, Part III: The New Dictatorship of Money

Author Michael Greaney, of the Center for Economic and Social Justice, writes cogently on the madness sweeping our nation:

Regulation, Part III: The New Dictatorship of Money
By any standard of measurement, the decision of the Federal Reserve to "pump" $1.2 trillion into "the financial system" (meaning the stock market) is enough to terrify anyone who has a modicum of common sense left. ("Fed to Pump $1.2 Trillion Into Markets," Washington Post, 03/19/09, p. A1.) Such a move, a serious indication of stark, raving financial and economic insanity, is virtually guaranteed to begin finishing off what is left of the U.S. economy. Clearly motivated by political rather than economic or financial considerations, the decision is custom-made to destroy whatever confidence remains in the dollar.

The only question is how this situation was allowed to develop in a country presumably run for the benefit "of the people, by the people, and for the people." The answer is actually simple, once we free ourselves of the shackles imposed by the Great Defunct Economist, John Maynard Keynes.

By adhering to the letter rather than to the intent of the law, the federal government and the Federal Reserve have, between them, shifted the backing of the currency. The backing of the currency (or equity shares, or any other type of financial instrument) is what financial experts call the "underlying," with the additional word "asset" understood. The "underlying" of the currency has changed from "qualified industrial, commercial, and agricultural paper" (i.e., hard assets representing existing production and the present value of future production), to the federal government's ability to collect taxes. The currency has thereby shifted from being asset backed, to being debt backed.

This has had the expected effect. The value of the dollar has been falling for decades, prices have been rising, ownership of the means of production has become increasingly concentrated, basic industries have been leaving the country, and fewer and fewer people are able to make a decent income solely by selling their labor.

There are many other factors that have caused this situation, of course, but the virtual monopoly over the creation of money currently enjoyed by the federal government in unacknowledged alliance with the Federal Reserve has all but ensured that the great mass of people will be cut off from access to the means of acquiring and possessing private property. Further, freed from the necessity of having to tax in order to raise the money it needs, the federal government has acquired more and more power over the lives of American citizens, calling to mind the warning voiced by Pope Pius XI in 1931 in his "encyclical" Quadragesimo Anno ("On the Restructuring of the Social Order"), which itself echoed those issued by Henry C. Adams in his 1898 study, Public Debt: An Essay in the Science of Finance. As Pius XI declared,

105. In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure.

106. This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.
We don't need to be Catholic, or even believe in any God, gods, or goddesses to see the common sense of what Pius XI said and the dangers inherent in ignoring his warning. We need only substitute "State bureaucrats" for the "trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure" to realize the danger of allowing the federal government — or any government, for that matter — to have such enormous control over money and credit, and thus complete mastery over the economic life's blood of every man, woman, and child in the country.


Regulation, Part II: The Federal Reserve Ponzi Scheme
Most people will immediately think of the Madoff scandal when the latter case is mentioned. They fail to realize, however, that the United States government is far more guilty than Madoff of issuing paper with nothing behind it, to the tune of more than $10 trillion. Compared to what the federal government has managed to pull off, Madoff is a piker.

Regulation, Part I: Two Views of Regulation
Consistent with the dignity of the human person, regulation should be designed to reinforce the system itself and encourage desired results, not run counter to the whole idea of a system itself and try to force desired results, whether or not the capacity exists to achieve the desired goal. The system itself must be designed to be self-regulating, not have control imposed from the outside. Unfortunately, what we've seen develop in government as well as law and economics is the belief that people must be forced to do whatever people in power want them to do, thereby attaining some bureaucrat's or academic's idea of utopia.

And this is just "too rich"

We Have Seen the Future . . . And It Doesn't Work

The second means of job creation is for the State to subsidize jobs directly by paying businesses to hire people for whom the business would otherwise have no use. The funds for a direct State subsidy can only come from increasing taxes on the rich (in which case you take money away from the rich to hand back to the rich so they can afford to hire people they don't need to hire), or by increasing the deficit.

Thus, in the Weird World of Keynes, unless you want to stifle job creation by taking away the money the rich have to invest, increased government spending can only come by increasing the deficit. Why? Keynes believed that it is impossible to finance capital formation out of "future" or "forced" savings, that is, by extending capital credit to be repaid out of the future profits of the new capital itself.

According to Keynes, then, money to stimulate demand, subsidize jobs, or decrease the deficit cannot come from the rich, because in the Keynesian universe the savings and income of the rich are the only source of financing for new capital. If the government taxes away the wealth of the rich to decrease the deficit, the rich can't invest their savings in new capital formation, and no new jobs will be created. If the government taxes away the wealth of the rich in order to subsidize job creation, all that is accomplished is that the State takes money away just to hand it back — the situation remains the same, and no new jobs will be created, because the State simply restores the status quo: businesses reduce jobs to meet their tax bills, and then hire the people back to fill subsidized positions.

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