Posted on 12/05/2002 5:22:49 PM PST by rohry
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Reigniting InflationTwo weeks ago several Fed governors including the G man gave speeches alerting the financial markets as to their future intentions. The gist of those three speeches [See Fed Archives] is expressed in the words of Fed governor Ben S. Bernanke when he said that the Fed would take what ever means necessary to prevent deflation. The Fed governor along with the G-man said the Fed still had ample tools available to work with, even if interest rates go to zero. The implication was that the Fed would intervene in the financial markets by buying assets to prop up their prices or keep interest rates within a narrow range. When discussing these additional tools, Bernanke said, So what then might the Fed do if its target interest rate, the overnight federal funds rate fell to zero? One relatively straightforward extension of current procedures would be to stimulate spending by lowering interest rates further along the Treasury term structurethat is, rates on government bonds of longer maturities. There are at least two ways of bringing down longer-term interest rates, which are complimentary and could be employed separately or in combination. One approach would be for the Fed to commit to holding the overnight rate at zero for some specified period. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt. The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yield. In addition to buying government bonds, Bernanke said, The Fed has the authority to buy foreign government debt, as well as domestic government debt. Potentially, this class of assets offers huge scope for Fed operations, as the quantity of foreign assets eligible for purchase by the Fed is several times the stock of the US government. Bernanke cautioned that the Fed would leave the dollar policy in the hands of the Treasury. However, Bernanke mentioned the possibility of dollar intervention as well by stating, Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, [then why mention it?] its worth noting that there have been times when the exchange rate policy has been an effective weapon against deflation. He further explained the Feds intentions with, What has this to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology called a printing press [or today, its electronic equivalent] that allows it to produce as many U.S. dollars as it wishes at essentially no cost. [no cost to the Fed, but paid for by the people in depreciable currency value] By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can reduce the value of a dollar in terms of goods and services, which is equivalent to raising prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. Bernanke then goes on to state that those who feel the Fed is pushing on a string when rates fall to zero and that the Fed has lost its efficacy to stimulate aggregate demand are mistaken. He gave a parable of what he means with the following, The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. [Keynesian reasoning] A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subjects oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his intervention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal. Transparent Intentions and Interventions So there you have it. The Fed is telling the financial markets that interventions will rule the day. The U.S. is about to embark on another Grand Experiment. Welcome to the new world of John Law in the 21st Century. The U. S. Dollar is a Key Indicator Fiscal Stimulus & Spending Programs Coming Our Way It may not have dawned on the general public, but the world is in the process of remilitarization again. Middle East countries are acquiring weapons of mass destruction and expanding their military budgets. In Asia the largest naval expansion in history is taking place as each country races to rebuild its naval forces against the hegemonic ambitions of China. China is in the process of expanding its blue water navy and its naval bases from its coastal areas all along oil routes from the Persian Gulf. The U.S. military budget will be expanded to meet these new challenges. Like the 1930s, the world finds itself once again at war. War is great consumer of resources. States Facing Fiscal Crises According to Standard of Living Committee, more federal taxes were taken from citizens than the growth of personal income. From 2000-2001 GPI grew by$279.5 billion; while federal tax revenues grew by $298.6 billion. The consumer taking on more debt makes up the difference. The Fed and banking system is only too willing to oblige. Thank heavens for the American consumers' willingness to go deeper into debt to fund housing purchases or borrow equity out of their homes to finance consumption. According to the National Mortgage News, residential originators funded a record breaking $729 billion in home mortgages in Q3 and are set to come close to $2.5 trillion this year. This surpasses last years record of $2.066 trillion. So what is the bottom line? The question is will this work? In order for Fed credit and monetary stimulus to work, you need a willing lender and a willing borrower. So far we still have both. Banks may be unwilling to lend to businesses, but they are more than willing to lend to consumers, especially when it comes to housing. We also continue have a consumer who is willing to go deeper into debt to buy bigger homes or tap into their home equity to fund consumption. The Grand Experiment continues. I would suggest buying gold and silver while you can in order to protect yourself from the alchemists at the Fed, just in case they create another monetary Frankenstein. Today's Market Major indexes have all failed to breach key resistance levels. The Dow has fallen below last weeks intra-day high of 8680. It appears that major indexes are falling back to their 50-day moving average line. This is key since many technical trading programs operate around moving average numbers. Many stocks in the tech area such as IBM and Intel are showing signs of breaking down. While techs and retailers are showing signs of weakness, it appears that money is rotating back into things. Gold, silver, oil and natural gas stocks are doing well with upmoves in the XOI, XAU, and the HUI. Gold and energy may be signaling what is to come. We now have strikes in Venezuela, an impending war, and a Fed hell bent on burning the currency. We certainly live in interesting times. |
Not by any stretch. Between regulations and direct intervention, all markets, even commodity futures, are far from a free market.
So they say...
On NOW at RadioFR!
Doug from Upland interviews JAYNA DAVIS discussing the OKLAHOMA CITY BOMBING
I have no delusions whatever regarding how far the government and the FED will go to protect the ruling class elite by sacrificing the underclasses.
Richard W.
What specifically are you referring to? Or are you just some leftist or libertarian who likes making vapid sweeping statements?
I'm a citizen and a taxpayer deeply concerned about the future of my country and our freedoms. If you are going to do mulipule choice, don't limit yourself to radical party line views. This still is America -- you remember -- the constitution, free speech and all that stuff.
Richard W.
(I wrote this a number of years ago when things were NOT going well with the economy. Trust me: They WILL get ugly once again as man -- or certain men -- cannot resist playing God. (2002 note: IT'S BAAAACCCCKKKK!)We continue to violate the universal, immutable laws of economics at our great peril.)
Despite the apparent economic strength of the American economy, history proves that EVERY house of cards eventually comes down. And the higher the card house, the harder the fall when it finally comes. And when it does, the more freedoms we will voluntarily surrender to "restore order." It was the Founders' concern about this historically valid problem which prompted their attempt -- now ignored -- to keep American "money" sound and honest.) Dick Bachert 1998
Oh yeah, almost forgot: File this under Who Gives a Damn!
* * * * * * * *
The Forgotten History of Money
This is the fascinating story of the efforts by certain of the Founding Fathers to prevent the economic distress we find all about us today. It is also a sad story on the basis that modern, "sophisticated" Americans have abandoned the corrective institutional mechanism that remains in place to this day. As you read it, think about a world with many fewer S&L, banking and political scandals and economic problems now considered the norm.
"Blood running in the streets. Mobs of rioters and demonstrators threatening banks and legislatures. Looting of shop and home. Strikes and unemployment. Trade and distribution paralyzed. Shortages of food. Bankruptcies everywhere. Court dockets overloaded. Kidnappings for heavy ransom. Sexual perversion, drunkenness, lawlessness rampant. The wheels of government are clogged, and we are descending into the vale of confusion and darkness. No day was ever more clouded than the present. We are fast verging on anarchy and confusion. (George Washington in a 1786 letter to James Madison, describing the effects of fiat paper money inflation then ravaging America in the pre-Constitutional period.)
"The annihilation (of the paper money) was so complete that barber-shops were papered in jest with the bills; and sailors, on returning from cruises, being paid off in bundles of this worthless money, had suits made of it, and with characteristic lightheartedness, turned their loss into frolic by parading through the streets in decayed finery which in its better days had passed for thousands of dollars." (Contemporary writer, Breck, 1786)
"Paper money polluted the equity of our laws, turned them into engines of oppression, corrupted the justice of our public administration, destroyed the fortunes of thousands who had confidence in it, enervated the trade and husbandry, and the manufactures of our country, and went far to destroy the morality of out people." (Peletiah Webster, 1786)
At the drafting of the U.S.Constitution, there were many "Friends of Paper Money" present. On August 16, 1787, when the discussion arose on Article 1, Section 8, the proposed wording was this: "The Legislature of the United States shall have the power to...coin money...and emit bills of credit of the United States."
A hot argument ensued on the power to emit bills of credit, which is another way of saying "printing paper money".
Here are the actual words James Madison wrote describing the debate in his diary: "Mr.G.Morris moved to strike out *and emit bills of credit.* If the United States had credit, such bills would be unnecessary; if they had not, unjust and useless.
MADISON: Will it not be sufficient to prohibit the making them a tender? This will remove the temptation to emit them with unjust views. And promissory notes in that shape may in some emergencies be best.
MORRIS: Striking out the words will leave room still for notes of a responsible minister which will do the good without the mischief. The monied interest will oppose the plan of the Government, if paper emissions be not prohibited.
COL.MASON: Though he had a mortal hatred to paper money, yet as he could not foresee all emergencies, we was unwilling to tie the hands of the Legislature [Legislature = Congress].
MR.MERCER:(A friend to paper money) It was impolitic...to excite the opposition of all those who were friends to paper money.
MR. ELSEWORTH thought this was a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments which had been made, were now fresh in the public mind and had excited the disgust of all the respectable part of America. By withholding the power from the new Government, more friends of influence would be gained to it than by almost anything else...Give the Government credit, and other will offer. The power may do harm, never good.
MR.WILSON: It will have a most salutary influence on the credit of the United States to remove the possibility of paper money. This expedient can never succeed whilst its mischiefs are remembered, and as long as it can be resorted to, it will be a bar to other resources. MR.READ thought the words, if not struck out, would be as alarming as the mark of the Beast in Revelation.
MR.LANGDON had rather reject the whole plan than retain the three words *and emit bills*".
The motion for striking out carried.
Historian George Bancroft later wrote: "James Madison left his testimony that *the pretext for a paper currency, and particularly for making the bills a tender, either for public or private debts, was cut off.* This is the interpretation of the clause, made at the time of its adoption by all the statesmen of that age, not open to dispute because too clear for argument, and never disputed so long as any one man who took part in framing the constitution remained alive."
ROGER SHERMAN(1721-1793)should be a name familiar to every American. As familiar as Washington, Madison, Jefferson and Adams. He is the only man to have signed all 4 documents surrounding the formation of the United States of America: The Continental Association of 1772, The Declaration of Independence, The Articles of Confederation and The United States Constitution. He was a Judge of the Superior Court in New Haven, Connecticut, serving that office with distinction from 1766 until 1788. He served as Treasurer of Yale University from 1765 to 1776. He was renouned for his high intelligence and unswerving honesty and was described by John Adams "as honest as an angel and as firm in the cause of American independence as Mount Atlas." He served in the U.S.Senate from 1791 until his death in 1793.
Why is Roger Sherman*s name unfamiliar? HE WAS AN ENEMY OF PAPER MONEY!! In 1751, Roger Sherman and his brother William sued James Battle for paying a debt to their shop in New Milford, Connecticut, in depreciating paper currency. Over a period of 15 months, Battle had charged "divers wares and merchandizes" amounting to 129 pounds of what Sherman assumed were pounds of Connecticut "Old Tenor", a stable currency whose value were well-preserved by taxation taking it out of circulation. But Battle assumed the debt was denominated in pounds of ever-depreciating Rhode Island currency, tendered in same, and the Shermans took a beating in the payment and sued for recovery of loss by depreciation. The Shermans lost when Battle argued that he was merely following the accepted custom of the day. In 1752, Sherman wrote his book "A Caveat Against Injustice or An Inquiry into the Evils of a Fluctuating Medium of Exchange" indicting UNBACKED PAPER MONEY.
It was this experience that Sherman brought to the Constitutional Convention and prompted him to rise on August 28,1787 and propose new, more restrictive wording to Article 1,Section 10. The standing version under consideration was worded this way: "No state shall coin money; nor grant letters of marque and reprisal; nor enter into any Treaty, alliance, or confederation; nor grant any title of Nobility." (From Madisons Notes of the Convention) "Judge Sherman and Mr. Wilson moved to insert the words *coin money* the words *nor emit bills of credit, nor make any thing but gold and silver coin a tender in payment of debts* making these prohibitions absolute, instead of making the measures allowable with the consent of the Legislature of the U.S. Mr. Sherman thought this a FAVORABLE CRISIS FOR CRUSHING PAPER MONEY. If the consent of the Legislature could authorize emissions of it, the friends of paper money would make every exertion to get into the Legislature in order to license it." Mr. Sherman*s and Mr. Wilson*s motion was quickly agreed to and became the supreme law of the land.
Some additional quotations to ponder:
"All the perplexities, confusion and distress in America arise not from defects in the constitution or confederation, nor from a want of honor or virtue so much as from downright ignorance of the nature of coin, credit and circulation" (John Adams in a letter to Thomas Jefferson, 1787)
"I deny the power of the general government to making paper money, or anything else, a legal tender." (Thomas Jefferson)
"You have been doubtless been informed, from time to time, of the happy progress of our affairs. The principal difficulties seem in great measure to have been surmounted. Our revenues have been considerably more productive than it was imagined they would be. I mention this to show the spirit of enterprise that prevails." (George Washington in a letter to the Marquis de LaFayette, June 3, 1790 AFTER the United States Constitution prohibited unbacked paper money at Article 1, Section 10)
"Since the federal constitution has removed all danger of our having a paper tender, our trade is advanced fifty percent. Our monied people can trust their cash abroad, and have brought their coin into circulation." (December 16, 1789 edition of The Pennsylvania Gazette)
"Our country, my dear sir, is fast progressing in its political importance and social happiness." (George Washington in a letter to the Marquis de LaFayette, March 19, 1791)
"The United States enjoys a sense of prosperity and tranquility under the new government that could hardly have been hoped for." (George Washington in a letter to Catherine Macaulay Graham, July 19,1791)
"Tranquility reigns among the people with that disposition towards the general government which is likely to preserve it. Our public credit stands on that high ground which three years ago would have been considered as a species of madness to have foretold." (George Washington in a letter to David Humphreys, July 20, 1791)
"It is apparent from the whole context of the Constitution as well as the times which gave birth to it, that it was the purpose of the Convention to establish a currency consisting of the precious metals. These were adopted by a permanent rule excluding the use of a perishable medium of exchange, such as certain agricultural commodities recognized by the statutes of some States as tender for debts, or the still more pernicious expedient of PAPER CURRENCY." (Andrew Jackson, 8th Annual Message to Congress, December 5, 1836)
DESPITE WHAT YOU WERE TAUGHT IN SCHOOL, THE HISTORICAL RECORD IS CRYSTAL CLEAR: AMERICA WAS TO HAVE BEEN SPARED THE DESTRUCTIVE EFFECTS OF AN UNBACKED PAPER MONEY SYSTEM. MOST OF THE PROBLEMS WE FACE TODAY CAN BE TRACED TO WHAT ANDREW JACKSON CALLED "THE PERNICIOUS EXPEDIENT OF PAPER MONEY".
HISTORY TEACHES THAT AN "ARTIFICIAL" MONEY CREATES AN "ARTIFICIAL" WORLD WHERE THE PRICE FOR SOME ITEM...EVEN OUR MOST POPULAR WELFARE "PROGRAM"...CAN BE DEFERRED TO FUTURE GENERATIONS (OUR $11 TRILLION NATIONAL DEBT) OR PAID WITH A "MONEY" CREATED OUT OF THIN AIR WHICH ROBS THE VALUE FROM THE MONEY WE MIGHT BE UNFORTUNATE ENOUGH TO HAVE IN OUR POCKETS AT THAT MOMENT (INFLATION). AND ONE THING YOU MUST REMEMBER ABOUT INFLATION IS THAT IT IS NOT AN "EQUAL OPPORTUNITY" DESTROYER: THOSE FIRST IN LINE TO GET THEIR HANDS ON THE NEW MONEY ROLLING OFF THE PRESSES (THE MODERN FRIENDS OF PAPER MONEY) HAVE A CHANCE TO SPEND IT BEFORE IT LOSES ITS VALUE. THE LITTLE PEOPLE (THATS US, FOLKS!) FARTHEST DOWN THE LINE ARE THE ONES WHO FEEL THE FULLEST EFFECTS OF THIS DESTRUCTIVE PROCESS.
The next generations are cursed to deal with the aftermath of this financial disaster.
Europe headed south economically when all major European countries incurred heavy debts to finance WWI. America underwrote most of the debts. After the war, most were unable to pay back. Their economy went into tailspin after a couple of years of recovery. They slapped monstrous reparations on Germany so that they can recoup the money to pay back their debts owed to U.S. U.S. even lent money to Germany so that Germany can better pay up the reparations. Despite this bandaid measure, German economy collapsed. Hitler came and stopped the payment of reparations. The rest is history. Incurring huge debts eventually have dire consequences. Europe was wiped off as a major power because of that. America was able to dominate the world thanks to its strong net creditor position.
If a country incurs too much debts internally or externally, essentially the net effect is the downsizing of its economy at some point.
The only point of interest is if other economies will be downsized in similar proportion so that American economy will still have a dominant share of the world economy even if its net worth goes down. Or there would a change in relative standings among economies.
My personal opinion is that there could be no dominant economic powers for some time. Multiple competing struggling economies. America economy can still be the biggest but not so big as it is now in relative terms. I doubt that neither China nor Europe nor Japan can replace America due to their internal economic problems.
You ignored my comments and chose to attack me on a personal level as many political radicals do because they can't think for themselves or see beyond the party propaganda. I seriously doubt that you will take anything I say seriously, but at least try to open your eyes to see how your freedoms are being compromised by both political parties. You really think that you have a voice in Washington?
Richard W.
What specifically are you referring to?
You ignored my comments and chose to attack me on a personal level as many political radicals do because they can't think for themselves or see beyond the party propaganda.
I did not ignore your comment. I have reproduced your entire comment in the first paragraph above and my reply. I asked for specifics. Maybe you can't understand what the word specific means. As I think about it, a better word for your kind of statement is inane.
Main Entry: inane Pronunciation: i-'nAn Function: adjective Inflected Form(s): inan·er; -est Etymology: Latin inanis Date: 1662 1 : EMPTY, INSUBSTANTIAL 2 : lacking significance, meaning, or point : SILLY synonym see INSIPID
No, I simply refuse to play your adolescent name calling games. Isn't that your mommy calling? Now, buzz off sparky. Ha Ha Ha.
Main Entry: inane Pronunciation: i-'nAn Function: adjective Inflected Form(s): inan·er; -est Etymology: Latin inanis Date: 1662 1 : EMPTY, INSUBSTANTIAL 2 : lacking significance, meaning, or point : SILLY synonym see INSIPID
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