Idaho's Weekly Journal of Local & National Commentary Week 2815


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by Free Market Duck

Central Banks Conspire to Hyper-inflate Global Economy
(Dec 14, 2007)

"The problem is we don't have enough paper to print more paper money for the global economy because we ran out of trees.  Perhaps if we use scientific notation to indicate the 15 zeroes in our new U.S. Quadrillion Dollar Note typically used to buy a loaf of bread, and thus reduce $1,000,000,000,000,000 to $1 x 1015 , we can save on paper.” – Fed Reserve Chief, Helicopter Ben

“Since paper money obtains its value by the sheer fact that it’s created out of thin air and printed by the government’s central bank, we can easily switch to printing money on rectangular Cow Crap.  Later, we can expand the printing of our U.S. money on Buffalo Chips and then on Horse Shit.” – Secretary of the Treasury, Henry Paulson, explaining basic Keynesian Econometrics to U.S. Congressional Banking Committee

Washington, DC – So, the real cause of today’s global recession is:  we ran out of trees?

   Let’s see now.  Keynesian Econometrics Axiom # 1:  Leading the economy with a perpetual increase in non-collateralized Funny Money will boost the wealth of a nation.

   Right.  Got it.

   Unless you run out of trees.  Oh-oh.

   Keynesian Econometrics Axiom # 2:  If you run out of trees, print your non-collateralized Funny Money on Cow Crap.

   Whew, we’re saved.

   Unless you run out of Cow Crap.  Oh-no, now what?

   Keynesian Econometrics Axiom # 3:  If you run out of Cow Crap, print your non-collateralized Funny Money on Buffalo Chips.

   Oh, thank God, we’re saved again.

   Unless you run out of Buffalo Chips.  Oh my God, we killed off the Buffalo.

   Keynesian Econometrics Axiom # 4:  If you run out of Buffalo Chips, print your non-collateralized Funny Money on Horse Shit.

   Right, Horse Shit.  That sounds good.  Our Federal Reserve will expand our money supply by printing it on Horse Shit.

   Wait, something is wrong here.  Something very basic.  What is it?

   Paper money not backed by anything has no value.  The Federal Reserve Note (FRN) is created out of thin air.  It is not an IOU.  It is not a promissory note.  It is not a real contract.  It does not agree to pay to the bearer on demand 1 troy oz of gold or silver or anything else upon presentation to the U.S. Treasury.  The FRN is not backed by, or a receipt for, America’s GDP because the Federal Reserve does not own everybody’s house, car, TV, and everything else and thus it is ludicrous to claim that the U.S. Dollar is backed by our GDP.  The Fed can’t print paper money for collateral it doesn’t own.

   Therefore, the Federal Reserve Note is a fake contract that has been transformed from an historically redeemable Gold or Silver Certificate to a meaningless piece of paper.  The American Dollar has been morphed into a piece of valueless manipulated paper, the management of which has illegally been turned over by the U.S. Congress to a private corporation, the Federal Reserve, which now acts as a quasi-governmental agency catering to their buddies in the investment community, Congress, and other special interest groups, including those who wage interventionist wars all over the world for fun and profit.

   The Federal Reserve is comprised of Keynesian Econometricians who were schooled in state collectivism, or some variation on the theme of socialism, and were taught British economist Lord John Maynard Keynes’ baloney that by leading the economy with a continual expansion of the money supply, e.g. the fake Federal Reserve Note, the central bank Bozos can create a wealthy robust market.  Nothing could be further from the truth.

   But how did they ever come to such an absurd conclusion?

   The Keynesian dumbies noticed that if you inflated the economy with paper money and credit, it appears to create a mini-boom.  Those who get the new money first run out and spend it and thus it appears everybody got wealthier.  But if one looks further, one soon discovers that the mini-boom turns into price inflation as everybody eventually figures out that what really happened is that somebody inflated the money supply and he who receives the new money last gets hit with the highest price increases.  Increasing the paper money supply – especially non-backed paper money – may trick the people temporarily into thinking there is an economic boom but it does not increase real capital or stimulate the transformation of new ideas into time and labor saving devices.  If anything, it teaches people how to cheat the system and print up tons of fake paper for their own benefit.  If Keynes was correct, which he isn’t, then we should hire lots of counterfeiters to print up tons and tons of paper money and flood the economy with counterfeit money, thus creating all kinds of new wealth.  Sorry, Charlie, but it doesn’t work like that.  In fact, it works exactly the opposite and causes poverty.

   Fast forward to today, the year 2007.

   This is exactly what the U.S. has done, i.e. created a huge counterfeiter, the Federal Reserve System, to print up tons and tons of non-backed paper money and flooded the economy with it in their zeal to make America wealthy by following the fallacies of Keynesian Econometrics.  Not only have the Federal Reserve central bankers flooded the market with inflated paper money, they have also encouraged member banks and investment houses to create even more paper money by creating, bundling, and disseminating Federal Reserve Notes with subprime mortgages, non-backed derivatives, hedge funds, structured investment vehicles, and other pieces of paper not backed by anything.  Even the subprime mortgages are not backed by the value of real homes because the prices of houses are tumbling.

   Remember, in Keynesian economics, money is a piece of paper not backed by anything.  It has no intrinsic value.  Today's paper money is not a receipt, not a promissory note, not an IOU for anything.  It is not a contract, not a mercantile receipt for stored goods, not redeemable for a stated quantity of gold or any other tangible commodity, and not a valid medium of economic exchange.  It is called “forced money,” or fiat currency since it is forced upon the public by the government.

   There now exists so much hyper-inflated paper money, bundled with subprime mortgages and other pieces of highly manipulated commercial paper, that nobody knows which investment institution will be defaulting on their investments next because nobody knows who is holding how much of the chopped up pieces of fake commercial paper, including the parent banks that keep that new paper in subsidiary investment corporations AND THUS DO NOT HAVE TO REPORT IT ON THEIR PARENT BOOKS AS MONEY OR ASSETS until, or if, they bring it across.  Nobody knows how to value any of these pieces of fake paper because they don't trade in the market.  So banks are refusing to lend more fake paper, including Federal Reserve Notes, to each other or anybody else at ANY interest rate because every bank is afraid the borrower won't be able to pay them back.

   The banking crisis is not a lack of liquidity problem.  It is an evaluation problem.

   How does one evaluate trillions and trillions of chopped up commercial paper (and its foundational Federal Reserve Notes) not tied to any set of international standard of weights and measures, such as 1 troy oz containing 419 grains of .999 fine gold, for example?  Destroy your measuring stick and you destroy all future measurements and calculations.  Which means, you destroy the free market.  If we were on a 100% gold standard, all the bankers would have to do is walk into their vaults and point to the gold coins and bars to show their collateral.  Today, all the bankers can do is point to each other's trillions and trillions of verbal bull shit, and not lend to each other for fear of losing the fake paper they now hold.

   This greatly bothers the Federal Reserve Bozos because they erroneously think the name of the game is to inject trillions and trillions more paper money into the economy.  That’s what Lord John Maynard Keynes taught them, lead the economy with a "targeted rate of (price or money) inflation" to create wealth and the dummies believe it.  They earned their PhDs at Harvard and other universities by writing stupid dissertations using differential calculus in phony attempts to support Keynes’ daydreams.  Then they got themselves appointed to the Federal Reserve so they could save humanity and provide enough Keynesian crap for the editors at the Wall Street Journal to chime in with their ridiculous Op Ed support pieces and pretend like they're supporting the free market, too.  Welcome to Alice in Wonderland.

   Since the Federal Reserve erroneously thinks that injecting more and more paper money into the economy will solve the stagflation problem, they continue to dream up more and more methods by which to try to stimulate everybody to borrow borrow borrow, spend spend spend, and according to current Keynesian Econometrics, do it faster faster faster.  Fed Chief Ben Bernanke and his fellow monetary interventionists think the problem is (1) not enough fake paper money and (2) not enough fake paper money being spent fast enough – if you can believe that.

   Now the Keynesians are concerned about the velocity of spending.  Next they will be concerned about the acceleration of the velocity of spending.  The Fed truly has modeled itself after physics in an absurd effort to "make economics more scientific."  But free market economics, the Austrian School of Thought called Praxeology, or Human Action, already is scientific and doesn't require the use of differential or integral calculus.  It requires subjective thinking, not erroneous quantitative modeling of historical market prices.

   The very problem that classical free market economists warned would happen if one goes off the gold standard and continually inflates the money supply is now happening and the stupid Keynesian economists at the Federal Reserve are doing exactly the wrong thing to solve the problem they created in the first place.  Namely, you cannot lead the economy with a continual inflation of the money supply and make a nation wealthy.  All that will happen will be price inflation and all kinds of unintended economic consequences, in addition to the many inequities that monetary inflation heaps on those with fixed incomes such as senior citizens and poor people.

   If Keynesian Econometrics is not good for America, globalizing it all over the world is even worse.

   But that is exactly what the Federal Reserve, teaming up with the central bankers of the European Central Bank, the British Central Bank, the Swiss Central Bank, the Canadian Central Bank, the Bank of Japan, the Swedish Central Bank, and other central bankers are conspiring to do on an international basis as of yesterday.  Their plan to inject $40 billion more into the U.S. within the next two weeks, with the other central banks also injecting varying amounts of both U.S. Dollars and their own non-backed National Toilet Papers, will cause severe global hyper-inflation, the likes of which nobody has seen since the Great German Hyper-Inflation of the 1920’s.  See below from my article on 09-25-2007  Wherein lies the value of today's paper money?... The solution:  abolish fractional reserve central banking, the Federal Reserve and govt monopoly of money; allow private minting and free choice of currencies - Part 5  More...:

   In 1914, Germany’s Fed Reserve, the Reichsbank, suspended conversion of its paper money into gold.  By November 1923, after continual “injections of liquidity,” Reich Marks in circulation soared past 92.8 quintillion Marks and skyrocketed past 496 quintillion Marks through July of 1924.  On Oct 25, 1923, the Reichsbank apologized that it had been able to only print 120 quadrillion Marks that day, but the demand was for one quintillion Marks.  Finally, after nobody would accept the Mark, the Reichsbank devalued to a new Rentenmark convertible at 1 trillion to one.  By Nov 1923, circulation had increased 245 billion times and prices 1,380 billion times.  Inflation finally stopped in one day when 4.2 Rentenmarks (4.2 trillion old Marks) exchanged for 1 Dollar, which was convertible into gold.  Germany, via the Dollar, finally went back to the gold standard, after destroying its entire economy in 9 years through hyperinflation of its non-backed paper money. – Dr. H. Hazlitt, Economist

   Sound familiar?

   Today, in 2007, after FDR dumped the gold standard in 1933 and Nixon cut all dollar ties to gold in 1971, our derivative markets currently exceed a half a quadrillion dollars or $500,000,000,000,000 – five hundred trillion dollars – of non-collateralized paper fueled by America’s central bank, the Federal Reserve.  And what is it that everybody is screaming for more of?  The injection of billions and billions of more non-collateralized paper money as “liquidity” to “spur” the “growth” of the economy.

   Yesterday’s announcement by the Federal Reserve and other central bankers is a prescription for global economic disaster.  It will no doubt usher in martial law and the loss of many freedoms as all nations abandon their agreements after they discover they have just made the market worse.  It may even cause another war.

   The big question is:  When will Americans and other nations wise up, dump their non-backed paper money and central banks, and finally go back to a stable gold standard with redeemable paper money backed 100% by gold?  Personally, I’m getting tired of listening to all the phony baloney econ pundits on TV and Fed Chief Ben Bernanke tell us that the solution to our valueless paper money is to print up trillions and trillions more paper and credit and inject it into the banking system.  As it turns out, Keynesian Econometrics really is just one big pile of hyper-inflated Horse Shit. -- FM Duck

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