10 Rules: How Closed Minds Become Closed Borders

It is my intention to provide my readers with a very valuable and unique service.  I am a voracious reader and it is my special talent to distill complex subjects down to their simplest parts and principles (if indeed such principles exist).  Much of what is written, past and present, is intentionally obfuscated for political purposes or dishonest gain, whether of the material, intellectual, or emotional varieties.  It is designed to misinform or mislead.  Even when the ideas are simply muddle-headed rather than intentionally disingenuous, there is rarely an understanding of where those ideas originated, or historical consequences of their application.   These observations are particularly applicable to political discussions, but are not uncommon in virtually any serious discourse.

I am driven to know what is.  I grew up in an intellectually closed society, as one of Jehovah’s Witnesses.  I left that religious organization in mid-life only to find a whole smorgasbord of other closed societies, whether religious, philosophical, political, or social.  There is a vehemence and even fierceness of advocacy that inhibits civil conversation and betrays intolerance of different life experiences and conclusions.  What is most remarkable about all of these is that either side in any of these debates would passionately agree with my observations herewith stated, but only find them applicable to the attitudes and behavior of those with an opposing viewpoint!

As the polemicists outshout each other in the vain belief that raising the volume of their cranky bombast is the key to recruiting you to the cause or the sale, regard for evidence, logic, scientific method, clarity, and other calm pursuits are left behind like abandoned children.   Defense of our own position usually trumps all other considerations without any awareness whatsoever of the road by which we arrived at our convictions.  My most important takeaway from my own life-altering experience  is that I am the bouncer and doorman to my own mind, and I have sole discretion over what is permitted to enter.  I am the final arbiter of what I accept, because I become what I ingest intellectually.   This is a personal responsibility that I cannot delegate to any other person, institution, or authority. In my opinion, every one of my readers shares this same responsibility for themselves, for the same reasons and with the same rewards. Bitterness and anger about years wasted in misguided belief and defiance of reality are efforts to transfer responsibility for our own past choices onto others, but in every case it was we who negligently invited strangers, in the form of ideas, into our mind unidentified and unchallenged.  Even when we absorb faulty premises in our age of innocence, responsibility to identify and correct these later in life cannot be avoided with impunity.

I frequently include book reviews on this blog, on a broad range of subjects.  All of these book reviews are at least somewhat positive in nature, because I do not waste my readers time on books that are in my opinion without at least some important redeeming values.  I am neither Democrat nor Republican, neither liberal nor conservative, and these days, once you get past the rhetoric, it can be said their distinctions are often without differences.  I have no ideology except the value of the individual human being. Each of us is a minority of one.  Regardless of the comfort we find in each other, there is no collective brain.  Descartes famously said “I think, therefore I am.” What we think determines what we become.

I want to share some rules of the road from my personal experience.

When I was growing up, my parents taught me to eat everything on my plate at meal times.  It was axiomatic that to waste food was wrong, even though our young minds rarely grasped the contradiction in the fact that we didn’t overload the plate with all that food, the grown-ups did.  How could we possibly know that for the rest of our lives other BIG PEOPLE would be filling up our intellectual plates with the impassioned ideas, ephemeral notions, and absolute certainties they insisted we must ingest because it is “good for us.”  As in childhood, we trust the source, the same one we associated with survival itself.

Rule #1 :   The purpose of all propaganda is to become your “trusted source.” Read more..

Everyone, it seems, has the strongest notions of what is best for us, beginning with our immediate families and extending to all the institutions of our culture.  What is accepted and practiced in one generation may be repudiated by future generations.  The philosophy that someone else knows what is best for us is nothing more than delegating to strangers what gets put on our plate.  It makes no difference whether this authority figure or expert comes in the guise of clergy, government, Chairman of the Federal Reserve, media talking heads or television and movie script writers; all of them provide us with generous helpings of their opinions and rules and they expect us to eat it, even if it gives us heartburn.  They do not like to be ignored, and most of them are happy, if given the opportunity, to harness the coercive power of the state to enforce what they know is, if not for our own good, at least for the good of the greatest number.  After all, Daddy knows best.

Everything is based on core premises, and unfortunately these are usually absorbed unconsciously from the Influential People of our childhood and adolescence, parents, teachers, news media, friends, and church.

Rule #2:  At a tender age we are neither equipped nor qualified to evaluate  conceptual content, and we know little or nothing about possible  alternatives. 

Content becomes indelibly associated with the persons and institutions of authority that deliver it.  Because of this early childhood association between content and source, we begin to develop class distinctions based on these associations.  We are more inclined to trust and believe those who dress like we do, worship as we do, get educated where we do, and who earn their living as we do.  At the most mundane level it is often said that the best place for a young man to pick up a date is at a church wedding, because he benefits by association with the joy of the occasion and the trust placed in that institution by its members. A “no” response in a different context might become a “yes” at the wedding.

Rule #3:  As children, content becomes truth when it is delivered by those on whom we depend to survive.

Once imbibed, these childhood-acquired core premises become unchallengeable, eternal truths, the template against which all new information is evaluated.  We quickly learn to block dissonance, any new information that makes us uncomfortable.  As we build the rest of our lives around these core premises, our emotional investment in them becomes such that a challenge to their veracity becomes a challenge to our identity.  There is a crushing need to shut down, shut out, and utterly annihilate such threats, and this need is all the more powerful and insidious because it is experienced subconsciously, as in dis-ease.  We experience anxiety without knowing the cause. 

When you experience something that disturbs you, it may or may not mean it is bad for you.  A bad taste in your mouth may mean a poison mushroom, or it may only mean conflict with the taste of the previous mouthful, in which case you need to cleanse your palate before proceeding.  A mouthful of lemon juice may cure you of scurvy, but it could be intensely unpleasant right after eating a sweet.  Likewise you may have been led to believe that very wise people are looking out for your welfare, and this goes down pleasantly, like a sugar cookie.  You might have had great faith in the honest intentions and competence of Bernie Madoff in handling your life savings, or you may currently be planning an extended retirement on Social Security and Medicare as they currently exist, and it tastes sweet.

Rule #4:  What feels safe and tastes good may be the prelude to the financial equivalent of a diabetic coma.

In every case, we always trusted the source.  The doorman to our mind was sound asleep.  There were red flags about what we believed, but we chose to ignore them.

That’s why I write about labels.  I sit down to lunch with people of all stripes and within minutes I can hear, and feel, the palpable hatred as my temporary companions launch into diatribes about those who think differently than they do.  The emotional intensity and intransigence derives from the speaker’s sense of certainty.  A mere label such as the name of a political party, or particular belief or non-belief excites the passions and invites the derision of the group at the table.  To belong is to share in the laughter.  The opposite is equally true and commonplace; the willingness to blithely accept nonsense if it comes from a trusted source.  We will defend what we have already emotionally invested in.

Rule #5:  It is possible to have a lifetime investment in something that is indefensible by any rational standard.  

How long have we known, and has our government refused to acknowledge, that our Social Security is history’s largest Ponzi scheme ever?

I used to finish reading any book I had started.  Like cleaning my plate at dinner, I felt compelled to finish what I had started.  I don’t always do this anymore.  Life is too short.  I always seek to identify as quickly as possible  authors’ basic premises, and even if I disagree with them, I may continue reading if only because I enjoy the writing style or because an author occasionally drops in a redeeming original thought or new twist on something.  I no longer waste my time filling my mind with garbage, but there is a balance between that and closing one’s mind.  Periodically I have to remind myself to re-evaluate my own core premises to see if they still withstand close scrutiny.  The final questions are always, Who says so? Why?  Based on what?  I am always on the alert for the hidden agenda, the sugar-coated dodge.

If some distinguished authority figure makes claims that appear improbable and  unsubstantiated by the facts as you know them, assuming they know more than you is one possibility.  Another possibility is that they have reasons to be less than truthful on this occasion.

If their explanations more accurately resemble circumlocutions, going round and round in circles and making no particular sense, you could assume that their explanation is too deep for your comprehension, given their special training, or you could also entertain the possibility that their non-answer is because they really don’t have an answer but won’t admit it publicly.

How do you spot obfuscations, disinformation, and hidden agendas?    For starters, unless you’ve taken a serious course in statistics, distrust all statistics.  Most are not scientifically sound and are intentionally manipulated for uninformed public consumption.  I could say there are a thousand ways to do this, but that would not be a scientifically sound statistic.  So we’ll move on.  In commercial matters, follow the money.  In political and institutional matters, follow the power.  Look past the easy answers.  Look past the obvious beneficiaries of a particular group action.  The secondary beneficiary is always the real beneficiary.  The primary beneficiaries receive very diffused benefits.  They are the poster children of the much ballyhooed political action; the orphans, the poor, the children, the unemployed, the elderly, the American middle class, the racial minorities.   The secondary beneficiary receives very consolidated power;  the power to bestow or withhold.   Daddy isn’t interested in your growing up.  Daddy needs you to need him.  Daddy needs to be in control of permissions, punishments and perks.

Rule #6:  If someone is selling invisible clothes, let them run around naked.  

It is better to be underwhelmed by the titles and decorations and positions of power of the so-called experts.  Who even remembers yesteryear’s Nobel prize winners and Treasury Secretaries or Fed Chairmen?  If anyone makes claims that to your mind seem like the Emperor’s invisible clothes, let them wear them.  Plan your personal life and make your financial choices around your own perceptions, not theirs.  They will usually have agendas you will never know about, and disincentives to provide full disclosure or tell the unvarnished truth.  Do they really know better than you how to direct your life?  Most American households’ finances are looking better than the governments, perhaps for no other reason than we can’t print money like the government  does.  We have been acting to correct our balance sheets, to start saving and stop borrowing.  Does that sound like what they have been doing?  Do they care about you, or are they far more concerned about polishing their credentials to the largest blocks of voters?  This goes for anyone who is offering you advice on any subject.  Would you look to the Dalai Lama for guidance on improving your sex life, knowing he is a celibate monk?

In the end it’s the same.  Money is power.  But government is money plus guns.  By guns I mean the police power of the state.  With guns you can seize other people’s money.  If you get enough people behind you, even in a democracy you can decide whose money you will take, and how much of it.  This is REAL power, and this is why groups will spend a billion dollars to secure a position of power that pays only half a million.  The most expensive seats are reserved for those who hold court, who trade in favors and gifts, and who choose the winners and the losers.  These people are not producers; they are looters who talk as if they understand production.

All ideas have a history, and if you follow the thread of an idea back far enough, there are always surprises.  Every opinion, belief, and conviction—indeed every certainty, was arrived at in a certain historical and social context, and made perfect sense to those persons in their place and time, and was almost invariably the partial result of emotional turmoil in the author’s personal life.  In other words, intellectuals, philosophers, clergymen, or brick layers, we are all made of the same dirt.  Ideas all began with real people and every single one of them had problems, issues, and emotional dilemmas.  Some of them were morons.

Rule #7:  Many of the world’s greatest thinkers would be in therapy today.

Ideological sparks at the intersection of the right time and the right population periodically ignited the imagination of masses.   New truths became eternal truths that have often reversed themselves, sometimes over and over again, everyone so preoccupied with the minutiae of their daily routines they fail to notice the intellectual roundabout on which they have traveled for decades or centuries.    The grand ideas  have all come and gone, or splintered and evolved in almost unrecognizable ways, becoming innumerable dogmas and orthodoxies,  and today they make compelling narrative for the history or philosophy buff.  Those who take the time to look more closely are sobered by the awareness that in every time period of history there were those who were willing and eager to kill or enslave those who disagreed with them.    Our current democratic society provides some cultural and legal protections against this, but a basic meanness still often lurks beneath the surface of many human believers.  I hear it in conversations at lunch.

Rule #8:  There’s a troll under many a believer’s bridge.

When belief devoid of thought is extolled as a virtue, doubt becomes suspect, opposing opinions are demonized, dissenters are criminalized, and definitions of the enemy are crystalized.  Hatred is born and mob action is galvanized.  Ascendant mobs become the state. Other groups see opportunities to advance their respective causes by hitchhiking on the coattails of the rising group, with the idea that they will address their important differences after they achieve a more favorable situation in the power structure.   The state attempts to co-opt and harness culturally powerful forces (the most powerful of which is religion) and then moves to consolidate its power by weakening, neutering,  and eliminating competing groups.  There are no enduring loyalties, just the shifting sands of temporarily overlapping interests.

This is why I champion individual rights in my writing.  The individual is the smallest group in the world.  Protect individual rights and you protect the world.  Democracies are the competition and conflict between groups, but history is replete with the horrors perpetrated by one group (even elected ones) on other groups.  Great evil has been done repeatedly in the name of God or in the name of Society.  Even in a so-called free society there is nothing more fear-inspiring than observing an impassioned closed mind reflected in the eyes of another human being, so certain of his ideas in fact, that he will gladly sacrifice your life to prove it.  On their own, they are dangerous and capable of atrocities; organized into groups with their hands on the levers of power (duly elected or not), no one is safe.  Not even the members of their group.  Every group has its purges.

There IS a problem with championing individual rights.  It puts responsibility on the individual.  There is uncertainty, and results are neither equal nor guaranteed.  What is guaranteed is that no group can by itself or backed by the power of the state, make you do or be what you do not believe in.  And you can’t do that to anyone else either.  Not everyone is comfortable with that.

Individual rights are inalienable, meaning you were born with them and do not acquire them by permission from others–no one and no group can morally take them from you, even when those others are infused with certainty about their better idea.   They may seize your property and take your life by force, but they can never do so morally.  Individual rights mean the right to pursue your own life and happiness as your highest values, and you are free to seek and perform work that sustains those values.  This includes buying and selling from whomever you choose, to your own benefit.  Individual rights means essentially the separation of church and state and the separation of economic activity and state.

Individual rights mean the government is there to protect  individual rights of all, and no one is there to serve the government.  Individual rights in practice, of necessity mean small government because there just isn’t that much the government needs to do.  No modern state, including western democracies, will ever pay more than lip service to government based on the sovereignty of the individual because all governments derive their power from the purse, which includes both confiscatory taxation and gross interference with free trade of its citizens.  The power of government is in granting permissions.  That’s where the money is.

Rule #9:  The government’s favorite childhood game is “Mother, May I?”

You can recognize individual rights in action when your government fears to transgress against its citizens.  

Group rights, on the other hand, are acquired by permission from a majority of others in society, and those permissions can be revoked.  The herd sometimes gives little or no notice of intent to stampede.  The primacy of group rights derives from the belief that your highest value as an individual  is not yourself but your contribution to society as a whole.  Individuals can  expect to be sacrificed to the group when the group calls for it. Every single favor demanded of  government by a group always implies a request for the police power of the state to be used against someone else  who doesn’t want to do the group’s  bidding.  Otherwise, if the group could achieve its ends on a voluntary basis, arrived at through negotiation, documented and signed by the parties, why would they need to involve the state?  Groups only need the state to club minority interests into submission.   I use the word minority here in the very literal sense of anyone who does not have sufficient votes to protect their interests. Group rights are the inevitable political legacy of those obsessed with the certainty of their beliefs, so much so that in their minds the ends justify their means.  Sooner or later the means include the confiscation of human life and property by the state–for the benefit of the greater good, of course.  Group rights degrade into group warfare and lead to an indefinitely expanding state, with eventually the state dwarfing all other groups.

Group rights lead to totalitarianism, which is sanctioned and even welcomed by the public in the name of efficiency.  When the cacophony of bitterly opposed groups gets too rancorous and the machinery of the state grinds down, someone with the necessary stage presence steps forward and suggests temporary consolidation of power to get through the political impasse.  We all know the rest of that story.

You can tell group rights in action when citizens fear their government.

So what is my point?  Am I advocating political activism in favor of limited government and individual rights?  Not really.  You can, of course, if you want to.  All I am encouraging is to become aware of what is happening around you, and to be aware of the ideas behind the events.  Keep your finger on the pulse of the politics in your community, your state, your nation.  Be more careful what you believe in, and scrutinize documentation with a critical eye.  In almost every location it is possible to exercise a great deal of personal freedom as long as you don’t make too much fanfare about it.  Love your life, keep your mind open and your passport current, and

Rule #10:   Know where the border is.

Closed minds eventually become closed borders.


Would Everyone Please Stop Shouting?

“To believe is very dull.  To doubt is intensely engrossing.  To be on the alert is to live; to be lulled into security is to die.”

This quote by Oscar Wilde is the purpose of this newsletter:  an honest inquiry into the nature of what is, a rigorous intellectual effort to sift through the barrage of information, disinformation, and misinformation available; to distinguish the credible from the propaganda, the reality from the rant.  Am I the only one who has noticed that anyone with the temerity to ask any question of political, economic, or financial significance in polite society these days risks being immediately overwhelmed with passionate polemics about Read more..

 this ideology or that political dogma?  Names and labels are immediately brought up which were not mentioned in the question, and the entire conversation is promptly hijacked and redirected to the vilification of opposing beliefs, groups, and parties.

It is the view of this writer that the intense human need for belief, for certainty, and for ultimate truth is probably the original sin, for once armed with such belief, we close the door of our minds to new and possibly contradictory information.  For intellectually honest persons to admit to contradictions would require a re-examination of cherished premises, and an admission that their current perception of reality may be incomplete or (gasp) misguided.  Therefore this newsletter is not an advocate of any group; not the Democratic Party, the Republican Party, the Tea Party, the Occupy Wall St. party, or any other party.  Nor am I an anarchist, survivalist, or conspiracy theorist.  I have no “position” to defend other than the inviolability of individual human rights.  As stated in the American Declaration of Independence, these rights are inalienable, meaning that they can only be taken from us by force, whether that is at the point of a gun, or voted away by some group with the backing of the State, which enjoys the monopoly on the use of the guns.  The individual is the smallest minority in the world, and rarely does anyone rise up in his/her defense.  It seems the individual is only valued as one member of the herd.  It is the herd, the collective, the group which is championed, and it seems the only rights that matter much anymore are group rights, and civil discourse has deteriorated into group warfare.

We are human animals, and we have survived by herding together into packs either defined by ethnic origin or religious and ideological associations.  As adults we are no different than we were as small children, determined not to commit ourselves to an answer without surveying the level of support we will enjoy if we expose our opinion.  Political correctness is socially enforced conformity.  We see this conformity everywhere, from our college classrooms to our churches to our political parties, and even, or especially, among our media.  The newsroom has ceased to be about news, but only a coveted tool with which to bombard the public with sound bytes of advocacy.  And our politicians have no beliefs until a survey or their financial sponsors tell them what their followers want them to believe.  Actually, what the politicians believe in private isn’t all that relevant, as long as they publicly espouse whatever will gain them access to the levers of power.  Facts and accurate information are rarely sought after in honest inquiry or the pursuit of truth.  These are only the masks we wear to disguise confirmation bias, status and power seeking.

Several years ago I was invited to a friend’s house for a party, and in due course became involved in a conversation with another guest who shared that he was a stockbroker by profession.  Being a financial writer, I welcomed this opportunity to get his learned feedback on some recent financial events.  I asked a question, and for the next ten or fifteen minutes listened to his erudite discourse.  It was only later that I realized that I did not understand one single thing he said.  It dawned on me that this person’s response was not intended to educate, but to impress, motivated by vanity or an ingrained professional habit of selling by intimidation.  (He knows so much more than we do, things that we could not possibly understand, that the best we could do is put our financial future in his competent hands.)  Nothing is more indicative of such motivations than the intentional abuse of statistics and graphs to achieve desired ends.  We are all presumably sophisticated enough by now to approach all such “evidence” with caution.

I became interested in financial literacy when I realized that few were really interested in informing or educating the public, but only leading them to certain conclusions and actions that empowered those controlling the flow of information.  In reading the financial papers and magazines, I realized that society was divided between those few who “know” and the vast majority who will be told “what they need to know” by the talking faces.  I read the Economist for years before I admitted to myself how much of their financial language I still didn’t understand.  When I asked friends and colleagues questions, many of them with advanced degrees, much to my surprise I learned they didn’t know the answers either.  It made me wonder how much of such “communication” is to convey understanding and how much is the use of specialized jargon to impress, confuse, or worse, to obfuscate or conceal real intentions.  Knowledge, after all, is power.  And power is the name of the game.  The world has changed.  Human nature has not.

To my layman’s eye, much of economics has about as much validity as Tarot Card reading.  I went to such a fortune teller once, and I noticed the questions she asked me during our “interview” and how cleverly she fed my own information back to me.  She confirmed my original bias.  I thought she was brilliant.  One of these days I expect the Chairman of the Federal Reserve to show up with a red bandanna around his head, and a gold hoop in one ear.  Is he not doing the same thing, feeding back to us (and his bosses) what we all want to hear, that we can have what we want without the money to pay for it?  We can masturbate our minds as long as we want in this hall of mirrors, but reality still awaits us on the other side of the Exit sign.  It’s not a good sign when our leaders insist on staying inside the Fun House, explaining their actions with impressive circumlocutions.  Which means we haven’t got a clue what they just said.

The desired goal of much communication is not fostering independence of spirit and action, but obedience and conformity.  It is easier to control and move the herd than it is to control independent and well informed minds.  If the explanations given to us by the Federal Reserve, the Treasury, the bankers and investment counselors seem vague, complicated, dubious, or contradictory, how and when do we know if this is intentional or not?  Since they are the experts, who are we to challenge them?  (It is precisely when we feel this way that we should challenge established wisdom.)

To understand how the world really works requires knowledge of history.  There are two things a person needs to know about history.  1) History is never boring.  There are only boring history teachers.  2) History is written by the victors, because real history is the natural enemy of the State.  The State benefits from the shortage of accurate information, and the State always seeks to control the flow of information.  Much of what children are taught in every nation is heavily influenced by what the State apparatus wants them to learn.  We frequently call this public, or State-sponsored education.  History is where we have been, which means history is how we got to where we are.  History holds many secrets, which is why most interested parties are obsessed with requiring more acceptable versions of it.

The internet of course is changing everything.  Access to information, so far, has been harder to control.  The internet does not have the appointed gatekeepers to information as do the mainstream media outlets.  The internet is changing the face of education, and the sacrosanctness of our universities where we fashion the thinking of our thinkers is being eroded by non-traditional sources of learning. Students have increased exposure not merely to what a tenured faculty member would have them believe, but to more unfiltered global perspectives and experiences.  The income gap in the future is going to be between those few with independent minds and the ability to think critically, and those who choose to follow.  With massive grade inflation in the public school system, a four-year college degree today is often the equivalent of a high school diploma only a few years ago.  In the better schools, very little is being taught to actually help the graduates survive in an economic sense, and perhaps the best assets the students have purchased with their parents’ money are the social connections they develop with their classmates.  Some of those classmates will end up in positions of power, and proximity to power often translates into wealth and privilege.

Government is changing because of the internet.  The bargain between any government and its citizens is changing, as it becomes more difficult or even impossible to identify one’s enemies, or to stop them at the borders.  Economics and world trade are changing, and money circulates the globe at the touch of a button, and corporations become bigger and more powerful than nation states.  Financial instruments of trade are created faster than regulatory environments can identify them, and systemic complications threaten to bring the whole system down.

When the body politic is fragmenting and pulling in different directions, when each group is trying to outshout every other group, when everything is for sale, and the wealth of the nation and the future of its taxpayers are up for sale to the highest bidder, who do you want to believe?  And if you wish to cling to a group for security, which group do you want to trust your financial future with?  What happens to your future when your group is outspent by a better funded one?  Which dogma feels safest to you right now?  What does it tell you when a politician raises almost a billion dollars to buy an office that pays $400,000 per year?

There are those who fail at communication because they have a poorly developed ability to put their thoughts in order, to define what they believe, or enunciate the supporting arguments of what they believe.  These are the folks who have not arrived at their beliefs through rigorous and honest evaluation of facts and evidence, but who most likely absorbed their beliefs from their culture at large, meaning the media, family, church, schooling, college professors, friends, work associates, and other influential people.  Any critical analysis they do is mostly criticism of opposing viewpoints, and their analysis is nothing more than a search for information that confirms their existing prejudices.  In today’s information society, to even have a position is to imply that the end of all progress has been attained.

Take for example, the most amazing bias in favor of government intervention in the economic affairs of consumers.  Usually this is framed in David-and-Goliath terms, i.e. that we as individual (David) consumers are not capable of managing our transactions without the government to protect us from the Goliath of global enterprise.  The bias I refer to here, and take exception to, is the belief that government workers are somehow immune to the same selfish striving, the same or similar ulterior motives as anyone, anywhere else in society.  Somehow, by labeling commerce as profit-motivated (admittedly self-motivated), we are granting government an enormous benefit of the doubt.  For more information on this, go to http://www.financialliteracysource.com/money/why-the-federal-reserve-exists/#more-231.

Now if government is populated by the same Homo sapiens as free markets, how is it that only government workers are sin- and greed- free?  Again, history comes to our rescue.  Throughout the millennia of human existence, it has always been government, with its attendant monopoly on the use of force that has enslaved humanity.  The primary concern of the intellectual founders of this country was to protect the future generations from the grasping, insatiable, and inevitably expanding reach of their own government.  The limitation of powers enshrined in the Constitution was to protect us from voting ourselves into slavery.  Democracy by itself provides no such protection.  Nine foxes and a hen voting on what to have for dinner doesn’t bode well for the hen.

We live in a brand new, technology-driven world, a world the founding fathers could not even conceive.  They lived in an agrarian society, which evolved into an industrial society, and we are now in a post-industrial, information society.  Governments can no longer protect their citizens with any degree of certainty, neither economically or militarily.  The enemy is no longer other nation states, but ideologies that motivate and empower fanatics of every stripe to attain their goals with weapons of mass destruction. MAD, or mutually assured destruction policies have been rendered obsolete.  Likewise, financial and political decisions from Wall St. to Greece to Southeast Asia threaten to derail the financial stability of the rest of the world.  The inability of our existing government structures to provide the basic security that is implicit to the bargain with their citizens can in time undermine their legitimacy, a weakness that will be exploited whenever possible by their enemies, both within and without.

The world has never been a more dangerous place; and our future as a species is by no means assured.  This is not fear-mongering or apocalyptic scare tactics:  I have no doubt the people at the hubs of power who know far more than you or I about what goes on behind the closed doors of government and foreign policy would not disagree.

Now more than ever, Oscar Wilde’s probably offhand remark applies in a very literal sense: “To be on the alert is to live; to be lulled into security is to die.”

I am not pretending to be an expert here.  I am 62 years old at this writing, and I have lived a very varied, but always “examined” life.  I welcome your comments and open debate, and so would my other readers.  This re-launch of this website is intended to be your forum, not my pulpit.  Tell us what you have heard, know, researched, read, or wondered about–in the Comments section below.

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Why the Bank Always Wins

The BIG BANKS, that is.  The Big Banks always win.  And Big Money.  R-e-a-l-l-y BIG Money always wins.  Money so big it moves around the globe swiftly and silently and at the speed of light, and you can’t even attach a name to its owners.  We’re not talking about the neighbor down the street with the new Mercedes that he is so proud of.  We are talking about money so big it can bring down governments, and prop up governments, dictate terms to governments.  We are not talking about the millionaire next door.  Nor am I talking about your lovely neighborhood bank, or even the biggest bank in your state.  I am talking about the people who decide which banks fail and which ones don’t.  I am talking about the people who allow some banks to fail so that  THEY can buy up the failed bank’s  assets with pennies on the dollar—oh, and that’s pennies on YOUR (tax) dollar, not THEIR dollar.  The politicians are their pawns, who are rewarded and punished according to their compliance and cooperation.  The only thing these people fear is, well, YOU.  You are part of the herd, and they fear the herd.  These people don’t like democracy, they don’t like the light, and they only pretend at transparency.

 Empires have always been about the control of the many by the few.  It was said that the sun never set on the British Empire, and the most amazing feat of the British Empire is that it controlled so much of the earth’s surface with the tiniest of military garrisons and outposts scattered around the globe.  In most of those places, if the local populace had risen up against them, the tiny British garrisons would easily have been overrun and sent packing.  They had the greatest navy in the history of the world, but no navy could have kept them safe everywhere, and especially inland.  The secret of their superiority was the quality of their information.  They knew the value of information; they knew that information was power.  The maintenance of power required keeping the masses in ignorance.  And as long as the masses could be fed, amused, and kept poor, nothing would ever change.  It was important to keep the masses poor, because that kept them too busy and too tired to interest themselves in anything other than the tyranny of survival.  And the purpose of empire was to extract wealth from far flung lands and bring it home to a privileged few.

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For centuries there was a great diaspora, or scattering, of Islamic peoples throughout the Middle East, Central Asia, and the Pacific Basin.  These were all tribal peoples who constantly warred against each other and competed for resources.  Since they were largely theocracies, and ruled by their imams, muftis and caliphs, their religious differences (and there were many), resulted in religious wars among themselves.  Occasionally they would unite against a common enemy, and then break apart again to fight each other some more.  If they had ever succeeded in uniting themselves, they could probably have become a world power, but their greatest enemy was their own ignorance.  Most of the populations of these parts of the world were illiterate; they could not read, and they knew little or nothing about what went on beyond the borders of their village or province.  When power brokers sought greater hegemony in one of their regions, the source of their power was always control of the information that got to these people.  Control the information and you control the herd.  People only react to what they know, or what they think they know.

In this country the same applied to the black slaves.  It was a case of the many controlled by the few.  It was illegal in most areas of the south for a slave to be allowed to learn to read.  Education was the enemy.  Why?  Because information is power.  Control the information, and you control the herd. 

Now ask yourself who has been controlling the information in your life.  How much of it have you been carefully spoon fed by the power brokers who benefit by your compliance?  And how much of your own ignorance is of your choosing, because you either think you know more than you do, or you think what you don’t know doesn’t really matter anyway?  Do you have any idea of the awesome consequences of ignorance in this Information Age, when what you know is almost obsolete by the time you have digested it?  Believe me, dear Reader, I am NOT being condescending in asking these questions, but if you are not yet alarmed, you need to be.  You are living through the greatest crisis of the new millennium, and quite possibly the most critical tipping point in the history of mankind.  Our attitude has got to be that we can’t ever know enough, and we can’t stop learning, and we cannot possibly limit ourselves ideologically anymore.  This is no longer a liberal-conservative, Democrat-Republican, us-them issue.  This is about survival.  This is about information, and the control of information.

What do you really know about the world you live in?  And how much of what you have taken on faith is true?  Folks, we are IN the herd; we are part and parcel of the masses, and we have no chance of making informed decisions that will affect the rest of our lives, for ourselves and our families, if we go on assuming we are being taught what we need to know.  When have the Power Brokers of the Universe ever indulgently, and out of the goodness of their hearts committed themselves to real education of the masses and full transparency?  The higher you go in any power structure, the greater and thicker the walls of obfuscation and misinformation.  Power always works to perpetuate itself.  The few over the many.  And if you gain any temporary respite, any imagined breathing room, however brief, as you momentarily congratulate yourself that your group, your tribe, your ideology, rides triumphant, remember that the great lesson of history is that it will not last; that it is easier to get to the top than to stay there.  Once in front of the herd, you spend the rest of your existence trying not to be overrun by it.

Let’s take for example, what you think you know about the Federal Reserve.  It is NOT federal, it is NOT a bank, and it has NO reserves.  It is NOT American.  The Federal Reserve Banks are not banks.  And not all of the owners are American.  But they ARE some of the wealthiest people in the world.  So who are they, and who are they looking out for?  Not YOU.  You, dear Reader, only matter as a miniscule member of the herd.  The HERD matters.  The herd makes very rich people much richer.  Control the flow of the information to the herd, and the herd obeys.  You hear this, and you say, well, even if this is all true, this has no relevance to my life.  Therefore, So what??!!

Now let’s take another example.  AIG is an insurance company that insured swaps, which means that there was no money behind the insurance, which there would have to be by federal law if you called the transaction by its proper term:  insurance.  But call it a swap, and there is no cash behind the protection.  When the cards fold at the end of the hand, AIG has no money to honor the insurance that wasn’t really called insurance, and the very powerful creditors had to be paid.  Some of them were foreign banks.  About one year ago almost exactly, AIG posted a quarterly loss of over $60 billion.  You hear these numbers and they mean nothing to you, because they appear to have no relevance to life as you live it.  You say, So what??!!

You watch enraptured as the national debate on government healthcare rages on.  You hear statistics bandied about, but you also know that statistics serve their Masters, and you don’t always know who or what to believe.  The rant is deafening!  The conflicting ideologies are overwhelming.  All you want to do is stay alive and stay healthy.  Yes, you know everyone wants the same, but the chances are if someone is living next door to you without health insurance, you have probably not volunteered to pay his monthly premium for him, have you?  So at a micro-economic level you behave one way.  But in a macro-economic way, you have no problem with someone else paying his premium, do you?

But let’s get beyond the personal for a moment, and put on our educated hat for a moment.  We all understand about supply and demand, right?  At least if you’ve been reading this blog, you do.  We all know that the government subsidizes healthcare, and we all know that the existing subsidies, Medicare and Medicaid, as well as Social Security, are unfunded liabilities to the tune of $67 trillion dollars.  That means in the red, folks.  The mortgage is due and Momma has no money.  Okay, when something is free or almost free (subsidized), Demand grows and lines form.  If Supply was equal to Demand, prices might remain stable.  But unfortunately Supply is limited, largely due to mind-boggling regulation, which strangles the delivery system.  Same old story as starvation in the world; there is plenty of food to go around, but the delivery system organized by governments is routinely compromised.

The paper work becomes more important than the healthcare itself.  A year ago I had a personal experience with this phenomenon.  Shortly after major surgery, I accidentally fell out of my hospital bed.  I was on a morphine feed for pain, and I was hanging over the side of the bed with my head almost touching the floor, and my one arm was tangled up in the tubing connected to my arm.  Somehow through the post-operative fog I found and pushed the red Assistance Button and asked for help, and I was informed by the Shift Supervisor that they would get to me when they finished their reports.  Which they did—25 minutes later!

Back to the principle:  Big jump in demand, restricted Supply = Prices Rise!  When prices rise, lines form, and service is rationed.  My point is, does a knowledge of economic principles help you to cut through all the ideological rhetoric and see things for what they are?  You still have to make a decision for yourself, but you can make a more informed decision.

Now we have been told that the government is not going to replace the insurance companies, but is going to compete with them.  Okay, let’s think about that.  Your family owns a small pizza shop on your street.  The government is going to open up a pizza shop across the street.  If you don’t make any money in your pizza shop, you can’t pay your bills and you have to close and go clean toilets for a living.  If the government pizza shop doesn’t make a profit, they go in the back and print money to pay the bills.  At the end of the day, you tell me who’s going to win and who’s going to lose.  But wait, it’s not that simple.  The government won’t lose.  Of course not.  But the insurance companies won’t lose either.  Why not?  Because they pay their politicians well, and they will be taken care of.  Who knows how, but they will.  So who loses?  You do, TWICE; you lose as a patient, and you lose as a taxpayer.  The government now controls your healthcare, and it controls your healthcare choices.  You have been dumbed down one further notch.  Congratulations.  To listen to the idiots in the media, we don’t really care, as long as we are all dumbed down equally.  After all, we are only members of the herd.  Do you think for a minute that our politicians and the money people behind them are going to be limited by the choices imposed on the rest of us??  Do you still say So what??

The relevance of economic issues is that over a period of time, you are becoming poor, and you will never know how it happened or who did it to you.  You will never see the face of the enemy.  Or if you do, it will be the face of a pseudo-enemy created especially for you.  Life will get harder and harder; you will work harder and harder for less and less.  You may still think of yourself as middle class, but you will live more and more of your life as the working poor.

This article is about why the Big Banks Always Win.  I digressed to give a number of examples of how all through history the many were controlled by the few, and this was accomplished by the control of information to the herd. My examples ranged from the hegemony of the British Empire, to the subjugation of Muslims by their own kind, to control of black slaves in America, to our own ignorance about the Fed, the bailout to AIG, to how our lack of understanding of economic principles in the current debate on healthcare in this country can come back to haunt us in the form of a lowered standard of living.   The first act of all Power Brokers is to control and manipulate the flow of information and disinformation.

Only if  you can understand the link between raw power seeking and the control of information,  can you understand how Central Banks have been engaging in the greatest cash heists of all time, and yet it never gets mentioned in the history books.  As Adolf Hitler once said, history is written by the victors.  Or the Golden Rule, if you prefer:  He who has the gold, rules.

So why do the Big Banks always win?

  • Money came into existence organically, as a natural desire of humans to trade goods and services with each other.  The most tradable commodities began doing double duty as money.  Gold and silver came to be the global currency, because it was universally recognizable, divisible, portable, had high value to weight and volume, with continuity of value over time largely due to a relatively fixed supply.
  • Governments of every description immediately moved to expropriate control of money as the most efficient way to extract wealth from their societies.  Each society developed their own coinage.
  • Governments usually needed more money than they had, usually to finance their endless wars with each other.  They expanded their money supply by minting coins of the same size, weight, and appearance as the originals, but they debased their currency by adding “filler” base metals to make the gold and silver content go farther.
  • Governments eventually linked their currencies to gold as a means to develop sensible exchange rates between their currencies and their trading partners.
  • About 500 years ago fractional reserve banking came into existence, created by goldsmiths who learned they could charge interest on more gold than they actually had by expanding the money supply through warehouse receipts.  The more receipts accepted as the equivalent of gold, the greater the money supply.  The more receipts in circulation, the more interest accrued for the banks.  This accelerated trade, but it also became a license to steal for the banks.  Because under this system the bankers were earning interest on money that didn’t exist, they feared their depositors more than they feared bank robbers.  Banks borrowed from their depositors (repayable on demand) and then loaned this same money out by contract on long terms (months or years).  The banks borrowed short and loaned long.
  • In 1913 The Federal Reserve was created, and the name adopted for it was an intentional misnomer designed to deceive people into thinking it was part of the government.  It was not; it was a cartel of banks patched together to pool the risk of runs on a bank.  Reserve requirements were set.  The big banks now had control of the nation’s money supply.  Since a nation’s entire economy is a function of Supply, Demand, and the Money Supply, the big banks now had their finger on the trigger of the Money Supply of the nation.  The government granted them this authority in exchange for an agreement that the new Fed would buy Treasury debt!!  Now the banks could create money at will, and move it into the economy through loans to borrowers, and they could earn interest on every dollar of that new money.  The government could print money at will also, by creating Treasury Bills and selling them to the Fed.  The Fed had a license to steal, and the Treasury had a license to spend.  A marriage made in heaven.  Without central banks, the modern welfare state would have been impossible.
  • The Federal Reserve System is composed of 12 regional “banks” that are owned and controlled by other banks in each respective region;  a co-op arrangement of sorts.  The only one of these regional “banks” with any power is the Federal Reserve Bank of New York.  The Federal Reserve System has a Board of Governors  appointed by the President of the United States.  The great irony is that the Fed is an agency of banks, for banks, but when instituted was deliberately misrepresented as an institution subject to government authority to protect the public from Congress and those ‘rapacious commercial bankers’.  The voting public was duped, entirely.  Perhaps now you understand why I went to such great length in the introduction to this material to demonstrate that Power Brokers always begin with the control and manipulation of information and disinformation.  The creation of the Fed was a giant step away from a market economy and in the direction toward centralized, bureaucratic planning and control of the economy.  It was a giant step away from capitalism and towards a mixed economy (and only another half-step to socialism).
  • In 1919 the United States decided against joining the League of Nations.    There was a global power vacuum, and Benjamin Strong, then President of the Federal Reserve Bank of New York joined forces with Montagu Norman, head of the central Bank of England, to create money at the Fed, some of which was loaned to European nations, especially Britain. We sent our dollars over through these loans, and then the recipient nations used these dollars to buy American goods from us, thus improving our exports.  At the time virtually all of these nations owed huge amounts of money to the U.S.  The European nations exported their goods to us, and we purchased their goods with dollars, and this gave them dollars with which to repay their debts to us.  It was a round-robin of moving dollars around the table, and it helped maintain the pretense that those nations were in fact going to repay us.  This situation had considerable similarities, IN REVERSE, to our relationship with China less than a hundred years later.
  • In 1944 at Bretton Woods, Maine, the U.S. dollar became the reserve currency of the world.  This means that the dollar became the currency for all transactions and trade globally.  This also meant that the United States could borrow money anywhere in the world, in its own currency, which of course was an invitation to irresponsible borrowing, which we were quick to do during the sixties, when we borrowed to wage the Vietnam War and pay for Lyndon Johnson’s Great Society welfare programs simultaneously.  Our profligate increasing of the money supply plunged the world into inflation, and the system collapsed in 1971.
  • In 1971 we went off the gold standard, and through the IMF and the World Bank, we pretty much took the rest of the world off the gold standard with us.  Since then the world has been on “floating” exchange rates between currencies, mostly controlled and manipulated by individual governments.  The dollar remained the reserve currency of the world, and our presses went into overtime, and have ever since.
  • The United States has borrowed so much money in its own currency from creditor nations, that its ability to repay is being quietly challenged.  Behind the scenes, nations are looking for ways to move beyond the dollar as the world’s reserve currency.  It continues to inflate its money supply by staggering amounts, now borrowing from itself, by the Federal Reserve serving as the U.S. government’s lender of last resort.  The Fed is not the government; it is a cartel of the nation’s largest bankers.  At some point the question has to be asked, what happens when the Fed no longer is willing to loan to the U.S. government?  What happens when we have to print money to pay the interest on the money we just printed?  At the end of the day, the very super rich are ultranationals and they will preserve their own wealth before they will sacrifice it to this nations politicians.  At the moment it serves their purposes to create money and loan it, because they earn interest on every dollar loaned.  When they change their mind, we are looking at the end of the welfare system and the disintegration of our social fabric as we know it.

So why, dear patient Reader, are we not now experiencing hyperinflation, considering the massive inflating of our money supply?  The short, short answer is the effect of countervailing deflationary forces, all of which are holding our economy in the most precarious, nerve-wracking balance.  We are walking on a razors edge.  If we fall to one side, we will have a Depression that will eclipse the one in the 1930s and 40s.  If we fall to the other side, we will experience hyperinflation, probably Zimbabwe style.  Everyone, so far, is hanging together, because the global leaders know that if we go down, we take the world down with us.  No one wants that.  No one is foolish enough to even predict what that would look like.  All we know is that we don’t want to go there.  And in the meantime the rich nations of the earth are violating every common sense principle of economics in the hopes that if they do enough of the wrong thing, it will work this time.  Even though it has never worked before.

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The Global Poker Playoffs: a short story about Money Supply

Mayer Amschel Rothschild, the godfather of modern banking, purportedly said “Give me control of a nations money supply and I care not who makes the laws.”  What did he mean by that?  Is it true?  Since the Federal Reserve Bank controls the money supply of the United States as the world’s largest and most influential Central Bank, does this mean that this institution is more powerful than Congress, more powerful than the Executive Branch of the government, that it operates above and beyond the control of the Republicans or Democrats?  Is the Federal Reserve above the law?  Was Rothschild right?  What exactly is the money supply, anyway?

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Let’s begin at the beginning.  What is banking?  Before modern banking, virtually all trade was in the form of barter.  Barter only works when there is a double coincidence of wants, which means you have hot dogs for sale at the same time that I have lemonade for sale, and you happen to want my lemonade at exactly the same time that I have a craving for a hot dog.  We both want whatever commodity the other is selling at the same time.  Obviously, this kind of trade quickly becomes very cumbersome, slow, and difficult.  Eventually people found that certain commodities became so common, and so universally in demand, that they became more useful as a means of exchange than for their original value.  This is, for example, how salt came to be used as money.  Originally it was universally desired for its ability to season and preserve food.  People started using salt as a means of trading all other commodities, because they all knew that if they received payment in the form of salt, they could in turn use that same salt to trade with others.  Salt became more valuable as money than it was as just salt.

In time two precious metals replaced salt:  gold and silver.  They were used as money because they were universally in short supply, universally desired, they were portable, and they had high value for their volume and weight.  Gold and silver had to be mined from the ground, and there was no way any speculator was going to be able to mess with the “money supply” of the day by pumping large amounts of new gold or new silver into existing circulation.  These metals were too hard to find, too hard to dig out of the ground, too expensive and too labor intensive to extract from the soil for the money supply to expand unexpectedly or significantly.  The money supply in the form of all the gold and silver in circulation was stable and therefore not prone to change.  The purchasing power of an ounce of gold did not change much.

Because these metals were heavy, in time individuals became gold brokers:  that is, they stored the gold for others.  They would receive the gold, and write out a receipt to the owner of the gold.  The owner of the gold would then use that paper receipt in the same way he would have used the actual gold:  as money.  These gold brokers, also called goldsmiths, quickly learned that mostly the gold just sat in their warehouse collecting dust, and they decided they would write more receipts than they had gold.  In theory, each receipt they wrote could be redeemed at face value for real gold, and that was 100% true when they only wrote receipts at a 1 to 1 ratio for the gold.  When they wrote twice as many receipts as they had gold, they were counting on the high unlikelihood that the holders of both sets of receipts would attempt to redeem them at the same time on the same day.  Eventually they wrote more and more receipts for the same stockpile of gold.  Why would they do this?  Because they charged interest for the use of these receipts.  Now for a moment, just stop and think of the profit potential of this racket.  You own no gold.  You agree to warehouse someone else’s gold, and you give him a receipt.  Then nine more people come to you for a loan of x amount of gold, but you don’t give them gold, you give each of them another receipt.  All ten of those receipts now in circulation are acting as the same amount of money as the gold on deposit—multiplied by ten!!  You as the goldsmith have increased the money supply out of thin air!!  There are ten receipts floating around out there, each of them supposedly redeemable by the same brick of gold in your warehouse.  And the goldsmith is charging interest on all those pieces of paper, and he is counting on only one of the borrowers asking to redeem his receipt at a time.  And thus is born the fractional reserve system of banking.  At heart the system is based on fraud:  the banker (or goldsmith) is pretending that he has the full value of the paper he gives you available for redemption should you ask for it, when he knowingly has only a fraction of that amount available.  He is playing the odds at the margin, betting the future of his business on the odds that you will not ask for it all back at one time, or even at the same time as his other customers.

The money supply is the total number of receipts he has in circulation out there at any given time.  Now let’s fast forward to the current 21st century.  You’ve already figured out that receipts have morphed into money, or currency.  Now all of a sudden, it becomes much easier to mess with the money supply, i.e. all the currency in circulation at any given moment.  How?  Well, since currency is no longer redeemable for precious metals, it is in effect anchored to nothing more than the willingness of the public to use it and accept it.  So if you want to increase the money supply, all you have to do is print more paper currency and slip it into circulation.  But in the digital age even that isn’t necessary.  Printing of currency is done to replace worn out currency, and other than that, printing is used only metaphorically to mean digits transmitted electronically; journal entries into a national bookkeeping system.

Central  Banks are created to facilitate the manipulation of the money supply in a nation.  The Central Bank is a consortium of the largest banks in a nation that acts like a cartel, like OPEC does for oil producing nations, and it acts as the lender of last resort for all the other banks in that nation.  It pools the national money supply, and makes funds available to its member banks as the need arises.  It is determined what the amount of reserves should be required for each dollar the member banks loan out.  Now let’s do some simple math.  If it helps, get out a piece of paper and a small calculator and follow me along here for a minute.  Suppose the Federal  Reserve loans $1,000,000 to a member bank, Bank A,  at its inter-bank interest rate (lower than the public rate).  Suppose also that Bank A is required to keep 10% of all deposits in reserve.  So it keeps $100,000, or 10% in reserve.  Bank A then loans out the balance of the $1,000,000, or $900,000 to a customer of the bank.  The customer takes the face amount of his new loan, or $900,000 and uses it to buy something from a supplier.  The supplier deposits the $900,000 in his bank, Bank B.  Bank B keeps 10% of that $900,000, or $90,000 on reserve, and loans out the balance of $810,000 to another of its customers.  Just keep doing this for fifteen consecutive transactions, and you will discover that the original $1,000,000 that the Federal Reserve loaned to Bank A has already become almost $8,000,000 in circulation, with over $200,000 of the original $1,000,000 available in the fifteenth bank!  Almost as if by magic, in just fifteen transactions, $1,000,000 has been multiplied to $8,000,000 in the money supply.

So why would anyone want to expand the money supply?  Politicians do, in order to create inflation.  Inflation is increasing the money supply in order to reduce the purchasing power of the currency, in our illustration, the dollar.  This is called intentionally debasing the currency.  When you have more money chasing the same amount of goods and services available for exchange, the price of the goods and services goes up.  Which is another way of saying it now takes more of the currency to purchase the same thing.  This is good for debtors, and bad for creditors.  Why?  The debts the debtor owes are being paid back with dollars that have less purchasing power.  The creditor gets the face amount of his principal back, but those dollars now have less purchasing power than when he loaned them out.  Suppose that creditor loaned out those funds at 5% interest, but they are repaid to him with 7% less purchasing power.  That lender will soon be out of business.  He has lost money.

Now, who is the biggest debtor you can think of?  Come on now, try hard, it will come to you.  Yes!  The U.S. government.  As the theory went, it never mattered how much money the government borrowed, as long as it borrowed from its own citizens.  But if that government paid its own citizens back with intentionally devalued currency, it actually committed an act of fraud against its own citizens, did it not?  It picked their pockets without a vote.  If a political party raised taxes by an equivalent amount, it would be summarily voted out of office.  But when the Federal Reserve Bank does the dirty work for them, through the back door, financially illiterate people just shrug their shoulders; what can anyone do about inflation?  It’s probably those greedy businessmen raising prices to improve their profits!

But wait a minute, you say!  Stop!  The government hasn’t been just borrowing from its own citizens.  It’s been borrowing from foreign nations and global investment funds.  In fact it has borrowed so much from these foreigners that many of them have doubts about the ability of the U.S. government to ever repay them, even with devalued currency.  They have stopped buying U.S. government debt.  So let’s see, now.  The citizens of the country aren’t buying much of the government debt; the foreign governments have stopped buying U.S. government debt; our government is running out of potential lenders.  Who can it borrow from next?  Ah, they found a creative answer:  the U.S. government will go to their lender of last resort, and borrow from them.  Who is that?  You guessed it:  the Federal Reserve Bank.  How does the U.S. government borrow from the Fed?  The U.S. government borrows money by selling Treasury Bonds, which are nothing more than a government-issued I.O.U.  A Treasury bond, also called a T-bill, is a debt instrument, a promise to repay at some future time.  When no one else wants to buy them, the government sells them to the Fed.  In buying the bonds, the Fed gives the Treasury money to spend, which puts it into the money supply of the nation.  And when you increase the money supply by $1,000,000, in the fractional reserve banking system, after only fifteen transactions, with a 10% reserve requirement, that money has been multiplied by a factor of 8, with money still working in the system.  What happens when you inflate the money supply by hundreds of billions, or trillions, as has been happening in the last 24 months?

So the Fed creates money out of thin air, gives it to the government, which puts it into circulation into the economy in an effort to jump start the economy.  So where’s the inflation that should be there?  Prices are holding their own or even going down slightly.  What’s going on?

I’m going to address this and other questions in my next article, but in conclusion of this one, I want to paint a mental image for you.  The U.S. government isn’t the only nation in this poker game.  All of them are on board.  As one of our original patriots said in a totally different context, “We’ll all hang together, or we’ll each hang separately.”  No one wants to be left out of this poker game.  All of the currencies of the world are tied to the dollar, and have been for over forty years.  Most of the rich countries and many of the emerging nations have invested heavily in U.S. debt; so much so that if the U.S. decides to default, it can take the global financial system down with it.  So as the U.S. goes, so goes the world.

Now picture a large room with many tables and poker players, all engrossed in the Global Poker Playoffs.  Every player acts civilly, but every player ultimately seeks to trump all the others.  About a dozen or so of the players have nuclear weapons strapped to their belts, and the weapons are hot.  Nerves are raw.  Every player in the room knows that he is playing with the entire wealth of his family and tribe back home, and he knows he dare not come home empty handed.  His life might depend on it, and certainly his stature in his community, his personal economic future.  His family would share in his economic loss and disgrace.  In the center of the room is the largest table, with the biggest players.  The playing is intense, and the bidding escalates.  No one calls, no one dares to call, and the chips pile up in huge piles on the table.  Everyone is starting to question what resources lie behind those chips, and everyone knows what the risks are if a player isn’t good for his bets.  Everyone knows everyone else is bluffing, but no one dares to call, because everyone has overplayed his hand.  Suddenly the unthinkable happens.  Someone bumps the table; piles of chips fall over, spilling into each other, rolling towards the edge of the table.  Players start grabbing for the most valuable chips at the margins, upsetting the entire table.  Nervous hands move quickly towards their belts, chaos breaks out in the room, some run for the exits . . .

Financial Literacy: Deflation: When an Economy Implodes on Itself

As I have discussed in other posts, every good, service, and commodity has a value, and that value is denominated, or measured in terms of the national currency; in our case the value of anything is measured in dollars.  (Go to Billionaires Who Can’t Afford a Loaf of Breadhttp://www.youtube.com/watch?v=HGfsQimC0mw)  Even money has a value that fluctuates, and there are events that trigger changes in the value of money.  Money is measured by it’s purchasing power, and economists spell this with capital letters Purchasing Power (PP).  Money by itself has no value; it is only a symbol and a medium of exchange, so the real question is how much of anything can you exchange a dollar for??  I have covered what happens during a period of inflation, and the costs of everything as measured in dollars goes up, which means the value of the dollar (or its purchasing power) goes down.  People think they are better off with rising wages, but factoring in the decreased ability of those wages to purchase, they are actually worse off. 

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Deflation is the opposite.  During a period of deflation there is not enough money in circulation to buy the goods and services available.  Ironically one of the reasons for this could be that the population is nervous about their financial future and they start saving their money instead of spending it.  The money is there, but it is not in circulation, because people (and companies) are not in a mood to take risks.  When people aren’t buying, companies lay off employees, which contributes to the overall feeling of insecurity.  Because people aren’t buying, companies slow down manufacturing, and the amount of product they keep in inventory in their warehouse and distribution centers goes down and is not replaced.  In order to improve sales, they lower prices.  Since wages are the price of labor, that means the wages gradually go down also.  That means there is less money to spend, and the cycle feeds on itself.  In this way an entire economy can implode on itself.

Something needs to be said about the effects of inflation and deflation on debt at this point.  During times of inflation, prices (including wages, the price of labor) are going up; the purchasing power of those dollars is going down.  If you owe fixed-interest debt during a period of inflation, your wages will inflate with the rest of the economy, but your debt, which is fixed by contract with your creditor, remains the same.  That means you will be paying your debt back with cheap dollars, dollars that are worth less than they were when you incurred the debt.  During inflation, debt can be your friend, and the enemy of your creditor.

During deflation, however, debt is your enemy.  Your debt is once again, fixed by contract to a certain amount of dollars, but your wages, along with the rest of the economy, are deflating, or going down.  Your debt can hang you during a time of deflation.

Hear more about this at  http://www.youtube.com/watch?v=a4qsy8n5DjI

Financial Literacy: Why Governments Secretly Like Inflation

The dirty secret of all governments is that contrary to popular opinion, they do not hate inflation.  All governmental corruption begins when they discover the power of the purse, and that they can use the public purse to perpetuate their power, privilege, and benefits.  Over time all legislators and power brokers arrogate to themselves the means to stay in office and the luxuries it affords at the general taxpayer’s expense.  So of course we hear how the purpose of the Federal Reserve and Congress is to maintain a strict control over inflation, that the Fed is independent of the government, and that it is immune to political influence.  At best this is a Trojan horse.  Inflation is the primary tool used by every government to live beyond its means, and by its “means” we mean its ability to tax.  For taxation is the Achilles heel of all governments, for carried to excess it inspires armed revolution and fall from power.  Governments raise taxes at their peril.  Inflation, however, is a hidden tax, for it is how the government spends and borrows beyond its ability to repay.  By printing money and increasing credit, thereby increasing the money supply, the government creates inflation.  How does this happen?

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When there is X amount of money in circulation in an economy chasing Y amount of goods and services, and you increase X to 2X chasing the same Y amount of goods and services, you have increased demand for those goods and services, but you have not changed the supply of them.  When demand outstrips supply, the general price level rises.  The rise in prices is a result of manipulating the money supply, NOT by an increase in productivity.  In other words, the increase in the money supply is NOT the same thing as an increase in wealth.  It is an artificial increase that may give everyone a case of the warm fuzzies, until they realize their pockets have been picked while they were celebrating!  This is what happened in the last ten years during the “real estate bubble’.  Millions were celebrating their rapid rise in wealth, and we were saturated with boastful claims of “instant equity”.  What we had was hyperinflation of real estate prices but no increase in underlying wealth.  It was a bubble, and it contained only air, no wealth.  Taxing authorities were flush with new revenue from the inflated values of real estate, and the money poured in.  Politicians were ecstatic, and plans for distributing  the tax revenue to friends and benefactors proliferated.  Everyone was having a great time at the party.  The last ones to leave got stuck with the clean-up.  Governments went from riches to rags over night.  The Fed cranked up the printing presses as their only resort.  People weren’t spending, the taxable base was shriveling like a late-harvest grape in the hot sun, and governments everywhere started warning about necessary cut-backs in services.  And the homeowners, well they have inflated mortgages and inflated property taxes, and deflated value.  They were taxed all right, but by stealth.

If the government had tried, during the peak of the bubble, to raise comparable amounts of revenue through increases in taxation, there would have been riots in the streets.  But the inflation they created by expanding credit markets, was in fact a very clever, hidden tax.  Incredibly, the governments response to the crisis has been,  once again, to expand the money supply.  The inflationary impact of all the newly printed money they have injected into the system is muted, for the moment, by the lag in spending and the poor demand for goods.  But the expanded money supply is out there, lurking comfortably in the books of the banks afraid to acknowledge and write off all the toxic loans of the boom years.    The banks have used the money to shore up their sagging balance sheets, just in case, and the public has decided to save rather than spend.  The economy is lurching like a schizophrenic paranoid between euphoria and deep depression.  The surface temperature of the economy says we are recovering, but further analysis says the virus is still with us.  The government maintains,  like a modern gestalt therapist, that if we all believe we are well, we can transform belief into reality.  Therefore we all need to put on a happy face and spend, spend, spend our way out of the malaise.  The money supply is the lifeblood of our economy.  Believing that we are hoarding the money supply like bad children  the government has applied leeches to relieve the pressure, and to get the excess blood out and into circulation.  So it has borrowed and printed money for bailouts for banks and tax payers, cash for clunkers, and nationalizing whole industries.  Like a drunk conductor at the wheel of a runaway train, there is nothing that Big Government cannot do, cannot fix.  Why didn’t anyone ever think of this before—when there is a downturn due to previous bad policy, the solution is to print your way to prosperity.  Remember twenty years ago when it was “The economy, stupid!”; well, now its “The money supply, stupid!”

The good news is the bad news.  As the economy staggers uncertainly toward a seeming full recovery, the excess money that has been pumped into the system and has been lurking out of sight in the banks will finally have its much delayed impact when it finds its way into the economy.  The Fed operation was a success; unfortunately the patient died.  As the government lurches  madly between transfusions and leeches, between the silent killer of inflation and the bludgeon blows of direct taxation and deflation, eventually in frustration and exhaustion and confusion we will do what all very ill patients do–put our lives and our destinies in the hands of the doctor.  For after all, the doctor knows best, right?  And at the end of the day, there won’t even be any ambulance chasers to file malpractice lawsuits.  It’s illegal to sue your government.  Why?  For starters, they have the guns.

For a brief video on why inflation permits the government to “repay” the national debt at a huge discount, go to  http://www.youtube.com/watch?v=ov21dnYHjXE

Financial Literacy: The Origins of Banking

Financial Literacy: The Origins of Banking

Financial Literacy: The Money Supply and Inflation

Financial Literacy: The Money Supply and Inflation

Financial Literacy: Why Money is not Wealth

I have defined money many times in articles on this blog.  Money includes currency; it is a means of exchange and it represents value outside of itself.  Money has no intrinsic value; its value is directly related to its general acceptance in the population.  Money is a means of measuring wealth, and a store of wealth, but it is not the wealth itself.  So what is wealth?  Wealth is personal, material property; wealth is accumulated income, earnings, savings (stored as money); wealth is income producing assets.  Wealth can be created, earned, dissipated, stored, inherited, accumulated, expropriated.  Wealth is always relative; when we say a person is wealthy, we mean in comparison to others.  A person on welfare in our society today often lives much, much better than the wealthiest of the so-called robber barons of 100 years ago.  How do we compare a poor household of today with a large flat-screen TV, numerous digital toys, e-mail, and air conditioning and a microwave with the rich of the 19th century who did not have indoor plumbing or telephones?  When we talk about eliminating poverty in today’s terms, we are using very, very relative terms. 

In any context, wealth represents a responsibility and potentially a burden; wealth requires action not only to earn, but also to preserve.  If a person’s wealth is greater than he is, he will lose it (or she, of course).  Wealth is created by work, primarily the use of one’s mind, and by good judgment.    When the mindless inherit wealth, unless there are appointed guardians of that wealth to protect them from their own foolishness, the wealth will diminish and eventually disappear.  The most important type of wealth, for the financially literate, is assets that produce income.  This is when your wealth is working for you.  Ultimately your wealth is measured in time, not money.  How long can you survive financially without working, without even getting out of bed in the morning (if you didn’t want to)?  Are you one-day wealthy, one month wealthy, one year wealthy, or the rest of your life wealthy?  Likewise, whenever the human mind devises a way to produce more goods and services that improve the human condition with less time and effort, wealth is created. Wealth and money are frequently confused, and those who cannot understand the difference are at a serious disadvantage in the competition for limited resources.  For a short video on why money is not wealth, go to:  http://www.youtube.com/watch?v=9iVebppIIFA

Financial Literacy: Good Money, Bad Money

Financial Literacy: Good Money, Bad Money

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