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 . . .

Why the Federal Reserve Exists

Here we go with the vocabulary thing again.  I promise to make this easier than your last root canal.  The Federal Reserve Bank is a central bank.  Central banks are created to control and manipulate the money supply.  The money supply is the aggregate total of all the money in circulation in an economy.  It is often referred to in the media and the industry as M.  Controlling the money supply frees governments from the responsibility of living within their means.  It makes it possible for them to counterfeit money.  All governments have laws making counterfeiting their currency illegal.  That is because all governments have a monopoly on counterfeiting and do not tolerate competition in the business.

Governments counterfeit money in the exact same way all counterfeiters do; they print it, and slip it into circulation into the economy.  They spend it.  They spend more money than the economy produces because they do not want to live within their means.  They do not want to live within their means because they use money to buy votes.  They give out goodies in return for favors; favors in the form of legislation that promotes the welfare of one group over another group; favors that line their individual pockets, reward their friends, punish their enemies, and above all, favors that get them re-elected.

Other reasons are given, of course, for the existence of the Fed.  But it is axiomatic that all governments seek continual expansion of their powers, and control of the public purse and the power to tax is the Holy Grail for power seekers.  The founding fathers of this country feared government more than anything, and the Constitution they framed was to protect us, not from foreigners, and not from each other, so much as from our elected government itself.  The debates about economic policies are a sideshow and a distraction; the main event is the relentless expansion of executive power and the quiet transfer, not only of wealth, but of personal liberties as well.  Without economic freedom based on individual rights, private property, and the right to keep and dispose of our earnings as we choose, there is no freedom at all. Read more..

Governments, all governments, do not really favor free markets, because in a free market you decide the winners and losers in trade, and the winners are those who produce what you want to buy at prices you are willing to pay.  You vote constantly with your wallet.  Losers go to government and ask them for favors, such as passing trade restrictions on those competitors who are better or smarter or faster than they are at producing what you want.  When legislators grant those favors, they expect favors in return.  This is called cronyism.  Cronyism is a form of corruption. Corruption on a massive scale, such as we see now, is the first sign of internal decay and the beginning of the end of empire.  America is an empire in late stages of such decay.  When trade is made possible primarily by permission, or political pull, resources cease to be allocated efficiently.  Those with get-up-and-go get up and go.  Bottom line:  trade and wealth goes to wherever it finds the most freedom to seek its own advantage.

Governments all prefer a command-and-control economy rather than a market economy.  In a market economy, the decisions are made at the bottom, by the millions of consumers.  The consumer is sovereign.  The consumer is boss.  In a command-and-control economy, the decisions are made at the top.    Who do you think does the commanding and controlling?  You are so very, very smart.  Yes, the politicians do, and the bureaucrats and regulators they appoint.  In a command-and-control economy, the government is sovereign.  Usually the ultimate goal of a command-and-control economy is, well, you guessed it—control.  Of you, the consumer.  To what end?  The accumulation of power and privilege.  To line pockets, enrich the ruling class, and permit the ideologically driven to save the world.  To save you.  Even from yourself.  They know best.

Command-and-control economies prefer big. Big what?  Big Corporations, Big Unions, Big Institutions, Big Media.  Why?  Big is easier to control.  You call in all the bosses of Big and you tell them what to do.  You threaten them with a Big stick.  And you promise them carrots if they deliver.  Then the government lets Big do their job for them.  Big collects the taxes for government, and performs countless other administrative duties free of charge for the government.

If Big Corporations do their bidding, laws are passed, manipulated, or enforced selectively to help Big Corporations succeed over their more able competitors.  When Corporations fail and would otherwise go out of business, government bails them out with taxpayer money.  This rewards Big Corporations for their generous campaign support, and it also rewards Big Unions by keeping their overpriced labor untouched.  In other words, government makes sure that no real solutions are put in place, that nothing substantive is changed, but that the inefficient and ineffective and incompetent are allowed to continue on as before, sustained by the public purse where the public has already rejected them at the cash register. Government grants monopolies to some winners, and it throws up bureaucratic hurdles to newcomers as protection bought by Big Corporations.  It investigates some Big Corporations in order to benefit other Big Corporations.  It extorts money from all business, large and small.  It decides winners and losers. This is called corruption.

All Big Corporations began as small business that began with drive and new ideas.  They flourished and grew and became Big.  Then they seek to keep other small businesses from competing with them.  They do this by going to government for protection.  The free market cannot be trusted.  Consumers might decide to buy the newer, better idea.  So government doesn’t want to kill small business, but it would prefer to decide which small businesses get to join the Big country club.

Big Unions are expected to tell their memberships how to vote, and to turn out massive campaign support when it is needed. In return, Big Unions get legislation passed that makes it easier for them to organize people into unions who don’t really want to be in a union.  Big Unions get favorable treatment by government agencies that control labor and management disputes.  Big Unions in turn can control or influence which Big Corporations get Government contracts. This is called corruption.

Big Media is rewarded with inside information, direct access to important people, scoops that improve ratings, and higher ratings bring in higher advertising revenues. Big Media can also be rewarded by legislation that tends to bring the Internet, or the power of millions, under closer government control.  Big Media is the propaganda arm of government, and the primary purveyor and amplifier of bad philosophy from the Humanities departments of our mainstream universities. 

Hiding in those hallowed halls are generations of resentful and envious intellectuals who yearn for a return to the Old European model of society where the bespectacled and leather-elbowed writers and philosophers garner the same reverence as the greedy money grubbers, the shop keepers, the retailers, the industrialists.  These intellectuals resent having only the same vote as the ordinary, unscrubbed mechanic or factory worker who could not possibly recognize or appreciate the superior intrinsic value of the intellectual author whose books gather dust in the publishers’ warehouses while trashy romance novels make their authors wealthy. They pride themselves on their spiritual elitism.  According to them, the only useful social purpose for the materialistic captains of industry is to create wealth that can be transferred (plundered) by those who court government’s favor.  The universities (Big Institutions) have cranked out generations of teachers, artists, writers, philosophers, and intellectuals wholly indoctrinated in a bias of anti-capitalism, which is nothing more than our unfettered freedom to trade as we please, with whom we please, each of us seeking our own interests.  As George Orwell said once, some ideas are so preposterous only an intellectual could believe them.

Part of Big Media’s role in assisting government is to confuse language, to expropriate legitimate terms and concepts and then skillfully change their usage to mean the exact opposite of the original definition.  Through the skillful use of propaganda, society has been revolutionized without firing a shot.  The Revolution is over, and we didn’t even notice there was one.  For the record, we lost.  Sometime during the night our servants became our Masters.  Free enterprise has become a euphemism for trade by permission.

Big Institutions obtain subsidies and grants that keep them in existence, even when no one really knows anymore why they should exist.  Because if they were truly necessary, surely the free market consisting of the rest of us, would support them as being in our own best interests.  Government subsidizes and controls what we would not pay for, precisely because we would not pay for it.  The government doesn’t think we know enough, that we are not sophisticated enough, to make those choices.  Government will spend our money for us.  And many times government doesn’t really care about whether something is a good choice or not; they simply have friends to reward and favors to repay.  This is called corruption.

Public education is a gigantic institution, funded by tax dollars, and mandatory.  Even if you have no children, you are going to pay taxes to support it.  Government controls the unions that control the teachers; therefore government controls the indoctrination and world view of our children.  It is also by means of this monopoly on education that toxic ideas are spread throughout the culture.  Government controls, and everything, every meaningful transaction, is subjected to influence and infinite subtle forms of bribery. This is called corruption.

When poor decisions happen, Big has a meeting:  Big Government, Big Corporations, Big Media, Big Institutions, Big Unions, and they decide who will be blamed, and who the winners and who the losers will be.  All solutions will of course include a further expansion of government influence, power, and intrusion into the marketplace.  The marketplace, folks, is a euphemism for us.

How does government do all this; how does government get all this past us, the voters?  The first rule of thumb is the artful use of propaganda.  Regardless of the controversy, it is better to unify everything into one common enemy, one Devil.  For Hitler, it was the Jews.  In our nation, it is business, always portrayed as greed personified.  Except in certain useful instances, it is not necessary to get too specific.  It is not necessary to label any business in particular, but rather to attack an amorphous, gray, ambiguous entity such as greed and business in general.  You see, government has a love/hate relationship with business.  The government wants control of business, but it doesn’t want business to go out of business, at least not most of them.  If business goes away, there is nothing to plunder, nothing to expropriate, to tax or seize.  Occasionally some Big Corporation, very often in bed with government, is caught in some behavior so outrageous that it causes a public outcry, and then of course there needs to be a “public hanging” to satisfy the mob.  And those members of government that were involved backpeddle as quickly as possible so as not to be fatally associated with the errant business entity.  If you think I am exaggerating the extent to which the elites of our culture endorse an anti-business animus, ask yourself, when a businessman plays a significant character in the movies, how does Hollywood typically cast his character?  And when events conspire to reveal corporate excesses, such as in our present time when so many on Wall St. were taking hundreds of millions of dollars in bonuses even as they squandered other people’s fortunes, how much exposure is given by Big Media and Big Institutions to the complicity of government in such shenanigans?  Barely a word.  Were it not for the Internet, how many of us would know the rest of the story??

Then there is divide and conquer. Encourage group thinking, and then pit one group against another group, and let human nature take over.  This is where the R word has been so effective:  disagree with proposed legislation and you are labeled as racist.  Government-sponsored racism is everywhere, and for a very good reason.  Divide and conquer.  Pit every man against every other man.  And then play the paternal role of Benevolent Referee.  The government is here to help!

Maximize the formula of concentrated benefits, dispersed cost. Those voters who stand to gain the most will work hardest to get a law passed; and the cost will be dispersed over a much larger group.  If a given piece of legislation will provide a benefit of $10 to Group A, but will cost everyone else only 1/100 of a cent, no one blinks and lets it pass. Government promotes  democracy, which is nothing grander than gang warfare, and weakens the Constitution which champions individual rights (the smallest group, and obviously the only group without a lobbyist to buy protection for it), the only real rights that cannot morally be voted away by any majority. 

And finally, the ultimate government weapon:  culturally imposed altruism.  By “culturally imposed” I mean simply the prevailing philosophy in the culture.  Frame all legislation in terms of the right and moral thing to do for Group A, and call anyone who disagrees selfish.  In a culture that has been brainwashed for over a hundred years that our only purpose in living is to live for others, and not for ourselves, bring up the S word and all opposition runs for cover! 

Government utilizes the Big Media and Big Institutions (major universities very beholden to government for subsidy) to promote the idea that government has access to a very special kind of human being:  this phenomenon is smarter, better educated, and more intellectually agile than the people and businesses and institutions s/he controls and regulates.  This special form of human being is likewise wiser, more prescient, more inclined to take a long term view, and look out for your welfare better than anyone else.    And most important of all, this special human being is not selfish!  This special person is a paragon of virtue, incorruptible, devoid of ambition, immune to lust for power, sex, or money.  This special form of human being is here for you, and will always treat you like a customer, with respect, deference, and competence, because they know you have choices.  You could go elsewhere.  Who is this special form of human being?  Why, your government worker, your government bureaucrat, your friendly regulator.  And who do these enlightened human beings report to?  Why your elected officials, of course.  Thanks to bad philosophy in our universities and culture, government is granted a pervasive and benevolent benefit of a doubt; it is here to protect us, to look out for us.  Protect us from whom, from what?  From those avaricious, for-profit people.  Because they are selfish. 

Government is altruism at its finest.  Are they not committed to taking from those who produce, to distribute to those who do not?  How very Robin Hood-ish.  How very unselfish.  So now we have millions lined up outside Sherwood Forest, waiting for Robin Hood to show up.  No one wants to work in the fields any more; Robin Hood is taking from that wicked Sheriff of Nottingham, and is going to redistribute it to the rest of us.  All we have to do is wait in line.  Of course, in the fable, the Sheriff got rich by taking loot from others too, just like Robin Hood does.  What no one told us is that in Part II of the fable, Robin Hood becomes the next Sheriff of Nottingham.  He got to liking being in control of the transfer of wealth.

In our world of free trade, the rich are despoiled because they created wealth, not stole it.  We punish some for their virtues of innovation, industry, and thrift, and we reward others for their indolence and sloth.  Everyone except the producers gets something for nothing.  It is their right!  This is the Age of Entitlement.  Our Founding Fathers began this nation with a legacy from the Age of Enlightenment.  This is ideological corruption.

Now your elected officials at the federal level pass about 600-700 laws each session of Congress.  Do you really think your lawmakers read all that stuff?  If they did, they’d have no time to prepare for their next election campaign, which begins approximately 60 days after their last election.  There are hands to shake, babies to kiss, speeches to give, fundraisers to attend.  The business of democracy must go on!

So who do you think tells your lawmakers how to vote on all this legislation?  Their support staff and bureaucrats, that’s who.  And of course the phone calls from vested interests calling in their chips.  It’s payday, boys.  Here’s a little verbiage we want you to sneak into that Bill; here’s how we want you to vote.

Because government operates under the mantra of altruism, or unselfishness, and government officials pride themselves on the fact that they are not tainted by the dirty profit word, doublespeak and obfuscation become a professional responsibility.  Unions can never be painted as a business within a business with profit incentives, with its own leadership and management infrastructure, with their own “corporate” ambitions and perks;  unions can never be painted as what they frequently are, as paid thugs and shake-down artists that will rely on misrepresentation and lying; a protection racket that uses physical violence and intimidation when necessary to increase the all-important paying membership.  No, unions need to be portrayed as the unselfish champion of the common man, Joe SixPack, who is powerless to fight for his rights against the Leviathan of Big Business.  Little does Joe SixPack know that Big Union and Big Corporation have already cut a deal in the back room.

Teacher’s unions need to be portrayed as protecting the rights of the most underpaid professional class in America.  But who is going to champion the rights of the ones really without representation, the kids of our country who are graduating without a basic mastery of reading, writing, and the English language?  Ah, but take a stand against the all-powerful teachers unions, and you will be accused of throwing our education system to the wolves.  Our children are the real customers here, but let us not forget that when it comes to education, this is not market driven.  God forbid, put our children’s education in the hands of profit-seekers??!!  Why, some parents would selfishly want to put their children in the schools where they would get the best academic education (like our unselfish politicians??), instead of our centrally controlled and socially approved model of distribution!

Laws are enforced against businesses in order to protect the consumer from decisions he has already made!  He is not purchasing the higher priced union-manufactured product, and instead selfishly went for a cheaper, better quality product!  He doesn’t trust a certain bank because of foolish investment decisions it made, and therefore withdrew his money from that bank, causing it to become illiquid, but that bank needs to be saved where the market would have let it die twisting in the wind.  The bank will be propped up, and the government will protect it with guarantees, and it will protect the consumer from any of the banks future bad judgments by guaranteeing their deposits. So bankers can continue to take huge risks and consumers can be careless who they bank with.

The government is also busy looking out for the interests of all the displaced workers who are laid off, victims of downsizing by the brutal free market.  It therefore incurs a moral hazard in the form of those who are in no hurry to find replacement work, or get retrained in different vocations that are more in demand.  Since they cannot collect unemployment and work at smaller jobs in the meantime, the government creates a black market of under-the-table workers who pay no taxes.  My God, self-interest seems to be everywhere!  But please don’t think that self-interest has anything to do with politicians being concerned about the unemployed vote.  Our politicians are above self-interest.  They are here to serve their fellow man.  They are altruists.

Now assume for a moment, for the sake of argument, that our fearless leaders are far, far less than what they pretend to be; assume for the moment that their primary concern is not our welfare, but the perpetuation of the jobs and privilege paid by us, and assume for the moment that our servants have become our Masters.  And assume (correctly) that they print money when they want to spend more.  And assume that they use the vehicle of the Federal Reserve to make all this possible.  So what?  Didn’t we all enjoy our stimulus payments?  Did any one write their Congressman objecting and returning the check?  So what’s the problem?

Here’s the problem:  Our currency is the dollar.  The dollar works for us as currency only because we all accept it and are willing to use it.  No kidding.  It isn’t backed by anything.  Nothing.  Except your willingness to use it.  Savor that thought for a moment.

There is this thing called Supply and Demand.  When these two forces are more or less equal, prices are stable.  Every commodity in the world is subject to supply and demand.  This includes money, which is a commodity.   Anything bought and sold is subject to the Law of Supply and Demand.  If Supply of anything remains the same, but demand for it grows, the price goes up.  And vice versa.  The price is a symbol of the value of the item in demand.  When the price goes up, it means your unit of one dollar can buy less of the item.  Now get this:  we usually think of price as being attached to the item bought and sold, but the price is really a statement about your dollar:  a low “price” means your dollar buys more; a high “price” means your dollar buys less.  Makes sense so far, right?  Now suppose you have two widgets for sale in a room, and there is $10 available for those two widgets.  Your price per widget is going to be $5 each.  Now suppose we introduce another $30 into the room, for a total of $40 available for those two widgets.  The price is going to rise now to $20 per widget.  Did we get more value for our money?  No, we still only have two widgets.  So what changed?  The purchasing power of the dollar as the unit of exchange.  This is what happens when you print money.  It doesn’t matter who is doing the printing:  the Treasury or illegal counterfeiters.  When you introduce more money into the room (the economy) the purchasing power of your dollar goes down.  In the example above, your cost per widget went from $5 to $20, or an increase of 400%.  That’s called inflation. Were more widgets manufactured?  No.  The supply remained the same.  The purchasing power of your dollar went down.  You are now poorer.  It takes more dollars to buy the same thing. 

Not everyone gets hurt the same.  It takes a while for the new counterfeit money to work it’s way around the room, and it takes a while before the Seller of the widget realizes there’s more demand (in the form of more dollars) for his widgets.  It takes a while for the price of his widgets to move up.  The first people to use the new counterfeit money feel little impact; the purchasing power of the dollar hasn’t changed yet.  The ones who get hurt the most are those who saved a lot of dollars under their mattress, in their 401k, or anyone on a fixed income.  When they finally get around to spending their dollars, they are going to discover that the price of a widget went from $5 to $20.  Their dollars don’t go nearly as far as they used to.  This is how governments print money to steal from their savers.  It is a sneaky way of impoverishing your citizens, stealing their wealth and savings, and for the government at least, the best part is no one notices for a long time, no one understands that the government was the root cause, and therefore it doesn’t get voters riled up the way, say, higher taxes would.

Now let me emphasize one more time:  were more widgets manufactured in this example?  No.  Was the room (the economy) producing more?  No!  All that changed was that more money was introduced into the room.  Could you say that this economy was growing?  No!!  When you brought more money (counterfeit) into the room, did everyone feel richer? Yes, for a very short while.  But the new money was an illusion, and as soon as it worked its way into full circulation, everyone got poorer, because there was more money chasing the same two widgets for sale.  It just took more dollars to buy the same stuff.  This is like a great, global shell game.  Someone got cheated.  Can you figure out who?

The trickster, the one who controls the shell game, is the Federal Reserve.  And it serves its political Masters, for their political ends. 

Now, my fellow neophyte economists, can you guess what’s coming?  It’s a Category V tropical storm way out in the Atlantic, thousands of miles away.  It is ugly, ominous, foreboding, and its immediate direction is undetermined.  Once it moves there will be little time to prepare, and it will be vicious and destructive.  It’s target??  The dollar.  Trillions of fiat (counterfeit) dollars are being printed and introduced into the economy.  We are in uncharted financial territory.  What will happen when the impact of that new money is finally felt in the system?  Have you figured out what will have to happen to the dollar?  Production is stagnant and the money supply has been wildly inflated with printed money.  Can you connect those dots now?

Have you noticed the experts puzzled because after pumping this vast sum of newly printed money into our economy, everyone should feel better off, but doesn’t?  Have you noticed that the economy is supposedly improving, but production is not?  Do you remember what happened when you still only had two widgets in the room, but a lot more dollars introduced into the room to chase those two widgets?

The world has never seen a storm like this one.  It could bring a decaying empire to its knees; it could drastically lower the standard of living of the world’s greatest consumer nation; it could destabilize our social institutions; it could foster riots in the streets; it could induce our terrified citizens to quickly grant emergency powers to our government to restore order.  Would we ever find our way back to what we were?  Highly unlikely.  The problem is not the Chinese.  The problem is the weakness within; a viral infection of bad philosophy and bad ideas, ideas with consequences, ideas intended to dumb us down, curb our individualism, and foster the creation of an all-powerful nanny State that directs and controls all of our economic activity.  Who could possibly prefer such a government?  Some who feel safer in the middle of the herd; even if the herd is running over the edge of a cliff, they don’t seem to mind too much, as long as they’re in lots of company.  And the others, the really dangerous ones, are the ones who seek the power over the herd.   Greed and moral decay  turned us from a nation of Yankee ingenuity into a zombie State of  Welfare entitlements and Hollywood circuses.  And like the Roman Empire, our military legions are scattered worldwide trying to keep the barbarians from the gate.

It has been said that a people get the government they deserve.  It is easy for us to point the finger at some greedy business leaders,  incompetent bureaucrats, or power hungry politicians.  But weren’t we all glad to get something for nothing?  Weren’t we glad to be able to buy houses we couldn’t afford, with mortgages we never intended to pay (because we thought we knew we could sell the house quickly at an even more inflated price and walk away with quick money)?  And when the government promises free health care, or improved benefits, doesn’t that tickle our ears?  Who pays for this?  We benefit, someone else pays.  That works for us, right?  And when our government tells us they have figured out a way to pay for all this without going into even more debt, even though that same government already has about $67 trillion in existing unfunded liabilities and a 100% failure rate at living within its means we still believe them, right?  Why?  Because we want to believe them.  Because what’s wrong with a little something for nothing?  Do you hear anyone challenging universal health care on moral grounds?  Yes, I do know of such people.  For a powerful expose of the moral issues involved, go to  David Kelley‘s article Is There a Right to Healthcare? at http://www.atlassociety.org/showcontent.aspx?ct=14&h=53  For a courageous response to the question of why is healthcare different from other commodities essential to survival, such as, say, food, go to Bradley Doucet’s article here http://www.atlassociety.org/cth-43-2212-WOE-HealthFreedom.aspx.  Should the government take over the bakeries, and the distribution of bread, produce, and other food items essential to survival?  And finally, for an in-depth evaluation of both moral and practical issues, read an article by Clifford Asness, Health Care Mythology, at his website http://www.stumblingontruth.com/

We can debate practical aspects of any given issue till the cows come home, but in doing so we are missing the point.  Any time something is offered for nothing by a government, someone is being enslaved.  As novelist and philosopher Ayn Rand said once, free milk makes a slave of the milk man.  Any time something is offered for nothing by a government, the reach and power of that government is being expanded.  We are all so accustomed to our entitlements that we have forgotten to ask the really important questions.  Has it occurred to us that the redistribution of wealth and resources is only one part of the issue, the least important one, and that it masks a concerted and determined effort by some to totally change our form of government and increase and extend executive power and privilege into every nook and cranny of our lives?  We are a nation and a people that has lost its way because we have unwittingly bought into bad ideas and bad philosophy smuggled into our culture without our awareness.  The smugglers knew exactly what they were doing; we did not.  It’s time to wake up.  Not to change the world, but to change our individual lives.  If you are one of the ardent souls who has read this blog this far, then you will also want to read a truly excellent article documenting what I have written in this paragraph.  The article is called The Revolution Was, by Garet Garrett, written in 1938.  You can read it at http://www.rooseveltmyth.com/docs/The_Revolution_Was.html

All governments have an insatiable desire for more power.  That power is only possible by seizing control of economic activity within the country or empire.  Such governments achieve their control of the purse strings, and proceed to further enrich themselves by plundering their own citizens, and when there is nothing left to expropriate, they ration whatever is left of the nation’s wealth.  Governments do not produce wealth; they only plunder and ration.  Governments choose the winners and the losers.  Central banks, of which the Federal Reserve is the foremost example, are the tool governments use to manipulate the supply of money in the economy, increasing governments wealth by devaluing their own currencies.  Continued unabated, it spells the end of the middle class, the end of empire.  The only wealthy left standing are those handpicked by government.  After 300 years of capitalism, we are back full circle to Kings and serfs.  The barbarians weren’t the problem after all.  We did it to ourselves.

 

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