Sunday, March 14, 2010

The Money Show.

Greetings Friends!

Today's post is going to focus on money. What it is, what it does, who controls it, how it finances feminist public policy [a][b], and what can be done to fix our monetary system so it contributes to maximum wealth, health, freedom, and happiness.

What is Money?

This is probably one of the most hotly debated topics in Economics and Finance. The two main schools of thought can be more or less divided into two camps:

1) Supporters of Fiat currencies issued by governments

2) Supporters of commodity backed money chosen by either free markets or by a government to serve as money.

To further your understanding of these two types of systems, I would refer you to Ellen Brown's webpage with respect to Fiat money, and I would refer you this podcast from in support of commodity money.

Just so everyone knows where I stand in this great debate, I side with the Austrian School and its theory of Commodity money. The biggest problem I have with fiat money is that there is no basis underlying the electronic and paper money that governments circulate in a purely fiat regime.

For example, while many Libertarians such as myself favor money backed by gold or silver, the writings of Murray Rothbard clearly state that the commodity used doesn't matter.

He wrote:

4. The Monetary Unit

We have seen that every good is "in supply" if it can be divided into units, each of which is homogeneous with every other. Goods can be bought and sold only in terms of such units, and those goods which are indivisible and unique may be de­scribed as being in a supply of one unit only. Tangible com­modities are generally traded in terms of units of weight, such as tons, pounds, ounces, grains, grams, etc. The money commodity is no exception to this rule. The most universally traded com­modity in the community, it is bought and sold always in terms of units of its weight. It is characteristic of units of weight, as of other metrical scales, that each unit is convertible into every other. Thus, one pound equals 16 ounces; and one ounce equals 437.5 grains, or 28.35 grams. Therefore, if Jones sells his tractor for 15 pounds of gold, he may also be described as having sold the tractor for 240 ounces of gold, or for 6,804 grams of gold, etc.

It is clear that the size of the unit of the money commodity chosen for any transaction is irrelevant for economic analysis and is purely a matter of convenience for the various parties. All the units will be units of weight, and they will be convertible into pounds, ounces, etc., by multiplying or dividing by some con­stant number, and therefore all will be convertible into one an­other in the same manner...

And, extrapolating from Mr. Rothbard's analysis, it doesn't matter what the commodity is, so long as it meets certain attributes that societies have traditionally looked for in a monetary unit.

What does matter, in my opinion, is that the monetary unit (i.e. gold and silver) is the basis for whatever transactions take place. It is the ultimate unit of account. If you asked an accountant what is the basis of any given transaction, he would immediately tell you that the source document is the bedrock of whatever financial event took place.

In other words, if a check was cashed for $100,000, the accountant who would audit that transaction would request to see the check that was cashed. He's looking for signatures. He wants to hold the tangible document in his hand. If there is no source document, then there is no basis for the transaction.

And this is the strength of commodity money, and the great weakness of fiat money. There is no tangible item of value that backs up millions, billions, or trillions of paper dollars if the system is a purely fiat one.

China, as an example, has over two trillion dollars worth of foreign currency reserves. All of these promises are in fiat tender. Almost all of these reserves are in debt based, not asset based money.

Since the reserves China has are nothing more than promises to pay from the Central Bank that issued the dollar, yen, Euro, or whatever in the first place, what happens if the countries involved simply defaulted on their obligations? What if the Central Banks simply press a few buttons and create (see Case Against the Fed, p. 139 onwards.) trillions of additional dollars, Euros, or Pounds Sterling?

What is the basis of the reserves China has? What guarantees its value? How can China guard against the dilution of their reserves' purchasing power?

Under our present system, there is nothing that individuals or states can do to preserve the value of their holdings over time. There is nothing behind each individual piece of paper to back them up. Nations can never keep score, as unlimited amounts money can be created. Money, in this event, becomes worthless.

So, in my opinion, Fiat money is not real money because it does not meet all three of my tests of what money is supposed to be:

1) A store of value over time

2) A medium of exchange

3) A stable unit of account and economic calculation.

Because Fiat money is only good as a medium of exchange, Fiat money, in my view, is an EPIC FAIL.

What Does Money Do?

As alluded to above, money has multiple functions. It is a yardstick for financial transactions, performance and value. It is a means to transport wealth over time and space. It is the oil of commerce, and makes indirect exchange possible. Without money, economic and financial activities would be extremely difficult, time consuming, and inefficient.

Money is also like voting. In a free market, consumers spend money on the goods and services of their choice. If consumers aren't willing to spend money on a good or service, it acts like a vote of no confidence and the good or service goes away. In a sense, consumers in a free market, by spending money, tell producers and entrepreneurs how they should be directing their time, energy and resources.

This is why it is important for any monetary unit to be able to perform all of the functions of money listed above without interference or distortion inherent in such movements such as Socialism, Communism, Fascism, Corporatism, Unionism, and yes, Political Feminism.

This is why Fiat Money and inflation are so disastrous, as they impede the free market (i.e you and me) from pulling the levers of economic activity. Inflationism leads to bad decision making on the part of producers. It also robs savings from everyday people, which isn't good because savings is the foundation of capital formation. It's my contention that billions of individual people, each acting in their own economic best interest, can determine and regulate the economy much better than any small group of people acting in collusion to advance their own limited agendas.

Who Controls Our Money?

In a perfect world, consumers and citizens would control their money through their personal saving and spending activities. They would also create governments that would protect the rights of consumers and citizens to maintain control over their personal financial and economic decisions. Laws would be passed outlawing fraud, force, theft, and most importantly, monetary debasement. These laws would be strictly enforced.

Unfortunately, we live in a world of Fiat money, Wall Street Shenanigans, and massive government bailouts. Capital is NOT finding its way to its most productive uses... it's finding its way into the pockets of the well connected global elite.

And so, we need to discuss who really controls our money supply.

There are two institutions that control the economic resources of American citizens:

The Federal Reserve and the Bank of International Settlements.

Please visit these links to learn more about the Fed:

Goldseek radio (skip to 1:00:16)'s numerous criticisms of the Fed

Secrets of the Temple

Secrets of the Federal Reserve

Even more.

Links on the Bank of International Settlements:

Articles by Joan Veon resource page

Interestingly, the Bank of International Settlements has a much lower profile than our local Federal Reserve. In any case, please take some time to visit these links. You'll quickly understand who really controls our money supply and why.

Fiat Financing and Feminist Public Policy

Among other economically draining activities, such as endless wars, fiat financing makes feminist public policy possible. The fact of the matter is that our Matriarchal Fempire requires a vast amount of time, energy and resources.

The Federal government alone will dole out $438 million (see here, page 16) if the Congress fully funds 2011 proposed spending levels.

Lets look at the big picture.

According to Transform, 1.6 billion dollars was spent in VAWA related programs from 1994 to 1999.

So, assuming that we have an average spend of $320 million per year ($1.6 billion/5 years), over a fifteen year period (1994 to 2009), we can roughly guestimate that 4.8 billion ($320 million * 15 years) was spent, at the Federal Level, on VAWA initiatives. We should probably assume that massive quantities of money have been spent at the state and local levels, and we should add in the massive costs of divorce that legislation such as VAWA has generated directly and indirectly.

Let's make some assumptions.

If, over a fifteen year period, we have spent $4.8 billion on VAWA programs, and we have spent $1.7 trillion ($112 billion * 15 years) for divorce related expenditures, and we assume that state and local government spent 30% of whatever Fedgov directly contributes in grant dollars (not a hard number but a best guess based on this Congressional Budget Office report), then we can guess that state and local governments have spent ($4.8 billion *.30) $1.4 billion on feminist public policy projects.

Based on all of this rough back of the envelope analysis, I would guess that, over this fifteen year period, the total cost for all this would be a cool $1.731 Trillion dollars. Going forward, assuming no major changes to spending levels, I would say that an average $115 billion dollars a year will be spent to maintain feminist public policy. Note that I am not taking inflation into account, so the true cost is and will be much higher.

By the way, it should be noted that annual expenditures for the negative outcomes VAWA contributes to add up to a much larger number than the so called "savings" that some claim that VAWA legislation has brought about.

On an annual basis, alleged VAWA annual average savings come out to: ($14.8 billion/ 5 years) $2.9 billion per year.

$2.9 billion "saved" - $115 billion spent = -$112.1 billion dollars annually.

Soo... where are all these dollars coming from? 1) Borrowing money from abroad and 2) Printing money.

All things are possible through Fiat Financing. Under a free market system of sound money, such expenditures by governments would be heavily scrutinized and watched like a hawk. In an inflationary fiat money regime, such as ours... nobody cares.

Spend all you want... We'll borrow and print more!

What can we do to fix the problem??

Most everyone knows by now that we have serious monetary problems. So what to do about them?

There seem to be two schools of thought.

Ellen Brown and Steven Zarlenga seem to be heading the charge for a pure fiat currency that is issued and managed directly by the government instead of the private Federal Reserve.

Listen to their ideas on Gnostic Media.

Financial Commentator Richard C Cook also has some interesting ideas for Monetary Reform that lean towards the Brown and Zarlenga position.

On the other side, there are the followers of classical sound money economics, such as Ron Paul, Peter Schiff, and others who advocate private banking, asset backed money, and the abolishment of the Federal Reserve.

Click here, here, here, and here for more information.

I'll leave it to you, dear reader, to decide which path of reform you will champion.

As for me, I personally prefer the ideas proposed by Ron Paul and others, but I am open minded enough to propose that we take the best of both worlds, put them to the test in the real world, keep what works, and jettison what doesn't.

In later posts, I will explain in detail my own ideas for reform. But the important thing for now is to spend some time with the information provided, and think of your OWN ideals for a new way forward.

It is my opinion that the current system will collapse under its own unsustainable weight, and all people will need to be prepared to join the debate and make double damn sure that our new economic system provides the maximum amount of wealth, prosperity, happiness, and leisure for all people, instead of just serving the interests of a few well connected businessmen, academics, and politicians.

Thanks for reading,


Monday, March 1, 2010

Goldbug! and the Financial Report of the United States 2009.


During my brief hiatus, I have been keeping my eye on events in Europe and its current financial crisis.

I believe that the problems Greece is currently experiencing is a dress rehearsal for the massive bond market collapse that America will experience in the near future.

To that end, I wanted to share these powerful and disturbing interviews of Mr. James Dines as he talks about his latest book, Goldbug [1][2][3].

It's my opinion that Mr. Dines gets to the heart of our looming financial disaster in a very compact and easy to understand manner. Must listen material!

Financial Report of the United States Government 2009.

Speaking of American indebtedness, I'm pleased to report that the 2009 Financial Report of the United States Government is out. Click here to read it for yourself.

Case in point: Page vii of the report states:

2 The Federal Reserve is an independent organization and not considered a part of the Federal reporting entity. As such, their financial results are not consolidated into the Government’s financial statements.

Nice to see that Fedgov is admitting what many have known for years: The Federal Reserve is a private, for profit enterprise.

Anywho, if you compare this year's report to the last few years (which I have linked on my sidebar under Finance and Economics), you will quickly realize that the Government is bankrupt, and we have incurred massive debts that we can never possibly repay without debt default or the massive printing of money.

Either way, it's good to be a Goldbug!!

Happy reading,