TCS Daily


Enough Is Enough—Time to De-stimulate

By Larry Kudlow - January 11, 2010 12:00 AM

We've got to get America working again. That's the message in my latest column, De-stimulate. That's right. De-stimulate. As in get rid of higher taxes, regulations, healthcare mandates, EPA mandates, spending and borrowing worries, etc, etc. This big government morass is creating so much uncertainty and confusion that even our profitable businesses are afraid to hire new workers. Why? Because government is muddying the water and making it too darn expensive.

That's the problem.

President Obama's green jobs plan announced this past Friday? It's an outrage. $2.3 billion dollars for 17,000 jobs? Do the math. That comes to a whopping $135,000 per job! Un-be-lieve-able. We're going to wind up paying for this flood of ineffective stimulus spending in higher taxes down the road. Let us keep our own money thank you very much.

Here's another outrage: Stop the EPA from its new $90 billion dollar smog regulatory plan that frankly, will be infinitesimal in whatever benefits it generates. And why haven't we reversed the ban on oil and gas drilling, with crude at $83 and retail gas edging closer to $3 bucks a gallon? We should be embarking on an all-out drill, drill, drill campaign. Guess what? That would create jobs.

My friend Steve Moore at the WSJ has been talking about tax chaos. He's exactly right. Why don't we just lower tax rates for individuals, businesses, and capital gains? That would be real stimulus. That's the missing link, that's the invisible hand that has worked so well, and so often in the past. But it has been flatly rejected by Team Obama.

Look, we have enough monetary stimulus from the Fed. Plenty. We have very profitable corporations. Stocks are rising. There is an economic recovery taking place right now, but it's only half a recovery loaf if more people aren't going back to work.

That is precisely why I want to get rid of the whole loaf of these anti-jobs polices pouring out of Washington. It's time to de-stimulate.


This article first appeared on Kudlow's Money Politic$.
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117 Comments

Larry cracks me up
He hasn't realized the bigger picture here, I think.

This is about a Communist takeover of America, pure and simple.

The Obamunists don't care about jobs...in fact, their agenda requires the destruction of the middle class (a.k.a. the 'bourgeois') in order to bring about the World Communist Tyran, er...State.

That's ALL this is about. I'm convinced of that now.

I'm cynical but I don't think they are that smart...
If we don't get this economy growing back above 4% sustainably then we cannot continue funding the government. We have debts to pay and the interest rates have not yet started to rise. We have the Pax Americana to maintain or the world decends back into savagery the very day after we fail to show up for the next war. And our domestic obligations cannot be met into perpetuity.

For example, if we do not remove the anti-trust waivers and the FDA restictions that keep the forces of competition away from our mature health care goods and service industry then all the government insurance policies and wellfare programs on Earth will not save us. Those underlying costs will consume too much of the economy and socialism is our reboubt position.

The government is not as sinister as they are incapable of understanding the fundamental capitalism. Because they are lawyers without an annual plan or an ideology that could actually work. The Democrats default into socialism because they see no other way to secure the essential social services they have taken out of our hands. The Libertarians assume financial capitalism must collapse into a neo-Gold Standard...so they are just as bad.

It is not just medicine. It is also education. Since Jimmy Carter created the Department of Education in 1979 our K-12 performance has collapsed. The AFT and the NEA teachers unions have taken over curricula and work rules without keeping teacher salaries competitive with the money earned by other college graduates.

But the liberals...including Obama...actually see the American society, economy and government transitioning into more socialism anyway. Therefore, they are intellectually ready. However, our greatest current rivals (the Chinese) long since noted the limitations of Communism because they tried very hard to make it work themselves. So as we become a pathetic mosaic of France and Japan we better start learning some Chinese. Because we would like to be able to communicate with the new boss in his own language rather than to assume that he will lower himself to learn ours.

Zyndryl and Forest,
you are both correct in what you say.

So, let's collapse your two different threads together.

The Democrats are de facto Socialists. They only care about their own power, and they are as ruthless as any Nazi regime, even though it's not yet come to the point where they can be a "hard" tyranny. They are right now, as Levin says, a "soft" tyranny.

They are, indeed, stupid people. Very stupid. They have sold themselves on their self-righteous delusion of being a Borg-like Mustapha Mond. It is there stupidity that drives them to believe that they should have the power and that they must save us from ourselves--with power being their just reward for their messianic mission.

Nevertheless, this is, in the end, precisely what Zyndryl says it is: not any attempt to help anyone, but only an attempt to take the power. And they do know it. In short, they are drug addicts, and their drug is power.

'collapse' to neo-gold?
If some libertarians do indeed recommend a gold standard, it's not clear that it would be any sort of 'collapse', but a positive measure to make sure politicians can't manipulate the currency for their own purposes.

If the good case they make is true, then it would mean they are not "just as bad" as the other two groups you mentioned.

Right now, I'd just settle for money supply that is managed truly independently
The track record of the FED has been long established. The dollar has been debased over 100% since 1913.

Not even when Lincoln printed greenbacks to finance the Civil War did we have such a lousy track record.
The only difference is that they boiled the frog slowly.

Just like the Romans did with devaluing the sestercii and denarii.

Yes, Forest. They are not that smart. If they were, they would then be able to cut it in the real world, after all. The heaviest evidence of how many sandwiches their picnic basket is missing is how clueless they are about what is going on outside of Washington. They are extremely deluded.

Then again, most American homeowners also believe that the current housing 'downturn' is the anomaly and that the bubble was a normal real estate market. Which I supposes is what the deluded now have power. The deluded voted them in.

In fact, I'd say I agree with 99% of what Forest wrote (1% is the gold BS I take exception to) and 80% of that I agree with strongly.

Politics is all about power...
We should not be surprised that politicians work very hard to get themselves elected so that they can come to power. That is precisely what political government is all about...the absolute power of a sovereign nation and our leaders getting that power into their own hands.

The underlying problem is the methodolgy of the lawyers who dominate our practice of government. Their arena is the courtroom and their contests are fought from two extreme positions...neither of which is honest. The truth is in the balance and justice is blind. The extremes argued by all the lawyers in the room are fictions.

And so it goes with our political ideologies from the right and from the left. Both are untrue and unworkable. The socialism on the left is utopian and proven not to work. The libertarianism of the right is so fundamentally flawed that no nation has ever even attempted it. In fact Henry George libertarianism is so utopian and impossible that it is completely over the top to the left and all the way back to socialism.

What we don't have is an actual working methodology that can be understood by the voters as an ideology to judge their political leaders against. When we manage a corporation we have an Annual Plan that is conservative, opportunitistic and that builds enough upside into the next year so we should make our numbers no matter what happens. Extreme positions such as blue-sky sales projections by polyanna Sales Vice-Presidents are sand-baggged against unknown variables in the marketplace by CFO's. The doom and gloom frustrations of manufacturing Vice-Presidents are corrected with "just get it done" command decisions made by CEO's. In the end, those holding onto radical fringe business concepts on Mahogany Row are fired the first month the results they signed up to deliver don't actually happen.

We never do that with our politicians in Congress or the people working in the President's Administration here in America. But in China? Those guys deliver. Or else. They not only throw the bums out of government for lying about their responsibilities and failing to deliver on their promises. Sometimes they get a bullet in the back of the head.

The underlying challenges and opportunities we have in this nation are business problems. However, we have no such "getting down to business" ideology to fall back on. Instead, our politicians come to great power, stand up in very nice, very large, wood-paneled rooms with lots of leather furniture and they lie at each other with great authority for two years at a time. The truth is in the balance. But their partisan, compromised and negotiated legislation never really works very well. Then we reelect the same useless incumbents to go represent our interests in the Congress again and they do exactly that same thing for two more years.

This cannot go on forever, of course. Eventually the developing world will indeed develop. And if their practices of capitalism and their ideologies of government are superior to ours then they will dominate us in the global arena. We are actually living in the history of exactly that transition of hegemony today. The more we lie to ourselves about this, the faster we will lose ground. If we start to believe our capitalism has already failed then the default redoubt is indeed a retreat into socialism to protect our essential services while over-taxing a static economy that we do not believe in anymore...anyway.

Monetizing non-curency assets...
Legal tender (currency) is necessary for any practice of capitalism beyond barter. Financial capitalism in the post-industrial economy requires massive pools of cash.

Some trusted authority must monetize valuable assets into currency. That currency must be exchangeable for such assets either on demand or out in the open market.

The Fed monetizes gold, commercial paper, sovereign debt instruments (including our own interest bearing Treasury paper) and real estate-backed securities because these are the underlying valuable and liquid assets that US dollars should normally be exchanged for.

However, this does not solve the problem of inflation. Even the smallest rate of inflation (and we must have some inflation because the value of money will always change relative to alternative assets...deflation is very hard on portfolios and balance sheets) reduces the value of cash money. Therefore, most idle cash must be exchanged for something else that will appreciate or that will bear enough interest to cover such inflation.

If we take away the monetizing of low risk, interest bearing debt instruments (and US Treasuries are the best), for example, and peg the US dollar to gold alone then we would have no mechanism at the Fed to combat inflation. In fact, private citizens could no longer hedge inflation with gold because the nominal price of gold would be fixed. We are post-Keynesian now and inflation is the enemy. We must be able to control inflation and at the Fed this is job one.

Politicians are not manipulating currency for their own purposes. Most politicians have not the slightest idea how financial capitalism, the global economy or monetary policies work at all. Don't worry about our simple-minded political leaders. They are not sinister. They aren't smart enough. They are much more confused than most of us out here in the business world operating this thing. And they sincerely don't know what to do next.

But we do. And, therefore, some of us are running for Congress.

No. Currency is required but legal tender is not.
Legal tender is the means for a government to force people to use the currency they create...like for use in paying taxes. It thus creates a 'baseline' demand for the currency.

Life is an oiled wheel,
and so those Libertarians who are extremists and are Anarcho-Capitalists and/or have the Ron Paul mentality about foreign policy do indeed take us right back around into Socialism.

But to say that Libertarianism, rightly understood, is fundamentally flawed is simply absurd.

The Democrats are deliberately and quite consciously seeking nothing except power over you and me. They ARE the incarnation of Huxley's 'Brave New World'. Yes, yes, you can argue that there are some Republicans who are quite similar, and you would be right. But, taken on the whole, where the Republican party is flawed, the Democrat party is out and out evil. Yes, I said it, and it's true.

The difference between the Democrats and the Republicans is like the diffrence between the habitual wife beater and the average good, but imperfect, husband.

Ah, but Forest...I remember that you can't stand the idea of "failure", so you seek to find ways around it. The beauty of authentic capitalism, which we do not practice and probably never have (although we used to come a lot closer), is that while failure for some, for many in fact, is inevitable, it's not where the final page is closed on the book for most. One book doesn't sell, you can write another. And another. And another. Until one does.

No...
Currency is a contract. A debt instrument. A legal promise to pay that must be enforceable. Here in America we are a nation of laws and the government absolutely depends on our strong industrialized economy to underwrite its agenda with a sustainable practice of capitalism creating wealth to be taxed continually and factory capacity standing by to be commandeered in the event we need to mobilize for yet another war. It has been this way for at least the last 100 years and that is why the US government could not allow our economy to go its own way as Adam Smith implied.

Remember that Adam Smith published his book Wealth of Nations in 1776 just as the Industrial Revolution was beginning. We had no railroads, steamships, heavy field artillary or mass produced rifled gun barrels. No one was really in a position to conquer the world and hold onto it. So there was no particular urgency. Far and away most people still lived out on the farm. There was enough gold and silver to underwrite all the economic activity in the world. Fiat currencies were not yet part of the financial picture.

But even then banks often issued more notes as currency than the gold in their vaults could redeem. Potential bank failures were a very real barrier to progress. Any nation that did not solve that problem was destined to be at the mercy of those who got it right. We got it right while many others didn't. And that is precisely why lots of those people now speak English.

Capitalism implies problem solving...
We must create wealth with production processes in order to survive as human. We cannot simply walk the Earth and live on what we find scattered around. We make tools, we take raw materials, we process finished goods and we sit down to eat a meal. We pull on warm clothes. We live inside shelters that we build. This is capitalism. Problem solving. Creating an advantageous imbalance in the world, organizing it into a social structure and exploiting it.

We have the richest starting point in human history, we are the most educated, experienced and motivated people our species has ever known...we Americans. You want to tell me that we cannot figure out what to do next? Just because Supply Side capitalism has run its course and we don't know how else to operate a post-Keynesian economy?

You're right I can't stand the idea of "failure" because our politicians are out of ideas. When in doubt go back and read the instructions. The Constitution told us to change our Congressmen every two years if necessary when the people we had in there were not up to the work. That time has come. This Great Republic was given to us by the Founding Fathers (and our own fathers who put their lives on the line in World War II) with "some assembly required". You're want to tell me that I'm going to let my father down and allow this great nation collapse into socialism because we cannot see how to get our GDP back up above 4% again? Not on your life.

Our practice of capitalism did not need to be very good to be better than the Soviet economy. Easy-peezy. Made us look smart. And our next practice of capitalism does not need to be ideal to be better than what we have today. But we are not yet even good enough to develop any sustainable capitalism in an extraordinarily poor nation under our occupatin for the last 8 years that we need to let those people grow opium to scratch out a living (on our watch) so that the criminals among us can sell heroin to our own children to support a resurgence of the Taliban over there! And that war will go on forever?

No! We don't need to solve all the problems in the global economy if we are still so confused about the mechanisms of financial capitalism. But surely we can do better than this.

No.
neither are central governments.

" Here in America we are a nation of laws and the government absolutely depends on our strong industrialized economy to underwrite its agenda with a sustainable practice of capitalism creating wealth to be taxed continually and factory capacity standing by to be commandeered in the event we need to mobilize for yet another war."

That will never happen. That is so old school Industrial Era thinking that is relevant in the 1940s but not today.

Any major war fought today would probably be over long before the first bureaucrat succeeds in mobilizing a single factory.

" Potential bank failures were a very real barrier to progress. Any nation that did not solve that problem was destined to be at the mercy of those who got it right. We got it right while many others didn't."

No, we didn't. You just think we did. Why was it that there was not a single bank failure in Canada during the Great Depression while hundreds happened here? Simple. Because the Canadians allowed interprovincial branch banking while our glorious central government didn't. The FED didn't do jack to prevent it either...and made the situation worse.

Fiat currencies existed before 1776. The Pennsylvania Colonial Scrip was very effective and well managed, for example.

Last, your Subject line of 'no' and the accompanying message had nothing to do with the subject you were replying to...that legal tender is a separate issue from what type of currency is in use.

I can remember Roy...
...telling me that I was preposterous when I first broached this plan two years ago for nationalizing 401(k)s and IRAs just like this.

monetising....
You say that 'legal tender is necessary', even if that is true, it doesn't doesn't follow that a federal government should have a monopoly on it.

It's also wrong when you say that even if the dollar were pegged to gold there would be no mechanism at the FED to combat inflation. If currency is gold based, the politicians CANT inflate it, that's exactly why they hate gold, and its discipline.

Indeed, there is even no need at all for the FED, that outfit, which was slipped in by stealth way back then, was for politicians benefit, not the economies. You might have noticed that there was great growth in the economy before before it. If the FED had been in existence then they wouldn't have tried those those equally lousy statist schemes like the 'continentals', and the earlier state banks.

There are reams of info out there about the technicalists of gold like why it's a myth that there can't be enough, etc. But it sounds like you haven't read any of it. If you had you would be critiquing it instead of just blowing it off.

capitalism/problem solving
I liked the point you said about it not taking much to better the old Soviet union regarding the economy. Indeed, we could also say that the US$ only looks good compared to the many other even lousier ones out there.

But I wonder why you say 'post-Keynsian', when many would say we're just 'neo-Keynsian'?

It's not clear what school of economic thought you're coming from since many on your comments, using vague rhetoric, don't tell us much.

Even the phrase you used, 'capitalism implies problem solving', seems vague. Surely commies or ***** would have said their systems implies problem soving, but according to their own biases. Whearas normally campitalism should just mean, private property and free markets.

When private property is respected and markets are free, people will always try to work and solve problems and move forword in all ways.

I also remember him
He's the guy who said I should be killed by the govenment if it were trying to imposing policies of which he was a supporter that I was refusing to submit to.

That gave me the same creepy feeling Joanie talked about when she said she felt she was being stalked.

On the other hand, I would recognize the argument that ALL governments are prepared to kill us if we resist them; they system is based on such violence, and depends on it because of course people won't voluntarily submit to such repression.

'pegged' vs 'redeemable'
I think Forest, like a lot of people, is just ignorant of how gold-linked currencies actually worked.

You can have a 'gold standard' where each unit of the currency is redeemable for a set mass of gold. Even then, you don't need a 1:1 reserve requirements any more than banks need a 1:1 reserve of base money to back up our checking and savings accounts.

But a 'link' or 'peg' doesn't require redeemability.

All the link/peg does is establish a price (or price range) that gold will be in the linked currency that the monetary authority in question pledges to manage the supply of currency necessary that the gold market demands to keep it at that price. Not an oz of gold is needed nor should the monetary authority bother with it, in this day and age with a deeply established, global gold market.

If the peg, for example, is set at $500 per oz of gold and the markets declare that the price is $450, then the monetary authority then adds more base currency into the money supply until the market price for gold in that currency rises back up to $500/oz. '$' is denoted as a generic symbol for said currency in my example, btw.

If the market price for gold rises to $600, then the monetary authority needs to withdraw enough base money out of the circulation to get it back down.

These operations are called 'unsterilized interventions'. No manipulation of interest rates are necessary (and they don't work worth jack anyway relative to the cost of using such manipulations as a tool for managing the money supply). The markets are allowed to set interest rates. Which, for gold standard currencies has traditionally been very low. We are talking prime rates of 2-3%, on average.

All the monetary authority is doing is maintaining the supply of the currency it issues so it is line with the price peg to gold it promises to keep. That is it. It does not have to purchase/sell gold (but it could) to do this, either. It can buy sovereign bonds and other debt instrument assets or even land (like Germany did to back up the Rentenmark after hyperinflation destroyed the previous currency), to back up its currency.

BTW, this is how the Bank of England and the Federal Reserve managed their gold-pegged money supply for the most part. Only back then, they had to monitor the demand for gold by the MECHANISM of redeemability -- which they had in place not because there was any actual need for redemption for this to work, as I said. It was just a good feedback tool -- in lieu of looking up the latest gold price on the Internet -- to know when they had too much/too little money in circulation.

Currencies can also thus be pegged to other currencies this way, which was the case in the Bretton Woods era. Everyone pegged their currency to the US dollar or traded in gold. The Soviets used their gold output to buy stuff from the West that way. Some nations manage their pegs to the Euro and the Dollar this way. Hong Kong used to do it until its central bankers went Obama-STUPID and tried to manipulate interest rates instead. The George Sorosii of the world had them for lunch, instead.

Whereas a strict 1:1 ratio of defined asset to issued currency describes a de facto Currency Board. That is way more strict, but quite effective. The 'cost' is the loss of control of the money supply relative to true market demand on a global & daily basis, which causes the problems Forest is so worried about. And, with currency boards, the monetary authority can not also be the lender of last resort, or at least not a very effective one.

Of course, it is the latter set-up that the libertarian Gold Bug Purists want, whether they know it or not. I don't have much problem with it myself since last resort lending is just one Enormous Moral Hazard, in my view. I'd prefer having the two functions handled by separate institutions, in coordination with each other.

So, "those Chinese guys deliver. Or else?" So, you want US GOVAGs to tell us to deliver or else?
You consider that capitalism?

to Forest....see, I told you so
Look at Zyn's comment about pegging, etc. and you will see one of the explainations for how the technicalities of gold standards work. Indeed there are other versions in which there is no need at all for any central banks run by governments.

His comment about Russia is particularly telling, about how they had to use gold to pay for foreign imports, since their own fiat currency was so ridiculous that it was worthless outside the country.

to Zyn re pegged
Thanks for the great explanation, you seem to be the guy who knows most about economics on this forum. I remeber how you used to totally cream that idiot marxist Roy all the time.

BTW, could you comment on the idea that I believe the Austrian Economists school claims that there need not be any central banks at all?

That's simple Colonel; central implies nation-wide applicability or control. We don't need it.
And, for generations, it (the Central Bank) has also come to mean “lender of last resort”, causing wild booms and busts by creating moral hazard. But, in nature, there is no such thing as “savior of last resort”. If an individual makes bad choices he/she suffers the consequences and if one of them is a fatal mistake, that’s it. He/she has to live (I mean die) with it. Why should it be any different for an economic entity - which is nothing but a group of people - or for an entire nation, for that matter?

In fact, if a majority of economic entities in a nation keep making fatal mistakes and the powers-that-be keep keeping them alive unnaturally (obviously at the cost of other economic entities that DIDN’T make as many mistakes), the nation "as a whole" will anyway die soon.

Though it looks as if FB is talking of (lesser) Chinese GOVAGs being told to “deliver or else”, it
equally applies to the ordinary Chinese who are daily told by these (lesser) GOVAGs to “deliver or else”.

And as usual, FB evades the question of how the topmost GOVAGs came to get hold of the reins of power and how they keep them. In fact, since FB seems to think that man is just an (economic) machine going after nothing but material goods, he has on more than one occasion implied (and explicitly stated) that there is nothing wrong in keeping him (man the economic machine) on a very tight leash to serve the “sovereign power”.

And that’s the system he wants for us, the US residents, so that “we” (actually, the “sovereign power” that’s the United States of America) can continue to keep our “rightful” place at the top in the comity of the nations.

Shows his ignorance of how the US came to occupy such a top place in the first place.

oiled wheel
Your message is very vague. What is your notion of foreign policy considering you have bad-mouthed the 'Ron Paul mentality'?

Apparently there are 700+ military bases overseas, how many do you think there should be?

You think that's not a practice of capitalism?...
Then call it anything you like (other than capitalism). But if their practice of financial economics is better than what we are doing over here and we don't start doing someting better ourselves then they win and we lose.

Like when we might say "that's not cricket!" on the battlefield. Might be true. Might not be fair. Not a proper war as we know it. We can hold tight onto our ideology if it makes us more comfortable to know that we were in the right. But they still win.

Or like when you step off the curb into the crosswalk when the light changes but a cement truck driver is running that light. You might be completely right and he might be utterly wrong. But he gets to tell his story his way (because you will be gone) after the fact. And the history that is written will make him look heroic.

Military hegemony...
Don't be naive. We won. We mobilized our industrial society and out-produced the Germans, the Japanese and the Soviets. We all bought into it because the alternative was slavery. But that war has been over since 1991.

And we are fabulously wealthy. Yet we insist on staying in the role of human resources for the corporations, customers for the banks and taxpayers for the government. We assume that we will never break free. So we join labor unions even if we work for the government and we perpetuate our subordination to a super-structure of elite business and politcal leaders (people who went to the same schools, know each other personally and were sometimes even roommates...an entire tribe of them).

The problem is they are not very good at this thing in the long term. They exploit their own industries and they lie to the people who must rely on them. But worse than that...they really don't understand this thing enough to know what to do next and their extreme ideologies to the socialistic left and the libertarian right are both philosophical fictions. And cannot be implemented. They are lawyers running a debating society for a government and playing politics at our expense.

The Chinese government, for its part, does not even pretend to operate the sham democracy that seems to take up all our energy. They just work hard to make their economy grow. And if they have bad guys among them doing bad things then they sort those people out with a vengence. Over here we slap them with a fine and give them book contracts.

We need to put this government back on a very tight leash because the President really enjoys being Commander in Chief...far too much. So he calls everything he does a war. War on Poverty. War on Drugs. War on Terror. But we are not really at war unless the Congress declares that we are at war. And the President should not really run this nation by dictate unless we are war, otherwise should enforce our laws reasonably, as written by the Congress and severely limit his Administration's intrusions into our personal affairs or the domestic cultures of foreign societies.

Come on FB, you contradict yourself. You praise the Chinese for running their country by dictate but
find fault with the US GOVAGs running our country by dictate. What’s it that you want to promote? I can take a guess.

Per se, you’re not against GOVAGs running a country by dictate. Your only complaint seems to be that the US GOVAGs are not doing as good a job of it as the Chinese GOVAGs. Am I correct?

The banks are are holding $500 Trillion of derivatives alone...
And we trade $3 trillion of foreign currency each day at FOREX. The entire US economy is only $14 trillion but all that money out there is necessary to the operation of global financial captialism and we require much more in our monetized asset base than gold alone to exchange our currency for.

Inflation refers to the nominal value of the underlying durable assets (income producing) in an economy. If our currency was pegged to gold then the value of gold could not move up as an inflation hedge or down when the prospect of inflation was diminished. But that does not mean that the currency itself (and the pegged value of gold) would not be reduced versus the value of real estate, for example. You would need more cash (or more gold)to purchase the average acre of raw land if real estate was bid up in a developing nation because it really was worth more to the capitalists.

It does not matter very much who is the authority monetizing valuable assets (or just gold) into currency if the holders of those notes are all absolutely convinced that whoever it is actually will have the assets on hand to exchange and will be willing to take its own notes back on demand.

The Central Bank of a sovereign nation is probably more reliable than the First Bank of Your Sneaky Cousin. As for me and everyone who looks like me...we'll go with the Fed.

A very odd definition of infation FB; where did you pick that up?
We've a century of record to show how reliable is the Central Bank of US. A dolar note gets only about 0.05 worth of some commodity that it got in 1912.

By the way, what assets does the FED hold that you can exchange the paper it issues with, FB?

Please limit your answer to the assests held by FED, NOT of the assets held by private people who may be willing to exchange them for the paper issued by FED.

FED and banks
If Forset supports the FED so adamantly he must be the type of statist similar to the ones we have now. There is tons of info out there on why the FED is destruction to the economy, yet good for political elites.

Several of us have asked him what school of economics, or indeed politics he advocates, but he never answers, instead mouthing more nonsense comments on the discredited notion that; there is enough gold, you couldn't inflate or delate or regulate, etc. All nonsense.

He probably has a vested interest in the sytem as some sort of beneficiary of it.

politics/power
This can't be right when you said, "The libertarianism of the right is so fundamentally flawed that no nation has ever even attempted it".

On the one hand many libertarians don't consider themselves to have anything to do with any 'right' at all, because they see the right as not even being freedom oriented.

On another angle, libertariansism has not be tried in any nation, not because it is flawed, but rather because it is not in the interests of those political elites to allow it to happen. It would jepordized their own rent-seeking vested interests so they will use brutal force to disallow it.

They will also use the organs of government oppression, other than cops and military to propagandize in favor of statism, like the government schools systems, or nationalized media.

But then again, I guess you would be in favor of big-government if you seem to admire the chinese system of state planning.

FB's politics and economics are clear Colonel; he wants economic dictators to run US so that it can
“compete” more effectively with China.

He thinks that man is just an economic machine going after nothing but material goods.

Re: Oiled Wheel Vaguaries
How can it be vague when Ron Paul is crystal clear on his foreign policy stance? I'm not going to spend my time typing a dissertation here. In this aspect, Paul is so extreme that he would end up practicing the Socialist's type of foreign policy even without intent. I.E. strategically hollow, and thus extreme in one direction or the other.

I don't think that we should have military bases around the world, nor should we be engaging in nation building. (Iraq is about more than just that, but too much of it was exactly about that.) Sanctions are stupid, in my view. I like Ron Paul's attitudes here.

On the other hand, why is there even one centrifuge still operational in Iran right now? Why are the Russians being so bold? Why has the military's budget taken a 10% cut across the board--the only branch of the federal government to take any cuts in the last year?

I don't believe Paul would do anything differently about these issues. Not from what he says. He is very staunch in his attitude that we "must stay out of the internal affairs of other nations" and strongly implies that he wants the Congress to be stingy about funding the military.

Sorry, but I don't think that speaks to reality. We had better maintain military dominance. We had better stay at the head of the hegemony. We had better stick our nose right into Iran's internal affairs.

There are some places we can't just be friends with, and there are times when we cannot wait to just be attacked first.

Joanie,
you really read something stupid into my post. Either analogies or subutlety are lost on you.

No, I don't think what you accused me of thinking about a marriage, thank you very effing much.

oiled wheels
It still doesn't make sense how not interfering with other coutries would lead to socialism; it doesn't follow.

So want the US to maintain military dominance, does that mean you're in favor of the 700+ military bases, or more, or as many as it takes to dominate the world?

It also doesn't follow that if Iran gets nukes it would even want to attack the US. They might be crazy but they don't want to be anihilated. The leaders there don't want to martyr themselves, that's just for their cannon fodder to do. Islam leaders seem to prefer to have their cherry girls in this world.

Free Banking vs Central Banking
We don't need central banks. The US operated through most of its history w/o out them. Even with the first nationally-issued paper currency (Lincoln's Greenbacks) they were not issued through a central bank. Also, the greenbacks were a 'debt free' currency. Like the Colonial Scrip (not 'script', but 'scrip') before it and the not-so-wonderful-example of the Continental dollars issues during the Rev War, Congress just issued a set amount of the bills, declared what the face value of them were relative to gold -- but didn't back them up with redeemability -- and made them legal tender for paying debts and taxes. The economy boomed and the North financed the Civil War that way. The various banks were forced by momentum usage to accept them, and that was that.

I don't remember when the last of the Greenbacks were retired from circulation. But I do remember that it was the FED that was the most hell-bent to make that so.

Central bank issued notes/FED fund computer entries backed up 100% by DEBT assets are inherently usurious in that the bank eventually has to retire the money when the debt is paid off PLUS the interest (for which there is technically no money created for that). Now, this isn't inherently a bad thing but it can be.

So, what is the difference? Both were de-facto fiat currencies. Both were supported by the State and/or even issued by them.

But only ONE of them was under the control of the bankers.

EOS (end of story)

So, w/o even getting into the 'gold thing' much, I pretty much have summed up what I call the 'historical reality take' on this. Note how this does not need any involvement by the Austrian school of econ.

Free banking (in my view) is really distinguished from the above two examples of issuing a national currency in that the various banks would issue their own currency notes instead, backed up by whatever assets people will accept as valid (like gold but income producing stocks and some real estate would do). In fact, that is what banks in Scotland originally did -- make money on the seigniorage fees from issued currencies, not on loans. Even today, Scottish banks still issue their own pound sterling notes, via royal patent grants issued to them hundreds of years ago and thus predating the founding of the Bank of England. They aren't accepted much outside of Scotland and not at all outside of the UK, but they still do it.

Having said that, there are different kinds of money. It is a fascinating subject. There are 'demurrage currencies' that incentivize people into more economically productive activities than they otherwise would be while avoiding debt as much as possible. Middle Ages Europe and Pharaonic Egypt operated under such forms of money. When the Romans ended it in Eqypt, that is when Eqypt started becoming an economic basketcase and remained so for thousands of years. When the kings got in bed with bankers and both were strong enough to end it in Europe, the great cathedrals -- multi-generation projects of immense efforts -- stopped being built.

So, I know we don't need central banks to function. Only the bankers and whomever they have corrupted (politicians, industrialists, graduates of the Wharton School of Business, etc) think so otherwise.

Spoken like a true FED apologist
Unfortunately, you seem to forget that, under Free Banking, you wouldn't have to do business with the First Bank of Your Sneaky Cousin. You can do it with several banks -- or set up your own.

Perhaps...
...the analogy should be:

Democrats are akin to serial gang-rapists while Reps are akin to indifferent hubbies who care more about watching the football game than listening to his wife talk about women things.

That is certainly how I see it.

Roy would murder Free State libertarians in their sleep...
if they moved to his town as they have attempted to do in NH.

I saw Chris Mathews on TV
...and he looked like they need to put a suicide watch on him.

I couldn't hear what they were saying, (it was the TV in the downstairs lobby at the building I work at) but I gathered they were talking about the election, by the look on his face.

They are trying to spin this like you would not believe. They are even blaming Bush for 'the lousy economy Obama inherited and now is paying the political price for'. Unbelievable!

Kudlow never ceases to amaze with his delusion
Why aren't jobs being created if corporations are profitable? Isn't that the point of cutting taxes and all that crap, so rich people make more money and then turn around and hire us cogs?

Kudlow needs to defend the statement that the invisible hand of trickle-down has worked in the past. Just because the theory makes sense doesn't make it work in reality. When and how has it ever worked in reality?

*sigh* Oh well, we might be bored if we didn't have clowns like Kudlow.

to Zyn re Joanie
Hey Zyn, that's a good sign that Joanie says you make her laugh, right? Maybe she likes you.
I can remember when I was young I used to try to make girls laugh a lot; it worked well too when I was able to fake the sincerity.

that's not always the case
I have managed to upset Joanie in the past. More than once.

They aren't hring for several good reasons
One, in many industries the jobs won't come back, period. This is a long-term structural adjustment. In the Internet Bubble Explosion, it was jobs in my sector. Unemployment was high and rather permanent. It was a rough Nuclear Winter for people like me.

Now, the same thing is happening to realtors, mortgage brokers and construction workers. Those jobs aren't coming back any time soon.

Another reason is business uncertainty. You could slash taxes all you want but if businesses don't see a good business climate in the future as they make their hiring/expansion plans now, they will just sit tight. They did the same exact thing in the 1930s the last time we had a Democrat declare war on the 'economic royalists' like is happening now. Hiring employees now is like playing Russian Roulette for businesses...especially small businesses that don't have much room for making such mistakes yet are the main drivers for new employment, not the large corporations.

When Obama held his showboat 'bank summit', he castigated the banker CEOs present for not lending to businesses so they could expand and hire more people. One of them had the balls to tell Obama that the businesses that can qualify for loans just aren't applying for them because they are afraid of what Obama will be doing to them. He wasn't invited back to the summit after the lunch break.

See, if you truly did actually understand supply-side economics, you'd know that the real issue is disencentives of all types, not just taxes. And not all are equal in their affects. The corporate income tax has a very pernicious effect on capital formation and hiring, for example. Forcing businesses to provide overpriced health care to all their workers is another.

When the government declares war on business, business goes on strike. Duh!

Well said Z!
I think you're on the money about jobs not coming back and business uncertainty. And Obama's showboat 'bank summit'. He has no business castigating the banks when his Administration saved their asses and then turned around and did nothing to reign in the arrogance and greed that got them and us in this mess. I'm of the opinion now that they should have been allowed to fail, they should have been dismantled and broken up into smaller, separate entities. I still believe it was probably necessary to save the broader economy, but its disgusting what they got away with and have paid no consequences whatsoever.

"you'd know that the real issue is disencentives of all types, not just taxes."

But you went on to mention corporate income tax. What are some other types besides taxes?

And who is forcing businesses to provide overpriced health care? First I should ask what you mean by overpriced health care- the so-called cadillac plans, or all health care plans? I agree with the latter, all plans are overpriced and our system should be reformed so health care isn't tied to employers. Obamacare is trying to do that. Too bad the insurance lobby is so powerful and conservative idiots go around believing and repeating the BS they get from Beck and Hannity. If you're talking about the cadillac plans negotiated by Unions, well, those businesses are not being forced to offer those plans. They gave them in negotiations, management screwed that one up, you can't blame anyone but the business owners/managers for those.

Man, I'm still waiting for the government to declare war on business. Business, rather, corporations have controlled government for decades. And watch out, its going to get worse now the radical Supreme Court has rewritten campaign finance laws. You think you were sick of political ads before... The Court proves money rules, Constitution be damned.

the war on business
It might be like other conflicts that are undertaken but actual war is not declared.
There already is a de facto war on business with all this new 'dirigisme' that we see like the banks issue now.

In other ways, maybe Zyn meant all the other stupid regulations and endless paperwork businesses are force to do.

I always thought business should be like when we hire a kid to cut our grass.

Inflation and the Fed...
Near No Ad (pare ko)

There is a general confusion about what inflation means in a technical sense, what the word itself refers to in the language of the ordinary citizens and the measurements that the government uses to calculate inflation.

We mostly think that if prices are going up then we must have inflation. We look at the Consumer Price Index (net of commodities such as food and energy) and we see that the authorities tell us what the rate of inflation was during the last period based on that. But we also must notice that our bank interest rates are adjusted up and down according to the projected rate of inflation and this is always a current number that the financial experts managing the investment portfolios at the banks mostly agree on. However, with all of this information (or perhaps due to all of it) we are still confused about what inflation measurements are telling us and what the word itself actually means.

Therefore, I developed a more useful definition of inflation for my new book Eukariotsu Capitalism in the Post-Sovereign Economy (544 pages, W.C. Strasser, Frankfurt, 2010).

Prices move up and down for lots of reasons...only one of which might be underlying inflation. Inflation will certainly show up in CPI measurements (eventually with a lag) but if such inflation is real then it will definitely continue for many periods once it appears.


When bank interest rates are very low then the bankers do not believe that their future flow of loan repayments should be discounted to net present value to accommodate much inflation going forward. And this is indeed the best indication we have of the actual underlying inflation. The media might be wrong and the politicians certainly have agendas to promote. But the bankers know their numbers, they run their models on super computers and they always hedge their investments. Their credit default swap derivative models did not take into account the possibility that Lehman Brothers would ever be allowed to default on its paper. That much is true. But the inflation factors within those calculations were precise. You can absolutely bet on that.

The Fed monetizes lots of secure assets and our favorite income bearing securities for this purpose are sovereign debt instruments...especially our own US Treasuries. The Fed is in and out of that market daily and we as citizens and corporate entities are indeed free to buy and sell Treasury paper on the open financial market ourselves any time we like. Along with Japanese sovereign debt. And France's debt too. It is just that US Treasury debt is the best.

Of course, the Fed also holds lots of gold, is in and out of that market daily and we are completely free to purchase, hold and sell as much gold as we want. However, there is not enough gold and silver in the world for all the Central Banks to limit their underlying assets on hand to specie precious metals in support of their own hard currencies. If they did that and pegged to gold then the role as an inflation hedge that gold plays in the financial market would be lost.

And the normal, healthy (Keynesian) inflation of a nation's underlying asset base would go forward anyway as its manufacturing economy (especially) develops...and even after it becomes post-Keynesian. As America has. Because deflation is really hell and we must never again approach the event horizon of the gates of financial hell. We really almost fell in during the three weeks following September 15, 2008.

And you call yourself a conservative...
The Communists came to power in Russia and destroyed the mecahisms of financial capitalism. The Soviet Union ruthlessly competed with the West but only through a strong central government that mobilized its human resources and built up an industrial capability without the magic of financial capitalism. And they really made us look good.

The Libertarian approach has never been attempted at anything approaching the scale of the Soviet Union or Communist China. However, the same disassembly of financial capitalism is implied. However, the failure would be more profound and its failure would be almost immediate. That's why no one even tries.

We must compete with China...
Our top-down consolidated industrial Supply Side capitalism must be maintained and healthy. This is the only conservative posture that will allow us to preserve what we already have and launch a superior underlying parctice of capitalism from the bottom up. Engaging our immense household asset strength as a productive resource rather than consumer wealth to be exploited and extracted by foreign entities.

We need our largest banks to return to the business of underwriting our largest multinational corporations. We need our mature industries such as health care and education to drop their price points just like competitive capitalists everywhere must whenever anti-trust waivers are removed by a government that no longer sees itself protecting them from each other.

We need our own small banks to fund our mortgages, car loans, credit cards, student loans and small companies rather than to allow the large banks to continue abusing consumers and entrepreneurs.

We need our largest entities and our rapidly growing small companies. Both. We absolutely need this economy to start expanding again at better than 4%. Or we can't pay for everything we are buying. Including the time to figure this thing out. A recovered Supply Side economy will keep us at $14 trillion, and we need to hold onto that but it won't grow. Our GDP can only expand on the shoulders of entrepreneurs and our 8,000 large banks won't work with them. Therefore, we need tens of thousands of small banks too.

conservative
You say that libertarianism has not been tried because it would fail. That can't be right. It has not been tried because the vested interests that profit from not having a free economy won't let it happen.
Even in unsustainable, dysfunctional economies, many special interests groups like it that way. It was the same in the USSR, and is the same in the US now.

You keep making arguments for the same old big government corporatism. Such command economies always end up even more fasscistic in their control of both people and economy.

holding pattern
I think you got it right Joanie. Its kind of wild how you can almost see businesses in a holding pattern, just waiting for the signs to see which way the next turn will be. They are wise to do so.

While I do subscribe to the concept the insurance companies are evil, I wouldn't say they're the root of all evil. I came nowhere near expressing that in that last post. Money is the root of all evil, afterall. And if we want to talk evil, lets start with pharmaceutical companies, they're the ones raping us the most.

As for tort reform, lets do it. Studies show it would have a very minimal effect on the costs of health care, but I'm onboard with tightening it up, trying to prevent frivolous lawsuits. You forgot that word in your reference. Medical malpractice does happen and the only recourse for victims is a lawsuit, so we shouldn't reform it so much that consumers lose all leverage. Democrats are such idiots on tort reform. Its practically meaningless in reality, but Republicans stand on it with both feet like its THE solution. Democrats could give it to them and get way more political capital than its really worth, and use it get some things of their own. I agree too on competition across state lines, open it up.

I'm at a conclusion now, so far, that the HCR the Dems are trying to do is overkill. I think, why not start with smaller things, like tort reform, like competition, like removing old laws to change the landscape and see what happens, before we go to the giant overhaul that costs a lot and might not work anyway. A public option that takes us to single payer is better than what they're proposing now. Even better, a non-profit private option to go to single payer, strictly regulated. Theres a consensus in the medical field that single payer is really the only way to control costs and keep the quality of care we enjoy. I don't know why people are so scared by it... scratch that, I do know why, because its on the enemy list of right wing crackheads.

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