Gold and Economic Freedom

Below is an excerpt from an article called Gold and Economic Freedom, written by Alan Greenspan in 1966, before he went over to the dark side (pay particular attention to the last two paragraphs).

Of course Mr. Greenspan went on to become the poster child for unrestrained fiscal policy, and much of the economic wreckage around us today can be traced to his poor decisions.

He had it right 40 years ago.  Deficit spending is a scheme of the welfare/warfare state for confiscation of wealth.  This year the federal government will spend at least two trillion dollars more than it collects.  I doubt if Mr. Greenspan’s worst nightmares from 1966 included deficit spending of this magnitude.  And every phony dollar created by the Federal Reserve to fund GovCo’s excesses correspondingly steals from the savings of the prudent.

The total amount of US currency in circulation today is about $900 billion.  So all the “money” created by the Fed over the last 95 years isn’t enough to pay even half of this year’s deficit.

The days of fiat currency may not be ending soon, but the days of the current version of the American greenback will have to.

I present Alan Greenspan, before his intellectual lobotomy:

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form from a growing number of welfare-state advocates was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which through a complex series of steps the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

For any interested, here is Mr. Greenspan’s piece, in it’s entirety: http://www.constitution.org/mon/greenspan_gold.htm

Love Wins.

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“Naturally Raised” Meat

As regular readers of this blog know, conscientous eaters cannot rely on USDA “organic” certification to identify healthy food,  which has been sustainably and naturally produced.  While there are many “certified organic” farmers who raise excellent natural food, the certification is frequently used by the “industrial organic” corporations to sell their unnatural and often unhealthy products, at exhorbitant prices, to an unsuspecting public.  As I’ve always insisted, buying from local farmers, who use sustainable, natural practices, is more important than buying something with the USDA “certified organic” label, which may have come from an industrial operation thousands of miles away.

Now the USDA has issued a voluntary standard for producers who want to market their meat as “naturally raised.”  The USDA standard requires only that the animal have been raised without growth promotants, without having been fed animal byproducts, and without antibiotics (unless for parasite control).  While it is certainly important to exclude meat that doesn’t satisfy this standard from the category of “naturally raised,” the standard falls far short of properly defining what is truly “naturally raised.”

Consider the unnatural practices that could still be employed, without contravening the USDA standard.  Cloned or genetically engineered animals are not excluded.  Animals raised in CAFOs are not excluded.  Animals raised on grain, brewer’s waste, bubble gum, or any of the other crap often fed in high-intensity operations are not excluded.  Animals raised in environments clouded in pesticides and herbicides are not excluded.  In fact, under this standard, meat from a genetically engineered ruminant that never ate a blade of grass in its horrific life, which spent entirely in a high intesity confined animal feeding operation, woud qualify as “naturally raised.”

A consumer survey reported in Acres USA reveals that an overwhelming majority of people want “naturally raised” meat to come from  animals raised on a natural diet, in a chemical-free natural environment.

As I’ve often said, the best way to get healthy meat for your families is to find local natural farmers, and buy from them.  You can find farmers near you on localharvest.org and eatwild.com.

As for the USDA standard, caveat emptor.

Love Wins

Taxes are unnecessary

As I reflect upon our country’s fiscal policy, it has become increasingly clear to me that there is no good reason for the federal government to collect taxes.  In fact, it seems to me that taxes are completely unnecessary.

This wasn’t always true of course.  For the vast majority of civilization’s history, gold and silver were its money.  Gold was particularly well suited for the job, given it’s scarcity.  In order for governments to function, they needed money.  And gold was money.  To get the gold they needed, governments taxed their citizens.

Governments could, of course, issue paper money–but the paper money was merely a receipt for gold on deposit.  The holder of the paper had the right to exchange it for gold.

Now all of that is just history, of course.  The “money” we circulate in this country is mere paper, denominated “Federal Reserve Notes.”  It is still just an IOU (a “note”), but it is no longer supported by gold or silver.  Because the issuance of these Federal Reserve Notes isn’t limited by the amount of gold the government has, or by anything else for that matter, their supply is unlimited and the government can print as many of them as it desires.

The proof of this is seen in the way the federal government has operated over the last ten years or so.  Consider this year:  the federal government will bring in about $2.29 trillion in tax revenue.

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But the federal government will spend at least $3.66 trillion.

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In truth, these estimates are both generous.  It is highly unlikely government revenues will be that high, or government spending that low.  But even with these optimistic numbers the government will come up nearly $2 trillion short.  So how will it make up the shortfall?  By creating more money.  It does this technically by first creating new debt, but the end result is an increase in the amount of “money”.  That is the magic of fiat money, and why spendthrift governments love it so much–they can print up an unlimited amount of it.

Which brings me back to my point about taxes.  If our government can print up 2 trillion extra dollars this year, does it really need to take a trillion from us in income taxes?  Why not just print up 3 trillion and let us keep our incomes?  After all, we’re just giving them back the same intrinsically worthless paper that they are printing at will.

The answer is that in a scheme like this, there really is no reason to tax the citizens.  Because our government no longer chooses to pretend that US dollars are scarce and limited in amount, there is no reason to continue to shuffle them around between the citizens and the tax collectors.

Of course there are some good reasons why the federal government will want to keep taxing incomes.  Tax policy is government’s favorite mechanism for social engineering.  If the social engineers want to encourage or promote something, they create a “tax incentive” for it.  If they want to discourage something, they tax it.  (Of course it’s stupid to make revenue dependent upon activities that we’re hoping to discourage, but that rant is for another day.)  Tax policy also permits the political party in power to reward its consitituents, and punish its opponents, by shifting marginal rates around.  This little game of wealth redistribution is a political patronage plum that is too attractive to resist. Finally, the principal way fiat money retains any value is because the government can require that taxes be paid with it.

But they don’t really need our money.  As their actions make plain, they can print all they need, whether they take any from us or not.  And at the rate they’re going, what’s another trillion going to matter?

But alas, by April 15 we’ll all pony up a substantial chunk of the fruits of last year’s labor, to a government that will waste three times that amount before our next payment is due.

But this game won’t last much longer.

 

Asparagus and strawberries

I love our farm, and even the most tedious tasks are joys.  But I have to confess that I’m getting tired of weeding asparagus and strawberries.

We grow our fruits and vegetables organically.  That means no herbicides.  Growing organically takes a lot of physical labor, but I wouldn’t have it any other way.  I spend many hours with a hoe weeding the gardens.  But keeping weeds out of the asparagus and strawberries is especially difficult.

With everything else, I begin the season by tilling.  This takes care of any weeds already germinated.  I till again just before planting, again wiping out the weeds.  Then after planting, I’m often able to get a cultivator through the rows.  Even with all that help, I spend a lot of time fighting weeds with a hoe and my bare hands.

But with the asparagus and strawberries I can never till or cultivate.  They are in permanent beds, so I can’t till without damaging or destroying them.  That means I have to spend hours and hours with a hoe, or crawling on my hands and knees pulling up weeds.  I’ve tried mulching, but the relief is only temporary and the process seems to bring the weeds in even stronger.

We’ll have lots of delicious araragus and strawberries soon.  And no trace of poison will have ever touched them. 

But I’d sure love to hear from any of y’all who have ideas for an easier way to keep the weeds down.

Love Wins

Creation Care

The creation stories in Genesis tell us that the world God originally created was a paradise.  According to the stories, we humans screwed it up in the Garden of Eden, and we’ve been dealing with the consequences of that every since.

So we all know that after the Fall, man was required to toil and eventually die.  All of human history is the story of the slow return to the way God originally intended things to be.  We believers expect that someday God will get us back to the Garden–to life as it would have been without sin.

OK, that’s all Sunday School stuff.  But there is an interesting question embedded in all this.  We know what man’s place in the world is now, but what was it before the Fall?  In other words, what was man created to do in the perfect world?

Recently I asked my class of 4th and 5th grade kids to answer that question.  I got some fine and traditional answers.  Man was created to worship God was the most common answer.  One boy’s answer was even surprisingly close to what the Bible tells us.  Surprising, because even though the Bible has a very clear and direct answer to the question, not many Christians are able to answer it.

So what did God create man to do in the perfect world?  The answer is in Genesis 2: 8 and 15.

Now the LORD God had planted a garden in the east, in Eden; and there he put the man he had formed…The LORD God took the man and put him in the Garden of Eden to work it and take care of it.

So very plainly God created man to work the garden, and “take care of it.” 

When we trash, abuse, pollute, and neglect the earth, we are not only behaving disrespectfully and contemptuously towards God’s creation, we are doing the very opposite of what God created us to do.  Man was created to care for creation.   And doing so is an act of worship.

We are stardust.  We are golden.  We are caught in the devil’s bargain.  And we’ve got to get ourselves back to the garden.

Love Wins

The Great Retail Die Off

The piece I’ve copied below captures a lot of really important information regarding the state of our economy.  As those in my corner of the economic world have been preaching for a long time, the consumer/debt driven economy was phony, and the prosperity that it seemed to engender was nothing but an illusion.  So-called “growth” that comes almost entirely from withdrawals of imaginary home “equity” is no growth at all.  But a phony economy boosted further by the steroids of cheap and easy credit is not merely illusory, it is a ticking timebomb. 

That bomb has now exploded.  What will remain when the dust settles are millions of broke and unemployed Americans, and empty shopping centers and malls.  In time real prosperity will return, and future generations will look back at us and wonder what the heck we could have been thinking.

We live near Danville, Virginia.   The local economy was historically driven by tobacco and textiles.  So obviously we now have unemployment far higher than the national average, and averages incomes far below the national average.  Yet in the last few years nearly every superstore imaginable has come to town, and once vacant parts of the city are now crowded with shopping centers and parking lots. 

We used to have a pet store in town.  It was family-owned and probably only provided a very modest living, given that we just don’t do a lot of frivolous spending on pets in my part of the world.  But in the past two years both Petsmart and Petco have built large stores in Danville.  The locally owned pet store has been driven out of business, of course.  But these two megastores are destined to eventually close as well.  It never made sense to build them in the first place, but as long as the credit was flowing, what the heck.

Sigh.

Please take a minute and read the sobering article below.

Love Wins

Op-Ed: The Great Retail Die-Off

MINYANVILLE STAFF
Mar 03, 2009 10:10 am

Politicians, bureaucrats and financial pundits are breathlessly awaiting the return of irrational exuberance. They believe American consumers just need a little confidence to resume their rightful place at the top of the economic pyramid. I hate to be a wet blanket – but the American consumer isn’t coming back. The burden of debt, continuing home price depreciation, lack of savings, and the aging of America will change the face of retailing for decades to come.

In February, the Consumer Confidence Index was 25, the lowest since its inception in 1967. During the dot-com bubble, it reached an irrationally exuberant 140 and hovered at the 110 level until late 2007. The good news: It can’t go below zero. But with an unemployment rate of 7.6% and rising, consumers aren’t likely to become confident again anytime soon.

The country has tried to spend its way to prosperity over the last 3 decades. Total consumer debt is just under $2.6 trillion, or $23,600 per household, including credit-card debt, auto loans, and personal loans. There are approximately 170 million credit-card holders and 1.5 billion cards – or approximately 9 cards per person. The average household carries nearly $8,700 in credit card debt. The average new car loan is $25,000, with a loan-to-value ratio of 93%. This means the average new car owner is underwater from the moment he pulls out of the dealership.

Only 23% of the credit cards in the country are in the hands of prime borrowers. According to Fitch, write-offs are breaching 8%, and will reach 10%. Auto loan delinquencies are already at 10%. Guess who will step up to the plate and cover these losses? We will.

Consumer credit ranged between 12% and 14% of the GDP from 1965 through 1995. It currently stands at 18%. With the GDP at $14 trillion, the American consumer will have to shed $600 billion of debt to achieve a 14% level. It will take years of debt reduction and GDP growth to rebalance the economy.

US households accumulated an additional $8 trillion in debt over the past decade. As home values rose relentlessly, saving for retirement became passé. Our housing wealth would take care of us in our old age, we thought, and the savings rate went negative.

Average Americans are getting serious about reducing spending and increasing savings. Now, Americans are left with 45% equity in their homes versus 68% in 1985. With home prices destined to fall another 20% to 30%, equity will fall to 35%. One in 7 homeowners across the country has negative equity; of homeowners who bought in the last 5 years, 29.5% are under water.

Between 2002 and 2008, Americans sucked over $3 trillion of equity out of their houses. But that well is now dry: The savings rate jumped to 5% in January, the highest level since 1995. This trend will continue, and could reach 10% in the coming years. The number of homes for sale is still at record levels. With foreclosures accelerating, more houses will hit the market, and prices will fall. There are 2.1 million vacant homes in the US today – 1 million more than the historical trend. No one is going to buy them at their current asking prices, and the government’s efforts to mitigate foreclosures and prop up home prices with our tax dollars will fail. With prices falling for another 2 years and jobs disappearing at a rate of 500,000 per month, consumers may stay on the sidelines for years.

It will likely take 10 years to get back to break-even on the portfolio losses we’ve experienced in the last 18 months. Anyone who’s retired in the last 5 years or had plans to do so in the next 5 years has had his plans upended. They’ll have to go back to work, or keep working longer – provided they can find jobs.

The drop in retail sales in the last few months is the most dramatic in US history. This isn’t a momentary blip; it’s a paradigm shift. From 1952 through 1982, consumer spending as a percentage of our economy ranged between 60% and 64%. In 2008, this ratio topped out at close to 71%, or $10 trillion of our $14 trillion economy. Since this was an unsustainable trend, it will revert to the mean over the next decade. The reversion to 62% of GDP will reduce consumer spending by $1.3 trillion annually going forward.

To paraphrase John Paul Jones, we’ve only just begun to de-lever. When you accumulate debt over 3 decades, you don’t get rid of it in 2 years. Multi-decade expansions of debt are followed by a multi-decade deleveraging. The consumer is in the process of collapsing, and the retail industry will be devastated by this paradigm shift. Most retailers in the United States aren’t prepared for $1.3 trillion fewer consumer dollars per year. Their expansion models were built upon existing demand, extrapolated at 5% or greater growth for eternity.

The good news: Retailers’ flawed expansion models won’t bring down the financial system. The bad news: Thousands of retailers will go bankrupt.

Retailers are famous for their copycat management strategies. Wal-Mart’s (WMT)concentration strategy has inspired a host of imitators (think of Target (TGT), or Kmart (SHLD), or big-box stalwarts like Best Buy (BBY)). But there are 3 major errors that virtually every retailer in America has committed: They failed to recognize that spending per household was over-inflated 30% due to debt-financed demand. Second, they extrapolated the spending per household using a 5% to 10% growth rate. Lastly, they ignored the fact that their competitors had done the same thing.

Many retailers have a winning concept, but few have top executives who truly understand their external environment, their competitors and changing trends. All are essential to long-term success. The accumulation of bad strategic decisions by management will eventually bankrupt even the best retail concept.

Any executive planning for an upturn in consumer spending next year is in for a rude awakening. The environment has changed forever; if they don’t adapt immediately, their companies will die. Balance sheets continue to deteriorate, and retailers with huge short-term debt obligations run the risk of not being able to roll over that debt. Many retailers won’t be in business 5 years from now. Others will need to close hundreds of stores to survive.

All glory is fleeting. The American conquerors have returned from the mall wars pulling carts laden with HDTVs, iPods, Rolexes and other treasures. But there’s no powder left to fight another war.

Post-Christian America

The term “post-Christian” gets tossed around a lot these days, but usually in reference to Europe. The fact that within two generations that part of the world, once known as Christendom, has abandoned Christianity, is well known. But surveys and polls have consistently shown that the vast majority of Americans are religious, and predominantly Christian.

In 1990, when asked to state their religion, 8% of Americans answered “none.” That statistic seemed so absurd at the time that the poll was criticized as unreliable and inaccurate.

Not any more.

Last week the results of the American Religious Identification Survey were released. Amazingly, now a full 15% of Americans answer “none” when asked to state their religion. In fact, the “Nones” now outnumber every religious group in America other than Catholics and Baptists. The percentage of Catholics has increased slightly, mainly as a result of Hispanic immigration. But every Protestant denomination lost ground in the last 18 years, as did Jews. The percentage of Mormons is unchanged over the last 18 years, while the number of Muslims has doubled. And 2.8 million Americans identify themselves as Wiccans.

The entire story, with some interesting graphics, is here: http://www.usatoday.com/news/religion/2009-03-09-american-religion-ARIS_N.htm

Unless something changes soon, we can expect America in another generation to look like Europe today.

That is a fact that we should all accept as a challenge.

Love Wins