Ben Bernanke is an Ignoramus

We trust this guy with controlling our money?

Letter to Paul Hodes

It is not often that I write my congresscritter. It is a futile exercise that ultimately only serves to add legitimacy to their actions. We still have the "right" to voice our opinions to our representatives in government. They can claim they weighed the thoughts of the people and that they decided accordingly. A load of hullabaloo if you ask me, but I think ending the Federal Reserve (well, in this specific instance, auditing it) is one of the most important issues of our time. The evil that is this organizatin cannot be overstated. So, to further the end of auditing the Fed, I sent the following letter to the "Honorable" Paul Hodes:

Rep. Hodes:

I am writing to request that you join 271 other Representatives in sponsoring H.R. 1207, the Federal Reserve Transparency Act of 2009.

The Federal Reserve, since its inception in 1913, has caused massive devaluation of the dollar and the biggest financial crises this country has ever seen, including the Great Depression. Over the past century, many influential economists, such as Ludwig von Mises, Friedrich August von Hayek, and Murray Rothbard, have noted that central banks have the power to destabilize an economy through their manipulation of the money supply.

An audit of the Federal Reserve will likely highlight the enormous increase in the supply of money that has occurred during this current financial meltdown. The Fed has sent this money, often without congressional approval, to private companies for their own profit. The "independence" of the Fed threatens our Republic, our economy, and the quality of life for every American.

Sincerely,
Tyler Stearns

Anatomy of the Bank Run

The case of IndyMac, the largest regulated thrift institution to fail in U.S. history, shows just how fundamentally unsound our government supported banking system is. The fractional reserve banking swindle can only continue so long and I hope the IndyMac failure will open some people's eyes.

Of course Murray Rothbard wrote it best in his article "Anatomy of the Bank Run": "But in what sense is a bank "sound" when one whisper of doom, one faltering of public confidence, should quickly bring the bank down? In what other industry does a mere rumor or hint of doubt swiftly bring down a mighty and seemingly solid firm? What is there about banking that public confidence should play such a decisive and overwhelmingly important role?"

Unfortunately, government bureaucrats are playing the same tune now, blaming Sen. Chuck Schumer for the run on IndyMac. He wrote a letter that "expressed concerns about IndyMac's viability." Schumer is correct to deny that he had any part in this, for as Rothbard noted, how can any business be sound if a mere rumor sparks a total collapse?

But Schumer is wrong to blame this on IndyMac and those "greedy capitalists." The fault lies with the government; without the Federal Reserve and the FDIC the fractional reserve banking scheme couldn't continue. We will only see sound banking and real money when the Fed, the FDIC and all those other bureaucracies are abolished.

The Wonders of Central Banking

Zimbabwe has just released a new $50 million bank note. This comes after it was reported that inflation reached 165,000% in the month of February. Oh what prosperity central banks can bring! I can't wait for the day it costs $15 million to buy a loaf of bread here in the United States.

We should take note of this worst case scenario before we start expanding the powers of the Federal Reserve. Economic central planning doesn't work, even in monetary policy. The Fed hasn't solved our problems this time around and sure didn't do a good job during the Great Depression. In fact, we still have business cycles and inflation. What exactly does the Fed do?

The Lie About Earmarks

John McCain is furious that the Senate shot down his proposal to have a one-year moratorium on spending earmarks. The Senate blocked the proposal by a vote of 71-29 on Thursday. McCain is not a fiscal conservative in any sense of the word; thus, he attacks earmarks as some kind of financial plague that is bankrupting our country.

The truth of the matter is earmarks are merely a way to distribute money that has already been approved for spending. The Congressional Research Service defines earmarks (PDF), informally, as "provisions associated with legislation (appropriations or general legislation) that specify certain congressional spending priorities."

Even if earmarks represent an increase in spending, the total for the latest budget equals a grand total of $14.8 billion. That is out of a $3.1 trillion budget. Will 0.4% of the latest budget really bring financial ruin? For some reason I think the $9.5 trillion of national debt or the inflationary policies of the Federal Reserve pose a greater threat to our economy than Congressional earmarking.

But if he wants to make an issue of negligible spending, John "Open Borders" McCain should look into the proposed United States/Mexico Totalization Agreement. This plan will give Social Security benefits to Mexican citizens who work in the United States as little as a few months. The low-end cost estimates (i.e. government figures) project it will cost $525 million over the first five years. Of course, that wouldn't fit into McCain's agenda of loose borders and wild spending.

I wish McCain would stop pretending to be fiscally responsible. He is just another tax-and-spend Republican in the mold of George W. Bush, who was the biggest spender since LBJ and his Great Society. I also wish he, and all his Beltway buddies would stop playing these stupid games with earmarks and tackle the real financial crises we are facing. Alas, I doubt McCain will suddenly become a voting-clone of Ron Paul.

Speaking of stable prices...

Fed chairman Ben Bernanke testified before Congress a few days ago, and was schooled once again by Ron Paul. My favorite statement by Bernanke, which he often repeats when discussing monetary issues with Dr. Paul, is that he is charged with creating "stable prices" via the workings of the central bank. It honestly blows my mind that you can assume you are creating price stability by inflating the money supply. Look at this graph of the MZM money stock:

The MZM money supply measurement is the sum of all physical currency, and checking, savings, and money market accounts. As you can see in the graph, this measure of money supply has increased from about $1 trillion in the early 1980's to an astounding $8 trillion today. Every extra dollar added to the money supply lessens the value of every existing dollar.

Just using that fact Bernanke should realize that there is inflation, and therefore prices are not stable. But what he does not even take into account is that in a free market system, with a money supply determined by the market, prices will tend to fall. Does it make any sense that in January of 1996 a gallon of whole milk cost $2.55 and in January of 2008 that same gallon of milk costs $3.87? Shouldn't the price of milk be falling as new technologies and techniques increase the rate of production?

I'm sure Bernanke would argue that there are other factors that lead to the increase of prices for things like Milk, Oil, and Bread. I would say, as Ron Paul did in the Congressional hearing, that prices seem to be stable when compared to the price of gold. We all complain of the rising price of oil, and its derivative gasoline, but do we ever ask what causes this? I believe it is mostly inflation (of course with the increased demand from China and a decreased supply from places like Iraq). Look at this graph of the Price of Oil vs. the Price of Gold:

Seems to me that over the 36 year period in this graph there wasn't much change in the price of oil relative to that of gold. People always say that advocates of a gold standard are strange. Do you think it is strange to want prices that are not continually rising? If you do, just chew on this fact: $100 in 1913 (when the Federal Reserve was created) is equivalent to $2,132.12 in 2008. That's all inflation.

So the next time you hear the Federal Reserve "economists" saying they are looking to stabilize prices and keep inflation to a minimum, remember that in nearly 100 years of existence they have done the opposite of that. Gold and silver look better every day.

How Counterfeiting Can Make Us Rich

One of the greatest blog posts I have seen in a while; short, yet very telling:
"NYT:

A day after the Federal Reserve disappointed investors with a modest cut in interest rates, central banks in North America and Europe on Wednesday announced the most aggressive infusion of capital into the banking system since the terrorist attacks of September 2001.

And it makes you wonder why they don't do a one-time zillion dollar infusion of 'capital' and make the whole world wealthy forever." - Jeff Tucker, Mises.org

This is why I can gladly call myself a follower of the Austrian school of economics. The neo-Keynesians and Friedmanites can't explain why Fed tinkering in the economy is bad. In fact, they encourage it. Printing new money and injecting it into an already ailing economy is not going to make us rich. The only road to true wealth is through free-markets and natural capital accumulation.