Posted tagged ‘John Maynard Keynes’

The Federal Reserve’s Money Laundering Scheme

March 3, 2016

 

 

John Maynard Keynes from “The Economic Consequences of the Peace”, 1919; “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side off destruction, and does it in a manner which not one man in a million is able to diagnose.”

The above quote says it is difficult to understand what happens when government prints money {debases the currency}. So difficult in fact that if you and I understand what happens, there are over 2 million people who don’t understand it. In this article titled Understanding The Federal Reserve’s Shell Game, at mises.org, Dan Sanchez does a great job explaining the abstract economic concept of what happens when The Fed electronically prints counterfeit money.

Here are some excerpts from the article.

The Federal Reserve is a key component of the American Transfer State. Under the guise of “macroeconomic management,” it redistributes vast amounts of wealth on an ongoing basis through inflation. The victims of these transfers are ordinary Americans. The beneficiaries are the government and its elite cronies.”

“The true wealth of society  —  what actually sustains human life and makes it more comfortable and delightful  —  is the stuff we buy with money; not money itself. It’s the food, clothing, housing, smartphones, mountain bikes, and other consumers’ goods. It’s also the farmland, factories, robots, raw materials, labor and other producers’ goods used to make those consumers’ goods.”

Creating new money does not create any additional stuff to go around.”

The new money reaches some people early and some people late. By the time the new money reaches the late receivers, bidding up their selling prices, it has already bid up the prices of the things they buy to an even greater extent. So the late receivers get poorer, while the early receivers get richer.”

And the earliest receivers always include the government and its partners, while the late receivers are usually workers and small business owners who don’t have such lofty connections. So these “commoners” are effectively taxed for the benefit of the government-connected elite. But, since the taxation was effected through inflation, the public doesn’t realize that.

Instead of obnoxiously demanding that the public hand over its wealth, the government just quietly siphons it away. This way it avoids public outrage and resistance, and so is able to maximize the loot. As Jean Baptiste Colbert (finance minister to King Louis XIV of France) put it, “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.” With inflation, the geese hardly hiss, because they think they are simply molting, and are unaware they are even being plucked.”

Read the whole article it walks you through how the money laundering happens.

In the article it talks about a general inflation as the money leaks out into the whole economy. But as we saw in the housing boom and bust in the early 2000s, and as we now see in the current financial bubble, the printed money can be pushed into particular sectors of the economy. But the result is the same. The first receiveea benefit at the expense of the people farther down the food chain.

At some point people have to be made to understand that they are getting fleeced by the Federal Reserve’s monetary policy. We have to educate people one person at a time because as Keynes said, “…it’s done in a manner that not one in a million is able to diagnose.” Elite politicians, bureaucrats, and our educators won’t educate people because they benefit from the money printing. It has to come from the bottom up. Spread the word.

In another article titled The Long History of Government Meddling In The American Marketplace, at mises.org, Mike Holly shows that money printing isn’t a new thing, the Federal Reserve started counterfeiting money almost as soon as it came into existence in 1913.

Here are some articles to help understand Fed money printing.

Related ArticleA Tornado vs. The Fed: Which Is More Destructive, at austrianaddict.com.

Related Article Thomas Woods Explains The Austrian Business Cycle Theory, at austrianaddict.com.

Related ArticleFederal Reserve Policies Cause Booms And Busts, at austrianaddict.com.

 

 

Advertisements

Your Econonomic Homework

October 22, 2014

Business Woman Present Business Cycle - stock photo

I like reading economic articles by Richard Ebeling. He explains abstract economic concepts in ways that are understandable for regular people. Although we have written about these concepts in the past, we can always gain greater insight by reading different explanations by different writers. Even if you understand these economic concepts, this article may help when you try to explain them to people who don’t have the same level of understanding.

KEYNES LEAKS THE  TRUTH ABOUT DEBASING THE CURRENCY

As John Maynard Keynes said, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

The only way Central Banks have gotten away with electronically printing counterfeiting money is because it is difficult to understand. Our job is to shrink that one in a million ratio, because the only way our current problems change is if more people truly understand what results when the Fed intervenes in the market.

RICHARD EBELING ARTICLE

The article, Ludwig von Mises And The Austrian Theory Of Inflations And Recessions, by Richard Ebeling, at epictimes.com, explains, 1) How money emerges from markets not Government, 2) Saving and investment, 3) How central banks cause business cycles, 4) Inflation and misallocated resources, 5) Recession corrects the Fed caused misallocations.

Here are some excerpts from the article.

“Money is a market-based and market-generated social institution that spontaneously emerges out of the interactions of people attempting to overcome the hindrances and difficulties of direct barter exchange……Historically, gold and silver were found through time to have those attributes most desirable for use as a medium of exchange to facilitate the ever-growing network of complex market transactions that enabled the development of an ever-more productive system of division of labor.”

“Like all other prices on the market, the rates of interest on loans coordinate the choices of savers with the decisions of borrowers so to keep supplies in balance with demands for either consumer goods or future-oriented investment goods.”

“An economic recession, therefore, is the discovery period of misallocations of scarce resources in the economy that requires a rebalancing and a recoordination of supplies and demands for a return to market- and competitively-determined harmony in the society’s economic activities for long-run growth, employment, and improved standards of living.”

Related ArticleFederal Reserve Policies Cause Booms And Busts by Richard Ebeling, at austrianaddict.com.

Related ArticleKeynes Was Right In 1919, by austrianaddict.com.

Confusing Capitalism With Fractional Reserve Banking, by Frank Hollenbeck

August 14, 2014

File:20090110 money printing-01.jpg

Fractional reserve banking isn’t a part of a true free market capitalist system. It is intervention into the free market that Government, through the court system, has sanctioned. The Government sanctions it because it is how they fund the growth of government without the people knowing it is going on. People understand getting taxed, but understanding fractional reserve banking isn’t quite that easy. This article by Frank Hollenbeck titled, Confusing Capitalism With Fractional Reserve Baking, at mises.org, does a great job in explaining fractional reserve banking and it’s consequences. Here are some excerpts form the article explaining how fractional reserve banking came about.

“In the past, we had deposit banks and loan banks. If you put your money in a deposit bank, the money was there to pay your rent and food expenses. It was safe. Loan banking was risky. You provided money to a loan bank knowing funds would be tied up for a period of time and that you were taking a risk of never seeing this money again. For this, you received interest to compensate for the risk taken and the value of time preference. Back then, bankers who took a deposit and turned it into a loan took the risk of shortly hanging from the town’s large oak tree”

“During the early part of the nineteenth century, the deposit function and loan function were merged into a new entity called a commercial bank. Of course, very quickly these new commercial banks realized they could dip into deposits, essentially committing fraud, as a source of funding for loans. Governments soon realized that such fraudulent activity was a great way to finance government expenditures, and passed laws making this fraud legal.”

A key interpretation of law in the United Kingdom, Foley v. Hill, set precedence in the financial world for banking laws to follow:”

 

Foley v. Hill and Others, 1848:

“Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it. … The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.”

In other words, when you put your money in a bank it is no longer your money. The bank can do anything it wants with it. It can go to the casino and play roulette. It is not fraud legally, and the only requirement for the bank is to run a Ponzi scheme…..”

“The primary cause of the financial panics during the nineteenth century was this fraudulent nature of fractional reserve banking. It allowed banks to create excessive credit growth which led to boom and bust cycles. If credit, instead, grew as fast as slow moving savings, booms and bust cycles would be a thing of the past.

“Banks will always be able to use new technologies and new financial instruments to stay one step ahead of the regulators. We continue to put bandages on a system that is rotten to the core. Banking in its current form is not capitalism. It is fraud and crony capitalism, kept afloat by ever-more desperate government interventions. It should be dismantled. Under a system of 100 percent reserves, loan banks (100 percent equity-financed investment trusts) would be like any other business and would not need any more regulation than that of the makers of potato chips.”

How many people would you have to ask to get the right answer to this question; Is the money you deposit in a bank yours, or the banks? They won’t believe you when you tell them it’s the banks money, and they probably won’t understand why, even after you explain it.

In a previous article titled, Keynes Was Correct In 1919 (here), I quote John Maynard Keynes from his book, The Economic Consequences Of The Peace, he said,  “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Keynes knew how difficult it is to understand money creation by the Fed through Fractional Reserve Banking.

Related ArticleThe Faults of Fractional-Reserve Banking, by Thorsten Polleit, at mises.org.

Related ArticleFractional Reserves and Economic Instability, by John P. Cochran, at mises.org.

 

 

 

 

“Money For Nothing”, by Liberty Street Films. A Documentary Film About The Fed.

August 27, 2013

“Money For Nothing” is a documentary film about the Federal Reserve made by Liberty Films Inc. If it wasn’t for the Mises Institute, and Ron  Paul  hammering the Fed over many years, a film like this would have never been considered, let alone made. I don’t know how much truth, or what angle the documentary will take, but any light that can be shined on the Fed, making people curious about understand it, is a plus for liberty. Here is a trailer for the movie.

Here are some excerpts from the trailer.

“I don’t think that any of us that ever worked at the Fed take any comfort from the fact that somebody screwed up, but its important that we recognize there were some big mistakes made.” – Peter Fisher, Executive V.P. Federal Reserve Bank of N.Y. (94-01)

“Printing money doesn’t produce goods and services, it doesn’t hire people….It may seem like the right short-term medicine, but can the cure be worse than the disease in some cases.” – Charles Plosser, President Federal Reserve Bank of Philadelphia.

The United States has consumed more than it has produced for at least a decade. What country, ask yourself, in history can do that indefinitely forever.” – Tom Hoenig, President Federal Reserve Bank of Kansas City.

When asked in an interview, “You have what degree of confidence in your ability to control this“, Ben Bernanke said, “one hundred percent”.

This comment by the Fed chairman demonstrates what F. A. Hayek called, the “fatal conceit”, which is the idea that “man is able to shape the world around him according to his wishes”. A man, or a group of men, don’t possess enough knowledge to plan an ever-changing world.

As John Maynard Keynes wrote, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” ,read more in Keynes Was Correct In 1919!

Here is a short clip from the movie.

It is supposed to open in limited markets in September, read more at,  moneyfornothingthefilm.org.

Related ArticleFederal Reserve Policy Makers Have An Incestuous Intellectual Relationship With Each Other, at austrianaddict.com

Related ArticleCounterfeiting by The Federal Reserve, Although Legal, Still Results In Theft, at austrianaddict.com

Related ArticleThomas Sowell’s Take On The Federal Reserve, at austrianaddict.com

Related ArticleReal Savings vs. Counterfeit Savings, at austrianaddict.com

Related ArticleA Tornado vs. The Fed, Which Is More Destructive, at austrianaddict.com

Related ArticleWe Can’t Recreate The Garden Of Eden, at austirnaddict.com.

Related Article, The Role Of Interest Rates In A Market Economy, at austrianaddict.com

A Tornado vs.The Fed, Which Is More Destructive?

May 27, 2013
Shamrock Texas Tornado

(Photo credit: Wikipedia)

DESTRUCTION DOESN’T CREATE WEALTH.

It’s been a week since the tornado went through Moore Oklahoma and I have yet to see an article or comment by an “economist” saying that the destruction by the tornado will help the economy and create jobs. This is what was said after Hurricane Sandy hit New Jersey and New York, read here and here. We showed the errors of this analysis in this post titled, Hurricane Sandy and the Broken Window Fallacy. But like all shallow thinking,  this fallacy will never be put to rest once and for all, so let’s be ready to shoot it down when it rears its head again.

Let’s look at the similarities and the differences between the destructive power of this tornado, and the destructive power of the Fed and the Government. It’s a version of the broken window fallacy. (more…)

Keynes Was Correct In 1919!

March 30, 2013
John Maynard Keynes

John Maynard Keynes (Photo credit: Steve Hunnisett)

When Keynes wrote in “The Economic Consequences of the Peace”,  (1919) “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” , little did he or we know how correct he was.

The Feds policy of counterfeiting money, and artificially lowering interest rates, created and grew the U.S.’s housing bubble from 2000 to 2007. Market forces tried to liquidate this misallocation of scarce resources (the bubble, which was the result of the Feds policies), starting in late 2007, but the Fed wouldn’t allow the correction to happen. It propped up a false bottom by (more…)

Keynes vs. Hayek Round II, The Fight Of The Century.

November 19, 2012

Mises states, “The issue is always the same: the Government or the market, there is no third solution.” This has been the fight of the century, and will be the fight of the next century. Top down central planning by the state vs, bottom up voluntary cooperation in the market.

Central planning by the State sounds so logical and reasonable if analysed on the surface. Spending creates demand and people will produce to supply this demand. That’s simple and easy to understand on the surface, but a deeper analysis reveals that the structure of production is a very complex process. This complex structure of production was created by the spontaneous ordering processes in the free market not (more…)