This guy never stops being right.

“The failure of the U.S. to uphold its commitments under the Bretton Woods Agreement to redeem the dollar for gold at $35 per ounce was the primary cause of the great inflation in all the world’s currencies. Just to recap events: In 1944 the allied powers agreed that the dollar would serve the same role as gold for the purposes of international currency settlements after World War II. At that time the U.S. owned (or safe kept for allied governments who were at war and whose territories were threatened by invasion) most of the gold reserves of the allied central banks. As long as the U.S. would keep its dollar to gold ratio at the agreed-upon $35 per ounce ratio, central banks around the world could settle their trading accounts in dollars. These central banks would maintain an agreed-upon ratio of dollars to their local currencies just for this purpose. The world would be on a ‘gold exchange standard’. If one country inflated its currency, its trading partners would demand dollars in exchange far in excess of the profligate country’s ability to pay. It would be forced to deflate. Just as the case under a true international gold standard, that country’s prices would fall, its exports would increase, thus generating dollar reserves and all would be back to equilibrium. The key to this whole program was the promise of the United States itself not to inflate. But, of course, this is exactly what it did.

Theoretically, the U.S. should have been placed in the same position as any other country that inflated its currency–instead of running out of dollars, the U.S. would run out of gold. Its gold reserves did dwindle, which should have set off alarms at the International Monetary Fund, which was charged with the job of auditing the gold supplies of the U.S. and ensuring that it honored its obligations. But the IMF did not do its job. Why? This enters the arena of psychology, but I imagine that the Cold War had something to do with it. The U.S. alone was capable of protecting the Allies from the growing Soviet threat. Perhaps the Allies and the IMF felt an obligation not to criticize their protector. Who knows? But once France got the atomic bomb and a president—Charles de Gaulle—who felt comfortable acting as an equal on the international stage, it no longer felt that it needed to cow tow to the U.S. So in 1963 France demanded to be repaid in gold for its ever-increasing stockpile of dollars. This should have instilled much needed fiscal and monetary discipline in the U.S., but it did no such thing. President Johnson committed the U.S. to fighting a foreign war AND instituting new welfare entitlements—his ‘guns and butter’ policy. In 1969 President Nixon could have reversed this policy, but he feared that the inevitable recession would mean the loss of a second term, so he simply reneged on Bretton Woods and ‘closed the gold window’ in 1971. So much for U.S. honor and prestige!” (Read more from patrickbarron.blogspot.com)

Save Some Jobs by Destroying Many More
“Much of the Obama administration’s rationale for bailing out GM is that such actions will save American jobs. This is just one of the many unfortunate fallacies that stem from our century-old fiat money system.

Prior to the formation of the Federal Reserve System the American populace would have scoffed at such nonsense that the government can or even should tax all Americans in order to save the jobs of some Americans. It would have been apparent to anyone in the age of the gold standard that the government can give away only what it takes from someone else, exacting its overhead cost and throwing uncertainty of the future into the mix to boot. In the case of the GM bailout, the benefit will accrue to the unions, who bear primary responsibility for the systematic destruction of the American automobile industry since the 1930s. But the fact that we are no longer on a gold standard does not eliminate the economic truth that all of us who are not members of the United Auto Workers are being robbed by our government for the union members’ benefit.

The GM bailout perfectly illustrates why government gets away with this assault on the American taxpayers’ pocketbook. The benefit is concentrated and easily identified and quantified. The billions of bailout money will keep plants open and salaries flowing, at least for awhile. Smiling autoworkers–not all of them union members, of course—will be happy that they still have a job. I have no doubt that the mainstream media will interview them and allow them to relate how happy they are with the government’s actions.

But no one can interview the people whose jobs were lost or never created when the capital that would support them has been funneled to GM.” (Read more from patrickbarron.blogspot.com)

Inflation Will Harm the Economy, Not Spur Recovery
“On Wednesday, May 20th Rich Miller of Bloomberg News reported that two well-known economists–former White House adviser Gregory Mankiw and Harvard professor Kenneth Rogoff–recommended higher inflation to spur the U.S. economic recovery.

One would think that after so many decades of boom/bust business cycles and depreciation of the dollar to a mere fraction of its worth even Harvard economists would rethink their Keynesian philosophy. Inflation can occur only through the medium of exchange, of course, as too much money chases too few goods. It is caused by an expansion of the money supply, which one must assume is the desired mechanism for Mssrs Mankiw and Rogoff. But expansion of the money supply is what got us in this mess in the first place.

The artificial lowering of the interest rate spurred more long-term projects than could be completed with the limited resources at hand. More money will perpetuate and exacerbate this malinvestment by keeping capital destroying businesses in operation for a few more months. But more money will not cure the underlying problem. On the contrary, it will make it worse and make the necessary recession longer and deeper, meaning it will take years rather than months and cause higher unemployment and more loss of capital than would otherwise be the case.

The recession, of which higher unemployment is a manifestation, is an essential and inescapable process that must occur for the REAL economy to recover. Money losing businesses must close their doors and people must find work in profitable firms.” (Read more from patrickbarron.blogspot.com)

“Israel will continue to allow some construction in West Bank settlements despite US calls for a freeze on its work, a government spokesman says.” (Read more from news.bbc.co.uk)

Israel: We’ll just keep cashing your checks, thank you very much. And remember, they hate you because they are evil radicals.

“The end of the recession is in sight, according to a new survey of leading economists.

While the economy is showing signs of stabilizing, the recovery will be more moderate than is typical following a severe downturn, said the National Association for Business Economics Outlook in a report released Wednesday.

The panel of 45 economists said it expects economic growth will rebound in the second half of 2009.” (Read more from cnn.com)

Brought to you by the people who Censored Ron Paul and lied us into Iraq.

There is a popular cluster of myths surrounding our Great Depression:
1) It just happened unexpectedly. (Crashes, including the one in 1929, are the predictable and inevitable consequence of inflationary monetary policies.)
2) Hoover made it worse by not helping. (Hoover intervened massively and continuously.)
3) FDR’s New Deal rescued us. (FDR continued and expanded Hoover’s interventions, close to the point of fascism.)

Lets take a look at #3. Here are a two illustrations of FDR’s New Deal policies:

Roosevelt supporter-turned-critic John T. Flynn, in The Roosevelt Myth (1944), wrote:

The NRA [National Recovery Administration] was discovering it could not enforce its rules. Black markets grew up. Only the most violent police methods could procure enforcement. In Sidney Hillman’s garment industry the code authority employed enforcement police. They roamed through the garment district like storm troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing together a pair of pants.

(from wikipedia.org)

“A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the “crime” of pressing a suit of clothes for 35 cents when the Tailors’ Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.” (from mises.org)

“Executive Order 6102 is an Executive Order signed on April 5, 1933 by U.S. President Franklin D. Roosevelt ‘forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates.’ The Order required most people to deliver on or before May 1, 1933 all but a small amount gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of Executive Order 6102 was punishable by fine up to $10,000 ($166,640 if adjusted for inflation as of 2008) or up to ten years in prison, or both. Because of this forced immediate sale of gold to the Federal Reserve at the government set price of $20.67 per troy ounce, this Executive Order is often referred to as the Gold Confiscation of 1933. Shortly after this forced sale, the price of gold from the treasury for international transactions was raised to $35 an ounce.” (from wikipedia.org)

A silly cartoon about a serious & important concept:

For a more scholarly depiction of society’s struggle for freedom, and the seduction of totalitarianism, see Hayek’s The Road to Serfdom. Illustrated version here.

Predictions from seekingalpha.com:

Prediction one. The twenty-five-year equities bubble pops in 2009. U.S. and foreign equities markets will stop treading water and realign with economic reality. Stock prices will cease to reflect the “greater fool” mentality and will return to being a function of dividend yields, which have long been miserable. The S&P 500 will sink below 500. In a bid to stem the panic, the government will enforce periodic “stock market holidays”, and will vastly expand the scope of its short-selling prohibitions—eventually banning short-selling altogether.

Prediction two. With public pension systems and tens of millions of 401k holders virtually wiped out—and with the Baby Boomers retiring en masse—there will be tremendous pressure on the government to get into the stock market in order to bid up prices.

Therefore, sometime in 2010, the Federal Reserve will create and loan out hundreds of billions of fresh dollars to the usual well-connected suspects, instructing them to buy up stocks on the public’s behalf. This scheme will have a fancy but meaningless name—something like the “Taxpayer Assurance Equities Facility”. It will have no effect other than to serve as buyer of last resort for capitulating smart-money types who want to get out of stocks entirely.

Prediction three. Millions of new retirees—including white-collar people with high expectations for a Golden Retirement—will be left virtually penniless. Thousands will starve or freeze to death in their own homes. Hundreds of thousands will find themselves evicted and homeless, or will have to move in with their less-than-enthusiastic children. Already strained by the rising tide of the working-age unemployed, state and local welfare services will be overwhelmed, and by 2012 will have largely collapsed and ceased to function in many parts of the country.

Prediction four. “Quantitative easing” will fail to restart previous patterns of lending and consumption. As the government sends out additional “rebate” checks and takes ever-more drastic measures to force banks to lend, hyperinflation could take hold. However, comprehensive debt relief via a devaluation of the dollar is even more likely. This would entail the government issuing one “new” dollar for some greater number of “old” dollars—thus reducing both debts and savings simultaneously. This would make for a clean slate a la Fight Club.

As there are many more debtors than savers in the U.S., the vast majority would support devaluation. The Chinese and other foreign holders of our bonds would be screaming mad, but unable to do anything. Every country that has not found a way out of dollar-denominated reserve assets by 2012 will see its reserves eliminated.

Prediction five. The government will stop pretending that it can finance continuous multi-trillion-dollar deficits on the private market. By late 2010, the sole buyers of new U.S. Treasury and agency bonds will be the Federal Reserve and a few derelict financial institutions under government control. This may or may not lead to hyperinflation. (See prediction four).

Prediction six. As the need for financial industry paper-pushers declines and people have less money to spend on lawyers and Starbucks (SBUX), unemployment will rise until the private sector has eliminated all of its excess capacity and superfluous or socially needless jobs. The government’s narrow unemployment figure (U3) will rise into the high teens by late 2010. The government’s broader unemployment figure (U6) will cease to be reported when it reaches 25 percent—it will simply be too embarrassing. Ultimately, one in three work-eligible Americans will be unemployed, underemployed, or never-employed (e.g. college grads permanently unable to find suitable work).

Prediction seven. With their pension dreams squashed, and their salaries frozen or cut, police and other local government workers will turn to wholesale corruption in order to survive. America’s ideal of honest, courteous, and impartial cops, teachers, and small-time local functionaries will have come to an end.

Prediction eight. Commercial overcapacity will strike with a vengeance. By 2012, thousands of enclosed malls, strip malls, unfinished residential developments, motels, truck stops, distribution centers, middle-of-nowhere resorts and casinos, and small-city airports across America will turn into dilapidated, unwanted, and dangerous ghost towns. With no economic incentive for their maintenance or repair, they will crumble into overgrown, plywood-and-sheet-rock ruins.

Prediction nine. By the end of 2010, tens of millions of households will have fallen behind on their mortgages or stopped paying altogether. Many banks will be unable to process the massive volume of foreclosure paperwork, much less actually seize and resell the homes.

Devaluation (as mentioned in prediction four) could ease the situation for those mortgage holders still afloat, but it would also eliminate any incentive for most banks to stay in the mortgage business. In any case, the housing market in many parts of the country will lock up completely—nothing bought or sold.

With virtually no loans being made, even the government will finally acknowledge that most banks are fundamentally insolvent. A general bank run will only be averted through a roughly one trillion-dollar recapitalization of the FDIC, courtesy of new money from the Federal Reserve.

Prediction ten. As an economy is never independent of the society within which it functions, the next few paragraphs will focus on social and political factors. These factors will have as much of an impact on market and consumer confidence as any developments in the financial sector.

Whether rightly or not, President Obama, having come to power at the dawn of this crisis, will be blamed for it by over 50 percent of the population. He will be a one-term president. In response to his perceived socialization of America, there will be a swarm of secessionist and extremist activity, much of it violent. Militias and armed sects will be more prominent than in the early 1990s. Stand-off dramas, violent score-settlings, and going-out-with-a-bang attacks by laid-off workers and bankrupted investors—already a national plague—will become an everyday occurrence.

For both economic and social reasons, millions of immigrants and guest workers will return to their home countries, taking their assets and skills with them. The flow of skilled immigrants will slow to a trickle. Birth rates will plummet as families struggle with uncertainty and reduced (or no) income.

Property crime will explode as citizens bitter over their own shattered dreams attempt to comfort themselves by taking what is not theirs. Mutinies and desertions will proliferate in an increasingly demoralized, over-stretched military, especially when states can no longer provide the educational and other benefits promised to their National Guard troops.

There will be widespread tax collection issues, and a huge backlash against Federal and state bureaucrats who demand three-percent annual pay raises while private sector wages remain frozen or worse. In short, the “Tea Parties” of tomorrow will likely not be so restrained.

During the Great Depression, Herbert Hoover coerced captains of industry into “voluntarily” propping up wages. President Hoover is quoted in Murray Rothbard’s America’s Great Depression (available for free here): “[Wage rates] were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.”

Rothbard continues: “But was there any causal link between this fact and the highest unemployment rate in American history? This question Hoover ignored.”

George Reisman is an economist of the Austrian School who studied directly under Ludwig Von Mises at New York University. My Austrian Economics Professor calls Reisman his favorite living Austrian Economist. In this essay, Reisman disposes of both the popular and scholarly Keynesian theories that wages must remain high for the common good.

“The popular version of the Keynesian doctrine, which is championed above all by the labor unions, is simply that a fall in wage rates, in reducing the incomes of wage earners, causes a fall in consumer spending, which allegedly serves to worsen the problem of unemployment. This doctrine can be disposed of fairly simply. . .

First of all, it overlooks the fact that at lower wage rates more workers will be employed. The effect of this is to enable total wage payments and consumer spending in the economic system to remain the same or even increase while the wages of the individual worker decline. For example, 10 workers each employed at 90 percent of the wages earn the same total wages and can spend just as much in buying consumers’ goods as could 9 workers each earning the original wage. (It’s as simple as the fact that 10 times .9 equals 9 times 1.) And, of course, more than 10 workers employed at 90 percent of the wage per worker would earn more collectively and spend more for consumers’ goods collectively than was possible before.

The popular version of the Keynesian doctrine also overlooks the fact that even if total wage payments and consumer spending did decline, business sales revenues would not decline insofar as reduced wage payments made possible increased expenditures for capital goods. Indeed, to the extent that additional spending for capital goods took the place of wage payments and the consumer spending supported by wage payments, not only would sales revenues in the economic system remain the same, but, what is particularly important for the process of economic recovery, the amount of profit earned on those same total sales revenues would actually increase.” (Read more from mises.org)

See Also Milton Friedman’s commentary:

The minimum wage, like almost all government regulation, has the effect of reducing competition and impoverishing our country.

More of the same? Yes we can!

Why do I criticize Israel’s occupation of Palestine ahead of other injustices in the world? Because I’m paying for it! (And going to war because of it!)

“It is an estimate because arriving at an exact figure is not possible, since parts of U.S. aid to Israel are a) buried in the budgets of various U.S. agencies, mostly that of the Defense Department (DOD), or b) in a form not easily quantifiable, such as the early disbursement of aid, giving Israel a direct benefit in interest income and the U.S. Treasury a corresponding loss. Given these caveats, our current estimate of cumulative total direct aid to Israel is $113.8554 billion.

It must be emphasized that this analysis is a conservative, defensible accounting of U.S. direct aid to Israel, NOT of Israel’s cost to the U.S. or the American taxpayer, nor of the benefits to Israel of U.S. aid. The distinction is important, because the indirect or consequential costs suffered by the U.S. as a result of its blind support for Israel exceed by many times the substantial amount of direct aid to Israel. (See, for example, the late Thomas R. Stauffer’s article in the June 2003 Washington Report, ‘The Costs to American Taxpayers of the Israeli-Palestinian Conflict: $3 Trillion.’)” (Read more from wrmea.com)

If this was anyone other than Seymour Hersh, I wouldn’t believe it.

“After Donald Rumsfeld testified on the Hill about Abu Ghraib in May, there was talk of more photos and video in the Pentagon’s custody more horrific than anything made public so far. ‘If these are released to the public, obviously it’s going to make matters worse,’ Rumsfeld said. Since then, the Washington Post has disclosed some new details and images of abuse at the prison. But if Seymour Hersh is right, it all gets much worse.

Hersh gave a speech last week to the ACLU making the charge that children were sodomized in front of women in the prison, and the Pentagon has tape of it. The speech was first reported in a New York Sun story last week, which was in turn posted on Jim Romenesko’s media blog, and now EdCone.com and other blogs are linking to the video. We transcribed the critical section here (it starts at about 1:31:00 into the ACLU video.) At the start of the transcript here, you can see how Hersh was struggling over what he should say:

‘Debating about it, ummm … Some of the worst things that happened you don’t know about, okay? Videos, um, there are women there. Some of you may have read that they were passing letters out, communications out to their men. This is at Abu Ghraib … The women were passing messages out saying ‘Please come and kill me, because of what’s happened’ and basically what happened is that those women who were arrested with young boys, children in cases that have been recorded. The boys were sodomized with the cameras rolling. And the worst above all of that is the soundtrack of the boys shrieking that your government has. They are in total terror. It’s going to come out.’

‘It’s impossible to say to yourself how did we get there? Who are we? Who are these people that sent us there? When I did My Lai I was very troubled like anybody in his right mind would be about what happened. I ended up in something I wrote saying in the end I said that the people who did the killing were as much victims as the people they killed because of the scars they had, I can tell you some of the personal stories by some of the people who were in these units witnessed this. I can also tell you written complaints were made to the highest officers and so we’re dealing with a enormous massive amount of criminal wrongdoing that was covered up at the highest command out there and higher, and we have to get to it and we will. We will.’” (Read more from salon.com)

This is why I blog.

Read more from commondreams.org