Like fish in a barrel.

Tuesday, March 22, 2011
The most important matter to anyone concerned with expanding freedom by limiting government is the matter of sound money. In fact the definition of sound money boils down to freedom of choice in money. Alternatively, control of the money is the source of a government’s unlimited growth. Any paper constraint can be washed away with a flood of enough paper dollars. In this space we will discuss sound money: what it is, why it’s important, and how to return to it. “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford The first problem to overcome when trying to make a return to sound money is the problem of information. Most people no longer understand money, or the implications of ceding control of it to a monopoly agency. This is no accident, but is instead a carefully cultivated and fostered ignorance. It involves not only what money is, but even who owns it as well. Public schooling and endless propaganda are two of the main culprits. At this point we can ignore the politicians. They generally are honestly ignorant about money. They know they want it, and want to control it, but for the most part have no real understanding of it past what it can buy them. They do understand, however, that the centrally planned and coordinated fractional-reserve system that they own and regulate seems to siphon off almost unlimited amounts of resources to them. If they get the sneaking suspicion that their partners in crime, the banks, may be getting a slightly better deal they will keep quiet for fear of disrupting a system that they do not fully comprehend. The bankers, on the other hand, know exactly what they are about. Although later we will examine in detail the various methods used to control the monetary system, and therefore the production and distribution of wealth of a society, and also the implications of such concentrated power over such a vital resource, for now let us just set the stage. For instance Ben Bernanke, chairman of the U.S. central bank system, recently testified before the Senate Committee on Banking, Housing and Urban Affairs. In his testimony he answers questions from Senators about, among other things, the implications of refusing to raise the U.S. debt limit and the potential of a shutdown of the government (begins at 1:11:00): “I guess I draw a distinction between not increasing the debt limit, and maybe, you know, even shutting down the government, those sorts of things. Not increasing the debt limit is like saying, you know, we’re gonna solve our family’s financial problems by refusing to pay our credit card bills.” Now this is disingenuous in the extreme. Were this coming from the stool next to you in a haze of cigarette smoke and bourbon fumes it could be excused. But this is coming from the Chairman of the Federal Reserve System, the top banker in the country, and hence the world. Mr. Bernanke knows what he is talking about, and this is a carefully selected metaphor designed to make the proposition (that the U.S. Federal government cease borrowing and live within its means) seem imprudent and almost dishonest, and to provide talking points for political hacks and John Q. Citizen. The fact is that, first of all, the U.S. government is not a family (similarities to the Cosa Nostra notwithstanding) and it does not have to choose between borrowing more and feeding its children. Secondly, the quote begs the question of where these credit card bills came from; what the country’s credit has been paying for. Why is the only option to default? Are there no discretionary expenses in the budget? Can the family not cancel the planned trip to Disney World; reduce mom’s trips to the spa from weekly to monthly; or cut back on dad’s penchant for aged Scotch? He goes on: “These are bills that have already been accrued, as opposed to cutting up the credit card and saying, “Going forward, we’re not gonna do any more spending.” But these are, this is money we’ve already borrowed, these are commitments we’ve already made to contractors, to senior citizens, and so on. And what we’re saying here is we’re not gonna make these payments that we promised.” Now here we have the Chairman partaking in a favorite tactic of governments, implying that reducing spending now would put granny out in the street and end fire and police service. Reduce military spending? Reduce farm subsidies? Go back to gold toilet seats now that the price of platinum has skyrocketed? No. To hear Bernanke tell it you can never reduce spending from whatever the extant level is, you can merely hope to stop its growth. Actually, let’s let him tell it: “So I would rather that we be forward looking and say, you know, we’re gonna hold, or we’re gonna restrict new spending, or new commitments until we have reform.” So there you have it, folks. The man in charge of the nation’s money supply either doesn’t understand that debt is a spending problem that can be controlled by reducing current discretionary spending, or he is intentionally dissembling. The arrogance that his position breeds, the corrupting power that control over the nation’s wealth and resources manifests, he has difficulty hiding. Speaking to the most powerful men in the world as if they were impudent children, the Chairman makes clear just how much in control of the banks he is (begins at 1:44:00): “I don’t want to take all your time, but we have a long list of steps we’ve taken… to try to make banks appreciate, and make our own examiners appreciate, that what we’re looking for here is an appropriate balance. On the one hand we don’t want banks making bad loans, but on the other hand it’s good for everybody if they make loans to credit worthy borrowers, and we are encouraging that, and encouraging our examiners to encourage that…” While it was extremely gracious of the Chairman to recognize that the Congress does not have much time to waste on small issues like the national debt, deficit, or banking system, it should be noted that if Bernanke and his “examiners” need to tell banks that they should make “good” loans instead of “bad” ones, these banks are already in deep trouble. More likely, Bernanke and his toughs are telling the banks which loans they consider to be “good” or “bad,” and who gets credit and who doesn’t. In a world of sound money, owned by the people and controlled only by market forces, this attitude would be as unthinkable as a fisherman commanding the fish to jump from the sea and onto his hook. For now, though, it is you, dear reader, who is on the hook. Theodore Phalan is an economics student at George Mason University and a previous Sound Money essay contest winner. Image by scottchan / FreeDigitalPhotos.net.