Allow me to summarize our position on world monetary affairs by saying that there is no economy that has ever needed, needs, or will need, the Federal Reserve System. We won't fill this space with the why's and why not's, because you can get that with a regular subscription to our report of course.
Nonetheless, as controversial as it might sound today, it was less than two years ago that the FOMC was raising interest rates, and Internet bulls were in agreement that they could do without the Fed altogether.
Hold your breath: they were correct because the truth is that market yields rose first and faster anyhow. Note how market yields beat the Fed on the 10 year treasury note between 1998 to now in the chart below. They do every time you know. This relationship holds as well over the long run:
The Fed was obsolete then, and it is equally obsolete today. In fact, its official purpose had expired in 1999 with the Humphrey Hawkins full employment doctrine. Since then, you could say they've been freelancing. Out of fear of retribution, the FOMC has hastily slashed the value of your money by over half, in terms of interest rates, yet still, the stock market and economy continue to predictably plummet. The walls are coming down.
Over the past decade, many of the developments that have occurred in the financial industry have been labeled deregulation, at least on this continent. The rules, for instance, that once separated the insurance industry from the banking and brokerage business came crashing down during the Clinton-Greenspan era, and that of course paved the way for what most people see today as an increasingly market oriented economy.
If you count yourself among this group then please give your head a big hard shake for the benefit of reason, and consider the truth. The "free banking system"1 has acquired a centralized control of the financial markets.
Liberty has been outflanked
In the early nineties, just as the Soviet Empire came crashing down, the world said good-bye to the Cold War and to Communism. The most meaningful central planning regime on earth was toppled, and Capitalism was seen to be the favored successor. The conflict between capitalism and communism was no more.
Not so. The Federal Reserve System, who under Alan Greenspan's stewardship has become by far the largest central planning regime in the world, supplanted it. Now do not just walk away from this and think that we're being extreme. Look around. It is an extreme world.
As you look around, don't forget to notice how many stockbrokers, insurance agents, mutual fund salesmen, reporters, or financial planners work for a company that either is one of the Banks who control the 12 district banks in the United States, or is controlled by one of them. With the help of the FRB, or our money, these global entities have dominated global capital markets, and any illusion of deregulation is just that, an illusion. Thus, in an odd sense, we've financed our own delusion... but maybe that isn't new.
Still, the point is not that if they screw up, the taxpayer will get a big bill. The point is that they have already used that money (trust) to maintain hegemony in an economic environment where market forces were pleading for their own freedom. The taxpayer just doesn't know it yet.
Indeed, we argue that it is central banking, which is the barbarous relic2, not gold. History is our reason.
We believe that the true costs to freedom, economic or otherwise, far outweigh any benefit one could even imagine that the Fed, or any central bank, could possibly offer. We also believe in the potential of the Internet, and its liberating as well as productive effects on society. Finally, we believe in people and the free market price mechanism over government, on any day of the week.
It is precisely because we do, that we're compelled to ask America to ask itself what the Federal Reserve System can do for it that the market cannot do all on its own?
It is the answer to that question that will determine whether America has abandoned the logic of the economic system that its leaders claim is responsible for its success today, or whether it has not. It is as simple as that.
If you are among those who might conclude that the Federal Reserve is a necessary evil, for whatever reason, don't be alarmed because you're not alone. Political economists in the olden days such as Ben Graham may have classified you amongst the Federalists that fathered the United States constitution in 1792.
I presume that Federalists could be credited with inspiring the Constitution, while liberals the Bill of Rights, and they are as different as is a Democracy from a Republic, but they're both Americans. Federalists, however, will reveal a tendency to encourage the surrender of certain freedoms in exchange for some national security.
But if on the other hand you decide, as we have, that the market is fully capable of performing the sovereign services, which the Fed currently offers, then you may also see that it is actually not necessary for any central planning regime to dictate the outmoded full employment doctrine, or to manage an exclusive currency of its own choice, and which it is able to create virtually out of thin air incidentally3.
The Federal Reserve System is the largest central planning regime ever to inhabit this planet. What's more, this may just be the most under appreciated if not altogether misunderstood fact that the financial community is guilty of obscuring. Who could blame them, it happened so fast and quiet that Lenin would have been proud.
What other organization in human history has ever sat atop a world hierarchy that it has itself created, and dictated the world's scarce resources, particularly with our "full faith and credit?" Please tell us if there is or was another: SEND
Unfortunately it is because the world economy has fallen victim to such a tragic state of affairs that it is going to come apart at the seams. Not because of the tragedy in Manhattan this month. And do not let the financial experts tell you otherwise, especially if they represent the "free banking system." Why did the Russian economy fail if it was not due to the unviability of a centrally planned full employment doctrine? Yeah, ours is different.
There is much global animosity towards the United States, which we dare to believe has grown out of this particular hypocrisy.
In a recent Business Week article by Bruce Einhorn titled No Sympathy from China's Cyber Elite, it was observed that the elite in China had a list of grievances against Americans, which sources ranged "from the recent spy-plane incident, to the 1999 Yugoslavia bombing, to the 1993 vote by the U.S. Congress in opposition to China getting the Olympics, and all the way back to the Boxer Rebellion and 19th century Opium Wars."
There are other perceived grievances that the world outside of China might have as well. For instance, there has been growing debate in Japan about the justification of US military presence, and the aura is increasingly resentful. This is true not only of Japan but of many places in the world including the Middle East where it is perceived that the reason for the occupations have more to do with oil than they have to do with anything else for that matter.
Furthermore, it was not so long ago that we dealt with the Iran Contra affair, and thus the overt side of American politics. In his speech, President Bush said that the reason the world hates America is because they are jealous of its freedom. This is partly true, but I think that American economic policy is seen as particularly oppressive in some regions of the world, and this itself may be due increasingly to the unviability of this goal oriented (quasi-planned) economic system that Americans believe is capitalism today. In fact, we could, and do, argue that dollar policy is increasingly, if not unnecessarily, oppressive.
The contempt, which the elitist classes that govern modern America's new order have for the free market system is nowhere as clearly pronounced as it is in regions of the world, which suffer the direct brunt of dollar policy, specifically the Middle East, most of Asia, certainly South Africa, occasionally Canada, Australia, and the Latin Americas, and now Europe. It is not the same America it was even ten years ago.
It is inevitable nations compete with each other and that conflicts arise, particularly since most governments are in the business of fanning nationalism. And granted, we're dealing with an enemy, which may be our own creation, but nevertheless, one that does not have a national identity. Yet, that applies equally to International Terrorism as it does to the Enemy Within.
What is deplorable besides the conspicuous methods deployed by the invisible enemy that devastated the World Trade Center buildings in New York last week, whoever it is, is the inconspicuous burden on its own society that governments place on it without consent.
By letting its government create the Federal Reserve System in 1913, America has fallen into a Leninist trap, and cannot get out. Using the term Lenin is deliberate because some say that he showed a philosophical fondness for the tyranny of money, specifically of its institutions. This is not to be dramatic. Quite the opposite, it is the most somber of truths.
And by virtue of the IMF's ban on any nation's free choice to implement a gold standard, the world has been trapped also. For it is the gold standard alone, which protects capitalism from the despicable enemy within. An enemy who can grow in size/power without retribution for any of the calamities that it itself causes, day in and day out, because it can also buy your silence.
In the final analysis, there may be many reasons why the world is angry at America, but there is only one cogent explanation for its growing disrespect: the hypocrisy of its most powerful institutions.
In my experience with sales, there is one piece of advice that has always served me well: that is to listen well. And to what used to be a nation of terrific salespeople we implore them to listen well to what the world is saying today. It is saying that America has already sold its liberty.
We are not sympathizing with any Terrorists. Far from it. We know who's side of the ultimatum we're on. Rather, we posit that the Federalists have won. They have finally undermined the Bill of Rights. And they have imposed the very communism that Nixon tried hard to prevent.
Thank you Bill Clinton and Alan Greenspan, for the world will never again be the same... you may both have all the credit (pun intended) you deserve for the events of the past decade... it wasn't worth it... it never is.
At any rate, while we can't change that, it is very important for economists today to acknowledge and consider the full socioeconomic ramifications of this monetary experiment that began with the Humphrey Hawkins full employment act, or legislation, in 19784.
Our monetary hypothesis, and the bulk of our argument, necessarily does take this into account. It is the most under discussed, yet most fundamentally core, debate about the state of the global economy. Furthermore, we believe that it is the foremost variable that will guarantee the disintegration of the US economy, dollar, and perhaps even capitalism.
Thus, our argument is with central banking and more government, period, and it is for a system of sound money as defined by Ludwig von Mises5 only this century, which is the only system that can save us from the Enemy Within. It is not an old fashioned argument, as some (bankers?) would have you believe, and we do not purport to know what kind of monetary system is appropriate.
The Market Would Choose Gold, not Dollars
That is precisely the point. It should be left to the market. You should decide what money is sound, not Messrs Greenspan and O'Neill. On the contrary, this argument is about as New Economy as it gets.
Certainly, it happens to be our opinion that the market would choose Gold over dollars, if it had the free choice today. It is a crime to hold the market back. Let it go tyrants!
Read why the market will
In Gold We Trust
The Full Employment doctrine; the connection between Gold, Money, and Morality; the 1934 Confiscation; Bretton Woods; the definition of a True Gold Standard; the Costs and Benefits according to Garrison; and all in the context of capital market developments today... Don't miss the biggest bull market in gold in history... join us.
1. Mr. Greenspan long ago dubbed the Fractional Reserve system of banking a logical extension of the gold standard, and simultaneously coined the term "free banking system" in an excerpt that can be found in Ayn Rand's Capitalism: the Unknown Ideal.
2. "Gold is the barbarous relic." Lord, John Maynard Keynes had no use for the gold standard. He believed that its adherence was an abrogation of government responsibilities.
3. It's simple, if you can manage consumer confidence.
4. It was this Congressional goal, which justified the Fed's new existence in 1978 after having been nearly decimated by the preceding monetary crises / price shocks that were themselves the product of the institution's failure to impose a dollar standard on the free world through the Bretton Woods mock gold standard.
5. "Thus the sound money principle has two aspects. It is affirmative in approving the market's choice of a commonly used medium of exchange. It is negative in obscuring the government's propensity to meddle with the currency system." - Mises, on the principle of sound money, pp454, the Theory of Money and Credit