Economics

[TrueLight]

best battle! love these ones

Ron Paul vs. Ben Bernanke at 3/17/10 Financial Services Hearing
http://www.youtube.com/watch?v=VPjg3USIq_Y

[TrueLight]

Underconsumption Is Not the Problem
By William Anderson
Published 03/17/10

"Paul Krugman recently declared that our real economics problem is this: "What's limiting employment now is lack of demand for the things workers produce." Not surprisingly, this issue has been thrown about in socialist literature for more than a century.

The idea that an economy operates only if workers are paid "enough to buy back the product" is an important assumption behind Marxism. Keynesians have embraced this fallacy, and the pursuit of solutions based on "buy back the product" is the main reason our economy today is in crisis and will remain so for years to come.

It has been more than two centuries since Thomas Malthus (yes, that Thomas Malthus, the overpopulation prognosticator) conjured up the "underconsumption" theories in his many letters to David Ricardo. Indeed, I believe Malthus would have been quite comfortable not only with Krugman, but also the entire Keynesian paradigm, which is little more than Malthusian economics dressed up in the equation of Y = C + I + G (total income equals consumption plus investment plus government spending).

Unfortunately, it seems that in modern political economy Malthus and Keynes have won. Recently, President Barack Obama declared that his government "will spend our way out of the recession," which is another way of saying that the government will find clever ways to put money into the hands of people who have produced nothing or very little for it and then encourage them to spend, spend, spend.

Policies based on the "underconsumption/overproduction" fallacies are an unmitigated disaster, and are responsible in large part for U.S. economy's failure to really recover. Those who champion this irresponsibility are claiming we can have consumption without requisite production; just print money and everything else takes care of itself.

Hazlitt to the Rescue

Henry Hazlitt in his classic, Economics in One Lesson, saw through this nonsense from the beginning. Chapter 21, "Enough to Buy Back the Product," lays out the many reasons why the "underconsumption/overproduction" explanations of recessions not only are wrong but also lead to destructive policy outcomes.

Hazlitt perceptively noted: "In an exchange economy everybody's money income is somebody else's cost." In the case of the "stimulus," the administration paid for it through taxation, borrowing, and printing new money. With all three methods the net result was that someone was made better off but only at the expense of someone else. When the government forced up the minimum wage (to improve "purchasing power" by lower-wage workers), there was no added amount of production to offset the increase in business costs. Instead, we have seen a record level of teenage unemployment, something that a student properly trained in the principles of economics could have foreseen.

As Hazlitt explains, whenever government tries to force up wages (while imposing new regulations that reduce business productivity), real purchasing power falls. That is because the negative effects -- which are unavoidable when such policies are implemented -- will always outweigh the so-called positive effects. In other words, while money wages might increase for some people, overall, government has forced up business costs, so less is produced.

Some people individually benefit from such government actions, and the statist news media tend to concentrate on those recipients in order to give the impression that the policy benefited society overall. However, there is no way to avoid the negative consequences. As Jean-Baptiste Say, the great French economist of the early nineteenth century, pointed out, consumption ultimately is made possible by more production.

The problem in our economy is not that we are "producing too many goods," or that "people cannot buy back what is produced" because they are not paid enough, or that government has not flooded the economy with enough new money. No, the problem is that much of the structure of production has been geared toward generating projects that cannot be sustained.

The only way that the economy truly can recover is for us to permit these malinvestments either to be liquidated or be directed toward other, sustainable lines of production. Instead, the government tries to throw new money at us and claim that we just are not spending enough.

That's a prescription for disaster."

William Anderson
http://www.campaignforliberty.com/article.php?view=695













Is Greece the Future of America?
By Sheldon Richman
Published 03/18/10


"It may be possible to look into America's future. How? Watch what's going on in Greece. According to the Washington Post, "Greece needs to raise about €23 billion [more than $31 billion] in April and May to pay debts coming due. Greek officials say that either is impossible, or would require punitive interest rates -- making it harder to bring the budget under control -- unless Europe helps out." So the Greek government awaits a bailout from Germany and France, but first it has to impress them that it is serious about fiscal austerity.

The Greek welfare state's annual deficit is about 13 percent of its GDP and its accumulated debt is 113 percent of GDP. Meanwhile, the U.S. government's overall debt is now on track to reach 90 percent of GDP by 2020, more than $20 trillion. Just last week the Congressional Budget Office said that over the next decade, the annual budget deficit will be $1.2 trillion more than the Obama administration has guessed. The ten-year figure is now projected to be $9.76 trillion. The annual deficit is about 10 percent of GDP.

Government spending is rising -- and the new entitlement called health-care "reform" hasn't passed yet. That'll be good for a couple of trillion over the next decade.

The economic consequences of all that are likely to be dire. As the government tries to borrow more money, both to finance its programs and to pay the old debt that's coming due, it will have to promise a better return to nervous lenders, such as China. But raising the interest rate will push other borrowers' rates up, which in turn will put a damper on economic activity. Unemployment will grow and revenues will shrink, but entitlement programs, such as Medicare and Social Security, will keep growing. They already face tens of trillions of dollars in unfunded liabilities and are heading toward bankruptcy. Military spending will also increase, along with most other government spending.

What will the politicians do when they find interest payments swallowing the budget, leaving them less and less money to shower on political supporters? They might resort to higher taxes, which would further dampen economic activity. They might get the Federal Reserve to monetize the debt through inflation; but that would wreak economic havoc. Politicians aren't likely to cut spending because it would jeopardize their careers. At that point, the government might default on its debts, a step that has much to recommend it.

Thus, the welfare state is a fiscal failure.

The welfare state has long been presented as the viable "third way," a happy medium between laissez faire -- full separation of state and economy -- and state socialism -- government control of the economy. Advocates of individual liberty have emphasized that the welfare state violates freedom because government takes wealth from those who produce it and transfers it to favored groups. Defenders have responded that the welfare state embodies compassion: people with means give to those less fortunate. But forced transfers through government are not true compassion. A virtue like compassion requires free choice, but government gives you no choice. So the compassion of the welfare state is counterfeit. It's more about distributing goodies at others' expense to win votes for politicians.

Historically compassion had little to do with government programs for the poor and social insurance for the working and middle classes. Beginning as far back as Queen Elizabeth I poor laws were intended to control people who were potential sources of social strife; and social insurance beginning in Bismarck's German welfare state was calculated to make working people dependent on the government. In both cases the free society was subdued for the sake of those in power.

Now it is clearer than ever that the welfare state is not only morally flawed, it is also fiscally unsustainable. Politicians will always have an incentive to spend, while hiding the costs or pushing them onto future generations through debt. But reality doesn't go away. It comes back to bite in unexpected ways.

We're seeing it in Greece today. Tomorrow it will be other European welfare states. Then, if nothing changes, it will be America's turn."

Sheldon Richman
http://www.campaignforliberty.com/article.php?view=701

[TrueLight]

Marc Faber on CNBC March 18 2010

http://www.youtube.com/watch?v=hSpLAK2yPzw

Marc Faber on CNBC: New Gold Standard March 18 2010

http://www.youtube.com/watch?v=eKW7FTNMyl4

Marc Faber on CNBC: Invest in Oil stocks and Mining Companies March 18 2010

http://www.youtube.com/watch?v=rT1p6uLPpeo

[TrueLight]

Paul Krugman vs. Reality
By Peter Schiff
Published 03/20/10


"In his latest weekly New York Times column, Nobel Prize-winning economist Paul Krugman put forward arguments that were so nonsensical that the award committee should ask for its medal back.

Recent rhetoric from Washington has put the economic relationship between the U.S. and China squarely on the front burner, and Krugman is demanding that we crank up the flame. This week 130 members of Congress sent a letter to Treasury Secretary Timothy Geithner demanding that the Obama administration designate China as a "currency manipulator". Following that, a bipartisan group of senators introduced a bill that looks to force the Obama administration's hand. For its own part, Beijing invites criticism by continuing to deny its utterly obvious currency agenda.

As these tensions escalate, most economists urge Washington to tread lightly because of the negative fallout for America if China were to begin selling its enormous cache of U.S. Treasury bonds. Krugman pushes back, asserting that the U.S. risks little by playing hardball, and that China has more to lose. He asserts that a Chinese decision to end its purchases of U.S. Treasury debt would make only a marginal impact on long-term interest rates. Did you hear that Stockholm?

According to Krugman, our secret weapon of economic invincibility is the Fed's ability to print dollars endlessly. If China were to foolishly decide to attack us by selling our debt, the Fed could simply step in and buy the excess with newly printed greenbacks. (In other words, Krugman sees no difference between funding the debt and monetizing it. See my latest video blog on the subject.). For Krugman, China would gain little from such an attack, but would lose the ability to export to its best customer and suffer severe losses in the value of its dollar holdings. Krugman's worldview is reassuring -- but it has absolutely nothing to do with reality.

There is a huge difference between selling your debt to another and "selling" it to yourself. When China buys our debt, it uses its own savings. In order to purchase a trillion dollars of U.S. Treasuries, the Fed would have to expand our money supply by a corresponding amount. Even Krugman acknowledges that this would cause the dollar to lose value; however, he feels that a weaker dollar is good for America and bad for China.

Krugman does not believe that a tanking dollar will translate into higher interest rates or higher consumer prices at home. No matter how many dollars the Fed creates, or how much value those dollars lose relative to other currencies, he is confident that as long as unemployment remains high, rates will stay low and inflation will remain under control. This is absurd.

If the dollar were to nosedive, the Fed would normally look to protect the currency by raising interest rates, thereby increasing foreign demand for the currency. But with an economy currently on crutches, the Fed will ignore a weakening dollar and continue to try to boost employment with near-zero rates.

But keeping the Fed Funds rate low only holds rates down for U.S. government debt. If the dollar weakens substantially, other rates offered to other borrowers will rise as investors demand greater returns to compensate for inflation. To keep rates low for homeowners, credit card borrowers, corporations, municipalities, and state governments, the Fed would be forced to buy, or guarantee, all forms of dollar-denominated debt. The Fed would become the lender of only resort.

Once the Fed shows that its commitment to low rates is limitless (the value of the dollar be damned), private creditors will quit the game. Even average Americans would hit the Fed's bid. It would be a race for the exits, with no one wanting to be left holding a bag of worthless paper dollars.

Most economists, Krugman included, see cheap money as a panacea for all ills. And while it's true that a falling dollar, by lowering the real value of U.S. wages, would help make U.S. goods more competitive, it would also lead to skyrocketing consumer prices, rapidly rising interest rates, and a collapse in American living standards. Make no mistake: this is the end game of Krugman's "get tough on China" policy.

This apocalyptic scenario can only be avoided if Washington jealously guards the status quo, avoiding confrontation with China at all costs. Yet, even that is an outcome that no one can rationally expect. Given exploding U.S. government deficits and the inability of U.S. citizens and corporations to repair their balance sheets, the United States faces financing needs that even China's gargantuan savings stockpile will be unable to cover.

Krugman is right about one thing -- China's currency peg is destabilizing the global economy and must end. But he fails utterly to understand the implications for the U.S. and China. If China were to reverse its role in the U.S. Treasury market, both economies would be destabilized in the short-term. But in the medium- and long-term, China would clearly emerge as the winner.

Absent Treasury-bond purchases, the value of the Chinese currency would rise sharply, causing goods prices to tumble in China. This long-delayed increase in purchasing power for everyday Chinese will unleash pent-up demand in what is already the largest middle class in the world. Chinese factories would retool in order to produce goods for their own citizens to consume. In RMB terms, commodity prices would plunge, making it easier for China to produce all kinds of stuff, such as automobiles, while also making it cheaper for the Chinese to buy gas. Millions will trade in bikes for cars, and Chinese oil imports will swell.

The opposite would occur in America, where an artificial, consumer-based economy, supported by Chinese lending, will come tumbling down. Without the ability to import cheap goods from overseas, Americans will pay more and get less. While gas and food become cheaper for the Chinese, they will simultaneously become much more expensive for Americans -- so too will automobiles, consumer electronics, furniture, and just about every other product we want or need (even those few we still make ourselves).

Washington's best option is to recognize that the current relationship is unsustainable and to plan, as best as possible, for a more viable future. We Americans also must be honest with ourselves and recognize that we have been living beyond our means and that our lifestyle has been largely financed by austerity in China. We must conceive of a plan that weans us from this dependence without provoking China to pull the rug out from under us before we have a firm footing. To construct a policy around Krugman's ridiculous assumption that we benefit China more than they benefit us is to invite catastrophe on an unimaginable scale."

Peter Schiff
http://www.campaignforliberty.com/article.php?view=705

[TrueLight]

Ron Paul at the Financial Services Hearing questioning Ben Bernanke, professor Laurence Ball, professor John Taylor and professor Laurence Meyer  25/3/10

p1 http://www.youtube.com/watch?v=5egaaVD786A
p2 http://www.youtube.com/watch?v=BD77yctx1-Y



very good interview, Ron Paul on Morning Joe talking about health care, law passing etc.. "We Have Only One Party! And They Fight Over Power & Influence! 26/3/10

http://www.youtube.com/watch?v=TrpHvhnlfXU

[TrueLight]

What about Financial Reform?
By William Anderson
Published 04/01/10

What about Financial Reform?

ObamaCare applied to the financial system?


"With "health care reform" signed into law, the Usual Suspects demand "financial reform," which means we can expect a new wave of sophistry about finance to replace the old wave of sophistry on medicine. In other words, we are now on Page Two of "Change."

Unfortunately, people don't understand what happened in the financial sector. The official political narrative is this: About 30 years ago laissez-faire ideologues took a near-perfect financial system and created a free-market mess that ultimately collapsed.

Thus, people conclude, the problem is free markets. The solution? Just reregulate and populate regulatory agencies with people, according to Paul Krugman, who are "smart and well-intentioned."

The dominant narrative is a caricature of the truth and rests on the false picture of markets. There are two problems with such a portrayal: The first is that the financial history of the past 30 years differs from the media-presented picture; second, "deregulation" did not equate to "free markets."

Krugman writes:

'[W]e used to have a workable system for avoiding financial crises, resting on a combination of government guarantees and regulation. On one side, bank deposits were insured, preventing a recurrence of the immense bank runs that were a central cause of the Great Depression. On the other side, banks were tightly regulated, so that they didn't take advantage of government guarantees by running excessive risks.'

However, this nirvana was undermined:

'From 1980 or so onward, however, that system gradually broke down, partly because of bank deregulation, but mainly because of the rise of "shadow banking": institutions and practices -- like financing long-term investments with overnight borrowing -- that recreated the risks of old-fashioned banking but weren't covered either by guarantees or by regulation. The result, by 2007, was a financial system as vulnerable to severe crisis as the system of 1930. And the crisis came.'

Krugman claims deregulation came about because of "Reaganite ideology," but Reagan was not president when deregulation initiatives were being pushed by President Jimmy Carter and congressional Democrats in 1980. It was not ideology that led Congress to change the bank rules, but the hard fact that people no longer wanted to keep their inflation-ravaged dollars in regulated accounts with interest-rate ceilings.

Investors and depositors, instead, went outside the banking system and helped finance many new investments that came through what Krugman calls the "shadow" system. Ironically, Krugman complains about the very system that gave us most of the major investment initiatives of the 1980s, and if it had been under the same kind of regulation that governed banks, the investments that fueled the 1980s economic recovery never would have happened.

This sector Krugman criticizes did not come from "Reaganite" ideology (indeed, the best-known investment banker of that sector was Michael Milken, who was a liberal Democrat), but rather from the fact that investors wanted to finance entrepreneurs. Unfortunately, banking regulations of that time often prevented such unions.

The meltdown did not occur for lack of regulation, but because of moral hazard. When the government agreed both tacitly and openly to backstop Wall Street losses, and when huge pyramids of "investments" were piled on mortgage securities (also tacitly backed by the government) that turned bad, a meltdown was inevitable.

The meltdown did not occur in a "free market orgy." Indeed, the market exposed the foolishness on Wall Street, which long ago had jumped into bed with the politicians.(Wall Street has been a major campaign contributor, and politicians don't want to lose their cash cow.) Furthermore, the bailouts have not prevented us from going into a depression; they only have prolonged the financial agony.

Only one kind of "regulation" will work in finance: the freedom of financial institutions to invest make profits. However, should they incur losses, they must face the consequences on their own and not have taxpayers cover their losses. Indeed, I believe that had Congress said no to Wall Street in September 2008, markets temporarily would have crashed, but the system would have recovered and would be much stronger today than it is."

William Anderson
http://www.campaignforliberty.com/article.php?view=736

[TrueLight]

Bull Market or Just Bull?
By John Browne
Published 03/27/10



"Last week, the Dow closed at 10,741, up some 64 percent since its 2009 lows, [03/19/10, Yahoo! Finance] when most markets had priced in the likelihood of financial Armageddon. As the markets have rebounded from the brink of disaster, many Wall Street cheerleaders have proclaimed the dawning of a major new bull market. If we measure market cycles biannually, and if bull markets need not eclipse peaks achieved in previous cycles, then this forecast is spot on. Of course, most investors are not saving for next week, but for homes, college tuitions, and retirements. For these longer term investors, the euphoria of the current rally may soon turn to despair when the market faces the unsavory fundamentals of a second financial crisis.

We have long raised the point that, in general, the political, economic, and financial fundamentals of our new mega-government era do not support a sunny long-term outlook for U.S. stocks. Today, the S&P 500 trades at 21.6 times current earnings, which is 32% higher than the average over the last 30 years. [03/24/10, multipl.com] With so much economic uncertainty on the horizon, I'm not sure how you make the case that the market is still undervalued. The nature of the recent stock price move appears to be that of a bear-market rally, not a bull-market resurgence.

Politically, this past Sunday's passage of mandatory health insurance for all U.S. citizens, popularly dubbed 'Obamacare,' causes the greatest worry. None of the fundamental problems confronting the American healthcare sector were adequately addressed by this reform. Instead, government controls were increased and entrenched, and expensive new entitlements were offered to the voting public. Far from cutting the deficit, the costs of the new plan are likely to deepen deficits indefinitely. The Wall Street Journal reported Monday that the cost would be $940 billion over the next decade. The President, in speaking of the new health measure, declared that "[t]his is only a first step."  As in most socialist regimes, grand promises of milk and honey first win the popular vote, leading to bureaucracies that diminish, if not eradicate, individual freedom of choice.

The American free-enterprise model has been used by myriad nations as an ideal for economic growth and prosperity. As a reward, the United States served for many years as the darling of international investors. On the other hand, socialism has failed everywhere it has been tried. An America rapidly devolving toward socialism will unquestionably act as a disincentive to international investors. Increasingly, foreign funds will be withdrawn from our shores and taken to parts of the world that embrace capitalism.

Economically, the United States and European Union, and many of their constituent states, are among the world's most flagrant debtors. These debts are not being used to invest in profitable endeavors, but rather in welfare hand-outs and make-work projects. Worse still, these governments are adding new debt with such speed and volume that Moody's has begun to issue warnings on their previously untouchable credit ratings. Besides introducing tremendous regime uncertainty into the markets, spendthrift fiscal policy has the added harm of crowding out corporate and private borrowers.

The private sector can ill-afford this deprivation. While corporate earnings have risen substantially since the country began careening toward recession, this has largely been achieved by layoffs, improvements in inventory controls, and consolidated product lines. With top-line sales decreasing, the ability to produce rising profits by slashing costs cannot continue for long. We're looking for another wave of corporate bankruptcies as the anticipated V-shaped recovery fails to materialize.

The technical situation of the U.S. stock market looks similarly fragile. The 64 percent rally from the lows of early 2009 appears overbought. The fact that it has occurred on very light volume makes today's prices even more tenuous. That the rally may continue of its own momentum through the spring does not alter the poor fundamentals.

While stocks continued to move upward last week, the market is sensitive to Greece, Portugal and Europe's debt problems, as well as political and economic problems at home. There is some job recovery, but far too little. Corporations and governments are depending on a miraculous economic boom to remain solvent. When the Fed finally allows interest rates to reach more appropriate levels, look for the glass floor to begin cracking. It is comforting to think bullish, but, for now, the aura of recovery is just so much bull.

As an aside, all investors should keep in mind 'opportunity costs' as a matter of regular portfolio review. Although domestic stocks appear to have put in a rock solid performance over the past 12 months, one must weigh the outcome against asset classes around the world. Many may assume that the gains are unique to America when, in fact, other markets may have had largely better performance. Investors should bear in mind this opportunity cost to ensure they do not remain exclusively in the U.S. at the cost of perhaps missing investments found in China, India, Canada, Australia, and other attractive markets."

John Browne
http://www.campaignforliberty.com/article.php?view=720















Krugman's Hoover History
http://www.campaignforliberty.com/article.php?view=719














The main way to turn "green" into profits is getting government subsidy
By: Timothy P. Carney
Examiner Columnist
03/29/10 12:20 PM EDT


"If governments won't lead us toward slowing climate change, maybe business will.

Environmental journalists seem to love this topic. I can imagine a few reasons for this: (a) it's contrarian in some ways, which is always a draw for journalists; (b) it allows greenies to maintain that they are not totally anti-business.

But such stories often end up vague and foggy, because they never get around to explaining just how businesses can, in fact, profit, from addressing climate change.

This column, by the New York Times' "Green, Inc." columnist Tom Zeller, embraces that foggy vagueness -- in part by putting the question mark at the end of the headline.

Here's Zeller's thesis statement:

while the globe’s biggest industrial emitters, led by the fossil fuel industries, may have successfully helped to stymie the development of a binding treaty at Copenhagen — and, as my colleague John Broder reported late last week, to defang cap-and-trade legislation now pending in the American Congress — there is more pressure than ever on big business to come up with solutions.

Just what those "pressures" are is never made explicit in the column, typical of this sub-genre. Later in the article, there is the suggestion that "a strategy of ‘doing good’ will not only be its own reward, it will also enhance shareholder value."

Zeller's conclusion: "while businesses had an important role to play in curbing emissions, governments still needed to provide a policy framework to make it happen."

It's an interesting read, but it fails to fully edify, because the two spinning gears in the article -- government and business -- never quite engage. The column dips its toes into lobbying a few times, twice to talk about the Chamber of Commerce and the fossil fuel lobby, and once to make this odd claim:

businesses also spend much time and treasure attempting to influence the rules of the game — and ensuring that any changes to the rules, however broad or obvious their potential social benefits, do not affect their bottom lines.

This is The Big Myth: the lie that Big Business just wants to be left alone. Believing in the Big Myth requires ignoring heaps and heaps of factual evidence. Such as:

 

•General Electric's relentless lobbying for cap-and-trade policies that force people to buy the carbon offsets that GE is producing through a joint venture called Greenhouse Gas Services.
•Nike's lobbying for cap-and-trade that will knee-cap their competitor New Balance, which actually makes some of its shoes in the U.S.
•Goldman Sachs owns a share of the Chicago Climate Exchange, which would become a real grownup business if cap-and-trade passes.
•Alcoa lobbies for cap-and-trade in the U.S., which drives business to its lighter, but more expensive aluminum car frames.
 

None of these businesses are lobbying to make sure policies "do not affect their bottom lines." They are lobbying to ensure policies DO fatten their bottom lines while imposing costs on consumers, competitors, and taxpayers.

This is why so many of these industry-climate stories end up un-anchored. The anchor is regulatory robbery."


Read more at the Washington Examiner: http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/The-main-way-to-turn-green-into-profits-is-getting-government-subsidy-89397007.html#ixzz0jx4U9kys

[TrueLight]

The Federal Reserve as a Confidence Game
By Mark Thornton
Published 03/27/10


The Federal Reserve as a Confidence Game: What They Were Saying in 2007

Mises Daily: Wednesday, March 24, 2010 by Mark Thornton

[A paper given at the "Birth and Death of the Fed" conference, Jekyll Island, Georgia, February 26—27, 2010. An MP3 audio file of this article, read by Floy Lilley, is available for download.]

"In February of 2004, I published an article entitled "Greenspam." The general lesson was not to listen to Greenspan's deceptive testimony. Delete it from your mind like spam email messages. Watch what he has done and what he is doing, in order to protect your wealth and capital. Discount anything you read about his testimony, except Congressmen Paul's questions and commentary.

This talk will be a follow up to that article. I will describe central banking as a confidence game. The Federal Reserve plays a confidence game with us. A confidence game (also known as a bunko, con, flimflam, hustle, scam, scheme, or swindle) is defined as an attempt to defraud a person or group by gaining their confidence. The victim is known as the mark, the trickster is called a confidence man, con man, or con artist, and any accomplices are known as shills. Confidence men exploit human characteristics such as greed, vanity, honesty, compassion, credulity, and naïveté. The common factor is that the mark relies on the good faith of the con artist.

Here I will concentrate on the Fed's basic confidence game of trying to gain and maintain our confidence in its system and getting us to not take proper precautions against the negative effects of its policies.

Inflation is surely a scam and part of the confidence game — printing up money and lowering the value of all dollar-denominated assets while simultaneously benefitting political friends and accomplices is surely a fraud that could be classified as a confidence game. This is even more true because when the people finally lose confidence in the Fed system and realize what the Fed has been doing, the game will be up, the dollar will go down, and the Fed will come to an end!

There are some more basic aspects of the fraudulent nature of the Fed that I will not address here. Is the Fed a "conspiracy"? This is an aspect that is probably addressed most fully by the G. Edward Griffin book, The Creature from Jekyll Island. Or is the Federal Reserve just a cover for a banking cartel? This question has been fully addressed in the works of Murray Rothbard.

We will set aside some other fraudulent issues with the Fed. Issues like, why hasn't the nation's gold supply been audited in decades? Why hasn't the Fed itself been properly audited? And has the Fed been manipulating the gold market or surreptitiously leasing out the nation's gold supply? I suppose all of these issues are related to the basic general con game, but they are not necessary to make our general point here today.

The basic focus here will be on the Fed's mission to instill confidence in us about the economy while simultaneously instilling confidence in us about the abilities of the Fed itself. The first mission is easy to see because Fed officials are almost always publically bullish and hardly ever publically bearish about the economy. The economy always looks good, if not great. If there are some problems, don't worry, the Fed will come to the rescue with truckloads of money, lower interest rates, and easy credit. If things were to get worse, which they won't, the Fed would be able to respond with monetary weapons of mass stimulation.

"There are several reasons to believe that this concern about burst bubbles may be overstated."
— Fred Mishkin, Feb. 17, 2007
All this is consistent with the viewpoint of mainstream economists who see the business cycle as caused by psychological problems and random shocks. In their view, it is your fault for becoming overly speculative and risky and then lapsing into risk aversion and depression. It is your fault!

I will also limit my analysis in terms of time. When the subject of this talk was first constructed — so many months ago — the only reason it was limited to 2007 was because that was the period just prior to the onset of the current crisis. The crisis finally revealed itself in 2007. With all the data at their disposal, surely the Fed would have been alerting the people to prepare for what was to come. In fact, we could probably pick any time frame and find the consistently bullish sentiment expressed by the establishment community. I had no particular statements or testimony in mind when the title of the talk was chosen, only the conviction that the "confidence game" was a consistent and dependable part of how the Fed operates.

I also limit my analysis to the leading officials of the Federal Reserve. It is, after all, their game. However, we could also extend the investigation and dependably find similar statements and testimony from other government officials from the Treasury Department and White House, as well as the advocates and promoters of malinvestments from Wall Street and the real-estate complex. What I will do here is to cut and paste their words and present the relevant highlights from their speeches. Predictably, their testimony and speeches are highly nuanced and hedged.

Bernanke

"Central Banking and Bank Supervision in the United States." — Speech given at the Allied Social Science Association Annual Meeting, Chicago, January 5, 2007.

Let us begin at the beginning of 2007 with the chairman of the Fed, Ben Bernanke. The former economics professor from Princeton gave an address to the annual meeting of the American Economic Association. Bernanke is the first chairman of the Fed from academia since Arthur Burns. It was Burns who helped take us off the gold standard. God only knows where Bernanke is leading us!

In addressing his fellow mainstream academic economists, Bernanke was unusually bold in describing the Fed's access and ability to use information and data concerning financial markets. This knowledge and expertise includes the market for derivatives and securitized assets. He describes the Fed as a type of superhero for financial markets. In discussing the Fed's role as chief regulator of financial markets he makes powerful claims concerning the Fed's ability to identify risks, anticipate financial crises, and effectively respond to any financial challenge.

'Many large banking organizations are sophisticated participants in financial markets, including the markets for derivatives and securitized assets. In monitoring and analyzing the activities of these banks, the Fed obtains valuable information about trends and current developments in these markets. Together with the knowledge obtained through its monetary-policy and payments activities, information gained through its supervisory activities gives the Fed an exceptionally broad and deep understanding of developments in financial markets and financial institutions....

In its capacity as a bank supervisor, the Fed can obtain detailed information from these institutions about their operations and risk-management practices and can take action as needed to address risks and deficiencies. The Fed is also either the direct or umbrella supervisor of several large commercial banks that are critical to the payments system through their clearing and settlement activities.'

In other words, the Fed knows everything about financial markets. But it gets worse:

'In my view, however, the greatest external benefits of the Fed's supervisory activities are those related to the institution's role in preventing and managing financial crises.[1]'

In other words, the Fed can prevent most crises and manage the ones that do occur.

'Finally, the wide scope of the Fed's activities in financial markets — including not only bank supervision and its roles in the payments system but also the interaction with primary dealers and the monitoring of capital markets associated with the making of monetary policy — has given the Fed a uniquely broad expertise in evaluating and responding to emerging financial strains.'

In other words, the Fed is an experienced, forward-looking preventer of financial crises. This is a strong claim given Bernanke's own abysmal record of forecasting near-term events.

Chairman Bernanke is infamous on the internet because of the YouTube video that chronicles his rosy view of the developing crisis from 2005 to 2007. He denied there was a housing bubble in 2005, he denied that housing prices could decrease substantively in 2005 and that it would affect the real economy and employment in 2006, and he tried to calm fears about the subprime-mortgage market. He stated that he expected reasonable growth and strength in the economy in 2007, and that the problem in the subprime market (which had then become apparent) would not impact the overall mortgage market or the market in general. In mid-2007 he declared the global economy strong and predicted a quick return to normal growth in the United States. Remember, Austrians were writing about the housing bubble, its cause, and the probable outcomes as early as 2003.

"Indeed, U.S. financial markets have proved to be notably robust during some significant recent shocks."
— Donald L. Kohn, Feb. 21, 2007
Possibly the worst of Bernanke's statements occurred in 2006, near the zenith of the housing bubble and at a time when all the exotic mortgage manipulations were in their "prime." This was the era of the subprime mortgage, the interest-only mortgage, the no-documentation loan, and the heyday of mortgage-backed securities. The new Fed chairman admitted the possibility of "slower growth in house prices," but confidently declared that if this did happen he would just lower interest rates.

Bernanke also stated in 2006 that he believed that the mortgage market was more stable than in the past. He noted in particular that "our examiners tell us that lending standards are generally sound and are not comparable to the standards that contributed to broad problems in the banking industry two decades ago. In particular, real estate appraisal practices have improved."

This, my friends, is what the Fed is all about. Take a $100-billion budget, thousands of economists and statisticians, add in every piece of economic data, including detailed information concerning every major financial firm, and what do you come up with? They produced consistently wrong answers, or answers that were designed to maintain the "confidence" of the average citizen.

Mishkin

"Enterprise Risk Management and Mortgage Lending." — Speech given at the Forecaster's Club of New York on January 17, 2007.

Less than two weeks after Bernanke's address to the American Economic Association, fellow academic Fred Mishkin, a governor of the Federal Reserve Board, took the stage at the Forecaster's Club of New York. A leading mainstream economist and expert on money and banking, Mishkin addressed the group on the topic of "Enterprise Risk Management and Mortgage Lending."

He begins,

'Over the past ten years, we have seen extraordinary run-ups in house prices ... but ... it is extremely hard to say whether they are above their fundamental value.... Nevertheless, when asset prices increase explosively, concern always arises that a bubble may be developing and that its bursting might lead to a sharp fall in prices that could severely damage the economy....

The issue here is the same one that applies to how central banks should respond to potential bubbles in asset prices in general: Because subsequent collapses of these asset prices might be highly damaging to the economy ... should the monetary authority try to prick, or at least slow the growth of, developing bubbles?

I view the answer as no.'

In others words, if the Fed is not worried, you shouldn't be either.

'There is no question that asset price bubbles have potential negative effects on the economy. The departure of asset prices from fundamentals can lead to inappropriate investments that decrease the efficiency of the economy.'

In other words, there are some theoretical problems with bubbles. But Mishkin has a theory that says there can be no such things as bubbles.

'If the central bank has no informational advantage, and if it knows that a bubble has developed, the market will know this too, and the bubble will burst. Thus, any bubble that could be identified with certainty by the central bank would be unlikely ever to develop much further.'

He then tells his listeners that in the unlikely event of a bubble, it really would not be a problem:

'Asset price crashes can sometimes lead to severe episodes of financial instability.... Yet there are several reasons to believe that this concern about burst bubbles may be overstated.

To begin with, the bursting of asset price bubbles often does not lead to financial instability....

There are even stronger reasons to believe that a bursting of a bubble in house prices is unlikely to produce financial instability. House prices are far less volatile than stock prices, outright declines after a run-up are not the norm, and declines that do occur are typically relatively small.... Hence, declines in home prices are far less likely to cause losses to financial institutions, default rates on residential mortgages typically are low, and recovery rates on foreclosures are high. Not surprisingly, declines in home prices generally have not led to financial instability. The financial instability that many countries experienced in the 1990s, including Japan, was caused by bad loans that resulted from declines in commercial property prices and not declines in home prices.'

Boy, I bet he would like to take back his words today. Everything he just said turned out to be untrue; and he should have known that all of the assumptions he used to quell fear and instill confidence were simply not true.

'My discussion so far indicates that central banks should not put a special emphasis on prices of houses or other assets in the conduct of monetary policy. This does not mean that central banks should stand by idly when such prices climb steeply....

Large run-ups in prices of assets such as houses present serious challenges to central bankers. I have argued that central banks should not give a special role to house prices in the conduct of monetary policy but should respond to them only to the extent that they have foreseeable effects on inflation and employment. Nevertheless, central banks can take measures to prepare for possible sharp reversals in the prices of homes or other assets to ensure that they will not do serious harm to the economy.'

In other words, the Fed likes bubbles. Mishkin says the Fed is prepared to protect us from the bursting of the bubble, but obviously he was wrong on that point too. Of course the issue of the Fed causing bubbles is never broached, and if it is, Fed officials will chime in to squash any such notion.

Kohn

"Financial Stability: Preventing and Managing Crises." — Speech given at the Exchequer Club Luncheon, Washington, DC. February 21, 2007.

Fed Vice Chairman Donald L. Kohn downplayed the possibility of a crisis but said,

'In such a world, it would be imprudent to rule out sharp movements in asset prices and deterioration in market liquidity that would test the resiliency of market infrastructure and financial institutions.

While these factors have stimulated interest in both crisis deterrence and crisis management, the development of financial markets has also increased the resiliency of the financial system. Indeed, U.S. financial markets have proved to be notably robust during some significant recent shocks.'

In other words, just thinking about crises makes them less likely.

'The Federal Reserve, in its roles as a central bank, a bank supervisor, and a participant in the payments system, has been working in various ways and with other supervisors to deter financial crises. As the central bank, we strive to foster economic stability. As a bank supervisor, we are working with others to improve risk management and market discipline. And in the payments and settlement area, we have been active in managing our risk and encouraging others to manage theirs.'

In other words, the Fed will deter any crisis.

'The first line of defense against financial crises is to try to prevent them. A number of our current efforts to encourage sound risk-taking practices and to enhance market discipline are a continuation of the response to the banking and thrift institution crises of the 1980s and early 1990s.'

"Encourage sound risk-taking practices" — did I hear that right?

'Identifying risk and encouraging management responses are also at the heart of our efforts to encourage enterprise wide risk-management practices at financial firms. Essential to those practices is the stress testing of portfolios for extreme, or "tail," events. Stress testing per se is not new, but it has become much more important. The evolution of financial markets and instruments and the increased importance of market liquidity for managing risks have made risk managers in both the public and private sectors acutely aware of the need to ensure that financial firms' risk-measurement and management systems are taking sufficient account of stresses that might not have been threatening ten or twenty years ago.'

In other words, the Fed's number one job is to prevent "extreme" events — or was that, to cause such events?

'A second core reform that emerged from past crises was the need to limit the moral hazard of the safety net extended to insured depository institutions — a safety net that is required to help maintain financial stability. Moral hazard refers to the heightened incentive to take risk that can be created by an insurance system. Private insurance companies attempt to control moral hazard by, for example, charging risk-based premiums and imposing deductibles. In the public sector, things are often more complicated.'

I guess they are! In other words the Fed must refrain from bailing out markets or it will encourage risk and speculation.

'The systemic-risk exception has never been invoked, and efforts are currently underway to lower the chances that it ever will be.'

Well, I think that record has now been broken — into several trillion pieces.

[TrueLight]

continued...

Kroszner

"Recent Innovations in Credit Markets." — Speech given at the Credit Markets Symposium at the Charlotte Branch of the Federal Reserve Bank in North Carolina, March 22, 2007.

Fed Governor Randall S. Kroszner was the Fed's number-one guy in terms of regulation of financial markets. He was the point man in preventing things like systemic risk, but he considered all this financial "innovation" and "engineering" to be a good thing:

'Credit markets have been evolving very rapidly in recent years. New instruments for transferring credit risk have been introduced and loan markets have become more liquid.... Taken together, these changes have transformed the process through which credit demands are met and credit risks are allocated and managed.... I believe these developments generally have enhanced the efficiency and the stability of the credit markets and the broader financial system by making credit markets more transparent and liquid, by creating new instruments for unbundling and managing credit risks, and by dispersing credit risks more broadly....

The new instruments, markets, and participants I just described have brought some important benefits to credit markets. I will touch on three of these benefits: enhanced liquidity and transparency, the availability of new tools for managing credit risk, and a greater dispersion of credit risk.'

What he then goes on to discuss are "recent developments" such as credit default swaps (CDS) of which the "fastest growing and most liquid" are credit-derivative indexes involving such things as packages of subprime residential mortgages. He says that "Among the more complex credit derivatives, the credit index tranches stand out as an important development."

He goes on to state that, historically, secondary markets were illiquid and nontransparent (banks held their own loans!). Now liquidity has improved and transparency has improved. This promotes better risk management as risk is measured and priced better because market participants have better tools to manage risk. The result has been a "wider dispersion of risk."

'On its face, a wider dispersion of credit risk would seem to enhance the stability of the financial system by reducing the likelihood that credit defaults will weaken any one financial institution or class of financial institutions.'

Yes, there are some concerns, but most of these concerns are "based on questionable assumptions." Yes, there is risk, but it's the risk that has been out there all along; now we can trade this risk among ourselves. There is "nothing fundamentally new to investors ... credit derivative indexes simply replicate the sort of credit exposures that have always existed." Plus, remember that this risk is greatly diminished because lenders require borrowers to put up collateral.

What Kroszner has failed to realize is that by allowing institutions to disperse their risk, the regulators have encouraged and allowed for a huge increase in the aggregate amount of risk. When banks kept their own loans on their own books, they were careful to make prudent loans, but with nearly free money available from the Fed, they wanted to make more loans, and the only way to do that is to make riskier loans. They didn't want to hold the risky loans so they "dispersed" them.

Kroszner told his audience that the market already experienced a surprise in May of 2005, but that since that time much energy has been expended by market participants to improve risk management.

We don't have to worry, Kroszner tells us, because Gerald Corrigan is in charge of making sure nothing goes wrong. Corrigan — a former president of the New York Fed and a managing director in the Office of the Chairman of Goldman Sachs — has been in charge of a private-sector group that controls "counterparty risk management policy" for the financial industry.

'Cooperative initiatives, such as [this one led by Corrigan] can contribute greatly to ensuring that those challenges are met successfully by identifying effective risk-management practices and by stimulating collective action when it is necessary.... The recent success of such initiatives strengthens my confidence that future innovations in the market will serve to enhance market efficiency and stability, notwithstanding the challenges that inevitably accompany change.'

Checking ahead, we find Kroszner still bullish later that same year

"Risk Management and the Economic Outlook." — Speech given at the Conference on Competitive Markets and Effective Regulation, Institute of International Finance, New York. November 16, 2007.

'Looking further ahead, the current stance of monetary policy should help the economy get through the rough patch [yes, he called it a rough patch] during the next year, with growth then likely to return to its longer-run sustainable rate. As conditions in mortgage markets gradually normalize, home sales should pick up, and homebuilders are likely to make progress in reducing their inventory overhang. With the drag from the housing sector waning, the growth of employment and income should pick up and support somewhat larger increases in consumer spending. And as long as demand from domestic consumers and our export partners expand, increases in business investment would be expected to broadly keep pace with the rise in consumption.'

Over the next year, the Dow would lose 6,000 points; we have now doubled the amount of unemployment, adding more than 7 million unemployed. Consumer confidence hit a 27-year low this week, and sales of new homes hit the lowest level in a half a century — the lowest level on record! Kroszner, an economist groomed by the Institute for Humane Studies, has since returned to the University of Chicago and the directorship of the George Stigler Center.

Conclusion

We can see that the Fed is a confidence game. Their public pronouncements, while heavily nuanced and hedged, uniformly present the American people with a rosy scenario of the economy, the future, and the ability of the Fed to manage the market. Ben Bernanke told Congress this week that we are in the early stages of an economic recovery. Of course, he has been saying that since the spring of 2009 (if not earlier).

These are the people who said that there was no housing bubble, that there was no danger of financial crisis, and then that a financial crisis would not impact the real economy. These are the same people who said they needed a multitrillion dollar bailout of the financial industry, or we would get severe trouble in the economy. They got their bailout, and we got the severe trouble anyways. It is time to bring this game, this confidence game, to an end.

This article is based on a paper given at the "Birth and Death of the Fed" conference, Jekyll Island, Georgia, February 26—27, 2010. An MP3 audio file of this article, read by Floy Lilley, is available for download."

Mark Thornton
http://www.campaignforliberty.com/article.php?view=724

[TrueLight]

short clips of Marc Faber at RBS Seminar 15/3/10 (skip to 1:16)
http://www.youtube.com/watch?v=pvsJsdQh-xY
 
Young Americans for Liberty interviews Obamanomics author Tim Carney 19/1/10
very interesting...
p1- http://www.youtube.com/watch?v=cksAOlyz30g
p2- http://www.youtube.com/watch?v=sDqf6Rv6KAM&annotation_id=annotation_829425&feature=iv
p3- http://www.youtube.com/watch?v=GqBBsYWJgCc&annotation_id=annotation_712940&feature=iv

Ron Paul on cap and trade 31/3/10
http://www.youtube.com/watch?v=2SGTPf21BNo


Mike Shanklin & Dr Tom Woods On Federal Reserve, Obama/Bush, Tea Parties, GSEs, Ron Paul
p1- http://www.youtube.com/watch?v=4YhHV12UUlw
p2- http://www.youtube.com/watch?v=juf18AwW3ag

[TrueLight]

Financial Reform 201
By William Anderson
Published 04/05/10


"Now that ObamaCare has become law, Paul Krugman now is agitating for "financial reform," once again creating straw men, giving us a picture of the regulatory history of finance that is not true, and proposing "solutions" that only will lead to more problems. Other than that, I guess he will offer sound advice.

On the surface, all of us can agree. The financial meltdown on Wall Street came about because huge numbers of "investments," hedge funds, and other financial devices were pyramided atop securitized mortgages, which were being sold as though they were gold, instead of the fools gold they really were. To many people, it was obvious that this whole scheme was unsustainable, and when it went down, it went down quickly and very hard.

(In 2006, when I was appealing a tax ruling on my house, I told an Allegany County tax board that the housing market was, in fact, a bubble that would burst violently. They laughed at me, and one person said, "We don't see that happening." I replied that it would -- and it did.)

It is not hard to see in hindsight what happened. However, Krugman and I disagree on a large number of particulars, and one of them is the role of regulation in this mess, and the other is, well, the role of regulation needed to fix it.

Now, I agree with most (but not all) of what he writes here:

'It's easy to see where concerns about banks that are "too big to fail" come from. In the face of financial crisis, the U.S. government provided cash and guarantees to financial institutions whose failure, it feared, might bring down the whole system. And the rescue operation was mainly focused on a handful of big players: A.I.G., Citigroup, Bank of America, and so on.

This rescue was necessary, but it put taxpayers on the hook for potentially large losses. And it also established a dangerous precedent: big financial institutions, we now know, will be bailed out in times of crisis. And this, it's argued, will encourage even riskier behavior in the future, since executives at big banks will know that it's heads they win, tails taxpayers lose. (Emphasis mine)'

He is correct about the moral hazard in the system, but the bailout was not necessary; in fact, it has blocked the needed liquidation of bad assets in the system and it is preventing a recovery from happening. Here we see the huge gulf between the Keynesians (and Friedmanites, for that matter) and the Austrians.

To a Keynesian, all assets pretty much are homogeneous, and what really matters is spending. Consumption is little more than people "buying back the products they make" in order to keep the Circular Flow intact. Thus, throwing more money into the economy via borrowing and printing will keep the economy from falling into the pit of deflation and helping set the stage for a recovery. To a Keynesian, the worst thing that can happen in deflation, for it creates an endless downward spiral that ends at an "equilibrium" of high unemployment and hopelessness.

(Robert Murphy in his Politically Incorrect Guide to the Great Depression has a good commentary on this error. He points out that if this were true, then the Federal Reserve System's tightening of money in 1921 would have thrown the economy into a pit from which it would not have emerged. Instead, the economy soon afterward had a robust recovery.)

Austrians take a different tact. First, consumption is a purposeful activity, done by people to meet their needs and desires. Second, the basis of consumption is production; we consume because we produce, and we pay for consumption by exchanging what we have produced for those goods and services we need.

This implies that there is a balance within the economy that must be sustained. The housing meltdown came about because the go-go housing market could not continue, as the pouring of resources into housing pulled the entire system out of balance. Unfortunately, too many economists have claimed that the housing meltdown came about because housing prices fell (Martin Feldstein comes to mind here); no, prices fell because this market could not be sustained no matter how much money the government and the banks threw into it.

In other words, the Keynesians and Friedmanites have made the fundamental error of violating what Carl Menger called the Law of Cause and Effect. They have assumed that the effect really was the cause of the calamity. Furthermore, they continue to demand "solutions" that only prop up the malinvestments -- at the expense of the rest of the economy, the still-healthy portion that will not be healthy much longer if the government continues its path of borrowing, printing money, and propping up the bad investments.

I do agree with Krugman that the moral hazard problem is real, but I disagree with his proposed "solutions" that really only compound the problem. What he proposes is to bring back the banking regulations that existed from the New Deal to the early 1980s, and then putting the rest of the financial system under the same regulatory umbrella. In his view, cited elsewhere, "smart" and "well-meaning" regulators can take over from there and keep calamities from happening.

Before going further, I agree with Krugman that moral hazard was a huge problem and I also agree that under the current mentality that grips the system today, the bankers and financial barons invariably will be successful in asking for new money to clean up the mess they have made. However, Krugman also forgets that the establishment of the Fed in and of itself was a huge moral hazard. The original purpose of the central bank was to be a backstop that would provide newly-printed money to member banks in case of a run or a "panic," which occurred once in a while. The presence of the Fed sent a signal to the bankers that the government had their backs, and that problem continues to this day.

There is another issue I have noted before, and that is the difference between Krugman's view of where regulated banking stood in 1980 and the view of Austrians and others. According to Krugman, the banking cartel (which it really was) was doing just fine, but ideological Reaganites came in and undid the whole carefully and wisely-planned structure, all in the name of ideology. Then they created an entire shadow system, also done from ideology.

In a word, that view is nonsense. The banking cartel was losing capital because the government held down interest rates it could offer depositors even while inflation raged in double-digits. People sought other venues and found them. In the meantime, Michael Milken already was helping to finance ventures that the banks would not touch. (As Daniel Fischel notes in Payback, much of the recovery of the 1980s came from Milken's financing methods.)

As economists such as George Stigler and Sam Peltzman pointed out, regulation has the effect of offering protection to regulated firms, but also serving to keep out competitors. In other words, contra Krugman, regulation creates what in effect are government-sponsored cartels. From this, we see "Capture Theory" emerging, as the regulated industries and their government regulators form a tag team that operates to the benefit of the people in the system -- and against consumers.

The ultimate irony is that Krugman and others are demanding re-regulation as a form of "consumer protection," which clearly has not been the pattern of regulation. Krugman can deny this point, but he is the one who is wrong.

Krugman can provide this fantasy of regulation all he wants, and I am sure that plenty of people will believe it, but that does not change the fact that "Capture Theory" is real and provides a much stronger view of regulation than does Krugman's Keynesianism. The re-regulation he espouses not only will make the economy weaker (as it protects the current set of malinvestments), but it also sets the stage for crises in the future.

Instead, we need to abolish the government backstops altogether and stop this bailout foolishness, which only provides the economic agony we are experiencing. The problem is not "too big to fail" or "we need more regulation." No, what we need is to clear the moral hazard out of the system and let the economic assets move to their real values.

Only then will we have a real recovery."

William Anderson
http://www.campaignforliberty.com/article.php?view=749

[TrueLight]

The Insanity of Government 'Reform'
By William Anderson
Published 04/12/10

"Albert Einstein's definition of insanity -- repeating something and expecting different results -- is known to nearly everyone. Yet mere knowledge of this definition apparently has not kept the "best and the brightest" among us from becoming its practitioners.

The belief that government continually "reforms" itself, correcting earlier "mistakes" and moving toward "perfection," has dominated our body politic since the Progressive Era. American history books celebrate the Progressivism of a century ago in which a combination of intellectuals, politicians, and business leaders sought to lay aside the "chaos and corruption" that was the market economy and replace it with something that was "efficient" and "equitable."

Anyone who has taken a typical American history course, whether in high school or college, can remember how the expansion of government through a series of "reforms" has been touted as "progress." We read how Congress passed the Pure Food and Drug Act after Upton Sinclair's book, The Jungle, exposed unsanitary conditions in meat-packing houses, how government collared Big Business by establishing economic regulation and antitrust rules, and how the "people" finally controlled the huge fortunes made by businessmen like Andrew Carnegie and John D. Rockefeller earned via the income tax.

Then there is the establishment of the Federal Reserve System, which gave us a "modern" financial system (and helped give us the Great Depression). The list seems endless, and the message is clear: The expansion of the powers of the federal government made American society better and more accountable.

The Progressives reasoned that a decentralized market economy, which operated via a price system and private ownership (and thus control) of property was chaotic and unfair. Men who "manipulated" the system could grow fabulously wealthy while driving others into poverty. Furthermore, business moguls often were uneducated men who did not appreciate the value of education and who lacked the "expertise" to properly "run society," according to these "reformers." The Progressives believed that a society dominated by wise "experts" could lead government agencies that would better utilize resources through what they called a rational approach. (The Progressives ultimately won these businessmen to their side, creating even more problems, as Progressivism became a statist alliance of business and government.)

Such ideals clash with reality, but that has not stopped the eternal drive toward "reform." Thus, the recent medical legislation is called "reform," government takeover of student loans is called "reform," and recreating the government-led financial cartels of Wall Street is called "reform."

What is the background of the current set of "reforms"? They are attempts to "fix" monstrosities that previous "reforms" have created. ObamaCare is attempting to repair damage created when Congress 45 years ago created Medicare and Medicaid, thus setting the stage for wild cost distortions in medical care that have grown exponentially worse in the last two decades.

The "financial reform" now being touted by Congress attempts to "fix" the "financial reforms" (wrongly called "deregulation") that came about 30 years ago. Those earlier "reforms" were an attempt to undo the damage that was done by the banking "reforms" created during the Great Depression which, ironically, were passed to deal with the problems caused by earlier "reforms" of the banking and monetary system, and especially the creation of the Federal Reserve System.

If someone steps back and examines the whole picture, one can see how the original "reforms" of the Progressive Era created perverse incentives and strengthened the dead hand of government against the creative hand of the market. For example, legally requiring medical care to be financed by third-party payments creates huge distortions in the production structure of that care, which then result in even more "reforms," in a never-ending attempt to fix what cannot be fixed.

The perverse process is endless. We see it not only in medical care, but finance, transportation, farm subsidies and regulations, and just about every other area of our lives. Yet government, urged on by intellectuals and the media, soldiers on. Like Bill Murray's character in Groundhog Day, we are forced to repeat the old errors, except that in real life, government never gets it right."

William Anderson
http://www.campaignforliberty.com/article.php?view=769

[TrueLight]

Bernanke Warns: U.S. Debt Could Balloon to More Than 100% of GDP
http://www.youtube.com/watch?v=pY7taIIdPSw

Ron Paul vs. Ben Bernanke at JEC Hearing 04/14/10  5:56 unbelievable... stop bailing out the world
http://www.youtube.com/watch?v=ySZPYqJcwrE

Peter Schiff in Woodbury April 13th 2010 Best Q+A!
p1 http://www.youtube.com/watch?v=e3u28QCltLQ
p2 http://www.youtube.com/watch?v=TPEcxCwu2vs&feature=channel
p3 http://www.youtube.com/watch?v=BsSPqvjbD_w&feature=channel

[TrueLight]

Peter Schiff - Income Tax vs Consumption Tax
http://www.youtube.com/watch?v=6ZKN0BZKIKA
Philosopher of our time Ron Paul's Great Speech at a tea party!
http://www.youtube.com/watch?v=OZ6_s4U2PGs

[TrueLight]

Peter Schiff on financial regulation bill and Goldman Sach fraud charges
http://www.youtube.com/user/schiffreport?blend=1&ob=4#p/u