Economic Pretention

In his commentary for World News Trust entitled Still Pretending, James Kunstler writes:

The maneuvers that the big banks are making nowadays, along with their enablers at the Federal Reserve and elsewhere in Washington, really amount to little more than the old Polish blanket joke — in which (excuse my concision) the proverbial Polack wants to make his blanket longer, so he scissors twelve inches off the top and sews it onto the bottom. Only in this case, the banks are shearing x-billions of losses off the top of their blankets and re-attaching x-billions of new debt onto the bottom. This new debt, of course, goes to cover the old losses and only represents further losses-to-be-reported-later, since the banks are basically insolvent. Borrowing more money when you’re broke doesn’t make you less insolvent.

Congratulations Mr. Kunstler, you got it right.

But let’s put a little less blame on the “big banks” and a little more on the “enablers.” It is government interference in the economy, namely the central banking system, established by the Federal Reserve Act of 1913, that set the current looming economic disaster on its present course.

With the total elimination of asset-based currency under Nixon, we now have a system of debt-based currency that allows the Fed to print fiat money at its discretion and pump that money supply into the economy in the form of easy credit. The “big banks” are only responding to the signals from the Fed and its enabler, the U.S. Government.

Currency that is based on debt only has value based on our future ability to repay (savings, assets, equity, incomes, population growth, earnings capability, currency strength). Therefore, all new additional money is debt and all debt is paid with weaker, devalued dollars — or with new debt. Wealth is siphoned from the poor and middle-class through inflation and boom-bust business cycles. America is essentially insolvent as we speak because of our declining potential to back up this obligation to repay.

As Mr. Knustler says,

Sooner or later we’ll get back to money that stands for something and banks that function as credible repositories of wealth.

“Money that stands for something” means asset-based. “Banks that function as credible repositories of wealth” means banking and lending institutions that are not tools of the government.

We are all debt-slaves now and only 10% of Americans are voting for change this year. I have been supporting the only Presidential candidate who fully understands our economic situation, how we got where we are, what are the consequences, and what is the only remedy. This is the only authentic change: radical course correction — not simply branding the ’status quo.’

Americans have been offered their liberty and security on a silver platter and are content to let it pass in favor of “American Idol” politics. They deserve now whatever rot they get.

Thank you Mr. Kunstler for agreeing with me.

FURTHER READING

A Word From Ron Paul, Forbes Magazine, March 8, 2008.

Past the Point of No Return by Chris Mack, February 18, 2008.

What Has Government Done to Our Money? by Murray N. Rothbard. AUDIOBOOK

Money, Bank Credit, and Economic Cycles by Jesús Huerta de Soto.

Most Economists in Survey Say Recession Is Here — Phil Izzo and Sudeep Reddy, WSJ.

How a lender bailout hurts the economy — Colin Barr, CNN Money.

Media Overlook Fed Bailout in Plain View — Dean Baker.

Happy Talk on the Bailout — Dean Baker.

The Fed Didn’t Bail Out Wall Street? It Just Ain’t So!” By Robert Murphy, The Freeman, January 2008.

The Fed’s New Tricks Are Creating Disaster” By Frank Shostak, Mises Blog, 3/18/2008.

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About Tim Peck

Unaffiliated Objectivist
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