“When we lose the right to be different, we lose the privilege to be free.”
–Charles Evans Hughes
Tag Archives: #usa
Where we are going…
“If you don’t know where you are going, you might wind up someplace else.”
–Yogi Berra
A New Kind of Living
“It contributes greatly towards a man’s moral and intellectual health, to be brought into habits of companionship with individuals unlike himself, who care little for his pursuits, and whose sphere and abilities he must go out of himself to appreciate.”
–Nathaniel Hawthorne, Early American novelist
“You don’t think your way into a new kind of living. You live your way into a new kind of thinking.”
–Henri J. M. Nouwen, Christian mystic
Honesty
“Honesty is the first chapter in the book of wisdom.”
–Thomas Jefferson
“I am afraid we must make the world honest before we can honestly say to our children that honesty is the best policy.”
–George Bernard Shaw
Common Sense
“We cannot solve our problems with the same thinking we used when we created them.”
–Albert Einstein
“Democracy is finding proximate solutions to insoluble problems.”
–Reinhold Niebuhr
“Society is always taken by surprise at any new example of common sense.”
–Ralph Waldo Emerson
When I reflect that God is just…
“I tremble for my country when I reflect that God is just; that His justice cannot sleep forever.”
–Thomas Jefferson
Excluded From the Means…
“Men might as well be imprisoned, as excluded from the means of earning their bread.”
–John Stuart Mill
The aristocracy of our monied corporations…
“I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.”
–Thomas Jefferson
“If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man.”
–Mark Twain
The Trial of Principle
“We cannot solve our problems with the same thinking we used when we created them.”
–Albert Einstein
“Our greatest glory is not in never failing, but in rising up every time we fail.”
–Ralph Waldo Emerson
“Adversity is the trial of principle. Without it, a man hardly knows whether he is honest or not.”
–Henry Fielding
Coin, credit and circulation
“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
–Mark Twain
“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation [money].”
–John Adams
“The time to save is now. When a dog gets a bone, he doesn’t go out and make a down payment on a bigger bone. He buries the one he’s got.”
–Will Rogers
American Crisis – 2
“I believe that banking institutions are more dangerous to our liberties than standing armies.”
–Thomas Jefferson
Why the Bankers Are Trapped
Few seem to grasp that we have arrived at a turning point; a nation and a world confronted with extraordinary structural change.
To think of the future in terms of recovering the past will not be helpful. We must pick ourselves up, hit the reset button, and move forward in a manner that is congruent with a rapidly changing reality.
I am not a banker or economist. I cannot speak with authority regarding the fragile conditions to which we are exposed. But neither am I trapped in past assumptions or blinkered by custom. My intent here is to monitor a transition I think we should all try to understand.
There are many aspects to the changes we are experiencing, some with immediate implications, others longer-term.
However, I think it useful to begin with a particular question with critical immediacy: “Why is the Federal Reserve unable to return the economy to some semblance of order?” Or, to put it another way: “Why has nothing actually been fixed since 2008?”
Here we find a powerful illustration of what is meant by structural change.
The short answer to these questions is that they want to believe they are dealing with a cyclical crisis rather than a structural crisis.
Again, why? Because the truth represents an unbearable existential threat.
Structural change has shifted the economy into a long-term deflationary trend, which presents financial institutions and governments with an impossible situation.
I refer you here to James Rickards’ recent best-seller, “The Death of Money: The Coming Collapse of the International Monetary System”. A monetary economist and former banker, Rickards is an adviser to the Pentagon and CIA.
Using simple math, Rickards’ explains how “in effect, the impact of declining prices [deflation] more than offsets declining nominal growth [GDP] and therefore produces real growth.”
Most of us would think this is a good thing.
He writes: “Despite possible real growth, the U.S. Treasury and the Federal Reserve fear deflation more than any other economic outcome. Deflation means a persistent decline in price levels for goods and services. Lower prices allow for a higher living standard even when wages are constant, because consumer goods cost less. This would seem to be a desirable outcome, based on advances in technology and productivity that result in certain products dropping in price over time….”
Why is the Federal Reserve so fearful of deflation that it resorts to extreme measures to oppose it? Rickards gives us four reasons.
First, deflation has a severe impact on government debt. “U.S. debt is at a point where no feasible combination of real growth and taxes will finance repayment…. But if the Fed can cause inflation…, the debt will be manageable because it will be repaid in less valuable nominal dollars. In deflation, the opposite occurs, and the real value of the debt increases….”
Second, deflation impacts the debt-to-GDP ratio, causing foreign creditors to lose confidence and demand higher interest rates. This is an urgent problem because the debt is continually increasing. Budget deficits require new financing, and interest payments are being financed with new debt.
Third, deflation is a major problem for banks. As Rickards’ puts it, “deflation increases money’s real value and therefore increases the real value of lenders’ claims on debtors…. But as deflation progresses, the real weight of the debt becomes too great, and debtor defaults surge.”
The fourth problem with deflation is about taxes. When a worker receives a raise, the additional income is subject to taxes. But, if the cost of living drops by the same amount, the worker in effect receives the same raise and the government cannot tax it.
“In summary,” writes Rickards, “the Federal Reserve prefers inflation because it erases government debt, reduces the debt-to-GDP ratio, props up banks, and can be taxed.”
“Deflation may help consumers and workers,” he says, “but it hurts the Treasury and the banks…. The consequence of these deflationary dynamics is that the government must have inflation, and the Fed must cause it. The dynamics amount to a historic collision between the natural forces of deflation and the government’s need for inflation.”
Such are the difficulties and dilemmas of structural change.
Tom
Next week: Insolvency and the Devaluation of the Dollar.
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Liberty and the American Idea 