Trayvon Martin and the Absurdity of “Hate” Crimes

LvMIC:

Much like the scandal involving three Duke University lacrosse players and the non-rape of a stripper back in 2006, the media has already jumped to prosecution following the murder of Florida teenager Trayvon Martin.  Now, judging by the evidence thus far, it would appear that Martin may have been gunned down by overly-zealous neighborhood watcher George Zimmerman.  Zimmerman had a history of repeated 911 callings for suspicious figures around the area he patrolled in Sanford, Florida.  Even after being told to stand down by a 911 operator, Zimmerman proceeded to confront an unarmed Martin.  What occurred next is still unclear as it’s a mystery the legal system must solve (as flawed as it is when run solely by the government).  One can only hope that justice is served to whoever the true victim may be.  If this author had to guess, it would appear that Zimmerman was indeed the aggressor in this tragedy as a recorded phone call between Martin and his girlfriend revealed that Zimmerman was following the teen whose only crime was walking to his father’s house to watch the NBA All Star game.  This is in addition to Martin’s body lacking any marks which would signify he was engaged in a physical altercation.  But this overall hunch is only that; a hunch based on a few bits of evidence.

Incomplete evidence doesn’t stop a media industry always looking for its next target of vilification however.  Spike Lee and Minister Louis Farrakhan have escalated the tension further by tweeting Zimmerman’s address (which turned out to be wrong) and suggesting a form of vigilante retaliation.  Professional race card dealers Al Sharpton and Jesse Jackson, seeing too lucrative of an opportunity to stay relevant, have weighed in to fan the flames of black victimization.  Sharpton has called for the Justice Department’s investigation to focus on the incident as a “hate” crime.

The U.S. Department of Justice defines a hate crime as “violence of intolerance and bigotry, intended to hurt and intimidate someone because of their race, ethnicity, national origin, religious, sexual orientation, or disability.”  The purpose of separating what constitutes a normal crime from a “hate” crime is to socially engineer “acceptable” behavior.  That is, to eliminate any prejudices one has toward a certain race, creed, sexual orientation, or gender.  By requiring stricter punishment for crimes done out of a specified dislike, the goal is to force a change in in the public mindset.

Such a task is based on the idea that any man’s thoughts in themselves are worthy of forceful manipulation.  Say I have a predisposition to hate the black race.  I go about my daily business of interacting in my local economy while socializing and transacting with a number of African Americans.  But I may consider blacks to be an inferior race and undeserving of my respect.  While a significant portion of my coworkers and the customers I serve happen to be black, I give them the equivalent of the “cold shoulder” in the workplace.

Who am I hurting here?

From the non-aggression principled perspective, I am hurting no one.  In that sense, my apprehension toward blacks, or any race, gender, religion, etc. for that matter, is not something wrong or harmful.  I am committing no physical violence toward them nor am I threatening to do so.  From the view of enjoying myself at work or attracting satisfied consumers, my behavior is extremely illogical.  As Mises wrote on the unifying effect of the market and the division of labor:

The greater productivity of work under the division of labor is a unifying influence. It leads men to regard each other as comrades in a joint struggle for welfare, rather than as competitors in a struggle for existence. It makes friends out of enemies, peace out of war, society out of individuals.

Thoughts and feelings are just that; thoughts and feelings which, when not acted upon, physically harm no one.  The line of justifiable prosecution is crossed when I attack or pose a serious threat to those whom I dislike.  But, as was pointed out, such unnecessary conflict is irrational from the point of view of facilitating market transactions.  Peace is always the great enabler of the market.

So where do “hate” crimes fit into all this?

If we are referring to real crimes, that is those which are aggressions by one toward another, then all crimes are hateful by definition.  Does one attack another out of love?  Out of respect and admiration?  Why is there no “love” crime?

Crime, irregardless of the ends one seeks when committing them, is necessarily rooted in hate and harm.  Separating between “hate” crimes and “non-hate” crimes is senseless if true justice is being sought.

But therein lies the true intention of “hate” crime legislation.  Rather than uphold an equal standard of punishment for all, the imposition of a harsher punishment through “hate” crime laws is divisive.
 
Separation is the true objective.  The classification of “hate” crimes is a ploy to create division and a strand of class warfare amongst the public.  The beneficiaries of “hate” crime legislation are numerous.  Correctional lobbies, lawyers, and bureaucrats who take great pleasure in enforcing government decrees all benefit from severe legal penalties and increasingly complex laws.  They in turn throw campaign cash at a political class which envisions itself as creating a perfect society.

Opportunistic race peddlers like Al Sharpton (who conveniently forgot to protest the cruel gunning down by police of an unarmed black man in front of his two young daughters just weeks before the Martin incident)  join in by championing these types of divisions while crusading under the banner of equality.  If equality was really Sharpton’s motive then he would call for the immediate abolition of “hate” crime laws as they give dissimilar treatment to specific groups of people.  They are the antithesis of equality under the law.

The killing of anyone who does not initiate violence, or is unarmed for defense, is a tragedy.  Justice should be sought and applied after the details of the incident are worked out to determine the true culprit.  The imposition of a harsher punishment for “hate” crimes is not justice at all but another case of statist engineering run amok.

*Wil Grigg’s LRC article on the Trayvon Martin incident is highly recommended.

Jim Grant Eviscerates the Federal Reserve…...at the Federal Reserve!

LvMIC:

The New York branch of the Federal Reserve (the one responsible for conducting Open Market Operations to expand the central bank’s balance sheet) has recently sought to open itself up for public critics to visit the bank and “unburden themselves of their criticisms.”  Author of the popular financial newsletter “Grant’s Interest Rate Observer” and unceasing Fed critic Jim Grant took to the mound on March 12.  The full text of his speech can be read here (via Zerohedge), but I will highlight some of the gems.

You are lucky, if I may say so, that I’m the one who’s standing here and not the ghost of Sen. Carter Glass. One hesitates to speak for the dead, but I am reasonably sure that the Virginia Democrat, who regarded himself as the father of the Fed, would skewer you. He had an abhorrence of paper money and government debt.

It enflamed him that during congressional debate over the Federal Reserve Act, Elihu Root, Republican senator from New York, impugned the anticipated Federal Reserve notes as “fiat” currency. Fiat, indeed! Glass snorted. The nation was on the gold standard. It would remain on the gold standard, Glass had no reason to doubt. The projected notes of the Federal Reserve would—of course—be convertible into gold on demand at the fixed statutory rate of $20.67 per ounce. But more stood behind the notes than gold. They would be collateralized, as well, by sound commercial assets, by the issuing member bank and—a point to which I will return— by the so-called double liability of the issuing bank’s stockholders.

Was Senator Glass that naive to think the Federal Reserve, with its monopoly over currency production, would not become a tool for Wall Street to use to enrich itself?  Did he seriously think the gold standard would last forever as power was centralized with the bank’s creation?

As you prepare to mark the Fed’s centenary, may I urge you to reflect on just how far you have wandered from the intentions of the founders? The institution they envisioned would operate passively, through the discount window. It would not create credit but rather liquefy the existing stock of credit by turning good-quality commercial bills into cash— temporarily. This it would do according to the demands of the seasons and the cycle. The Fed would respond to the community, not try to anticipate or lead it. It would not override the price mechanism— as today’s Fed seems to do at every available opportunity—but yield to it.

Absolute power corrupts.  To those who understand the nature of the state, the Fed’s abrogation of power is unsurprising.  If the pricing system is a decentralized process of consumers and producers “making a deal” over goods and services offered, giving an institution and a few men the authority to legally override such a mechanism must create chaos.  Injecting liquidity (an overly technical term for money) unbacked by prior savings wreaks havoc on the intertemporal coordination process of entrepreneurs attempting to gauge the consuming patterns of the public.  It does untold damage on one’s ability to economize.   What has emerged from the planners at the Fed trying to goose the economy is a financial system dependent on constant money creation as it tries to anticipate what the central bank’s next move is in order to profit.

The search for “some sort of vague stabilization” in the 1930s has become a Federal Reserve obsession at the millennium.

Ladies and gentlemen, such stability as might be imposed on a dynamic capitalist economy is the kind that eventually comes around to bite the stabilizer.

“Price stability” is a case in point. It is your mandate, or half of your mandate, I realize, but it does grievous harm, as defined.

For reasons you never exactly spell out, you pledge to resist “deflation.” You won’t put up with it, you keep on saying—something about Japan’s lost decade or the Great Depression. But you never say what deflation really is. Let me attempt a definition. Deflation is a derangement of debt, a symptom of which is falling prices. In a credit crisis, when inventories become unfinanceable, merchandise is thrown on the market and prices fall. That’s deflation.

This is completely on point.  Endeavoring to create stability in a naturally dynamic, but stable in the long term, process is no better than totalitarian communism.  In fact, central banking and the socialization of credit was one of the tenets of Marxist communism.  For those who only propose low interest rate policies in times of economic stagnation, it must be asked: if artificially or suppressed interest rates are so good, why not employ them all the time?  Why not socialize credit completely ad infinitum?  But of course this is their true heart’s desire: for socialism ultimately.

But note, please, that the suppression of interest rates and the conjuring of liquidity set in motion waves of speculative lending and borrowing. This  artificially induced activity serves to lift the prices of a favored class of asset—houses, for instance, or Mitt Romney’s portfolio of leveraged companies. And when the central bank-financed bubble bursts, credit contracts, leveraged businesses teeter, inventories are liquidated and prices weaken. In short, a process is set in motion resembling a real deflation, which then calls forth a new bout of monetary intervention. By trying to forestall an imagined deflation, the Federal Reserve comes perilously close to instigating the real thing.

This is the true lesson central bankers and their supporters are incapable of learning.  As Mises declared, “There is no means of avoiding the final collapse of a boom brought about by credit expansion.”  The various bouts of credit expansion employed by the Federal Reserve and its partners in crime around the world never serve as an economic remedy.  They are mere dopamine injections to keep the parts of the economy they view as invaluable in a state of liquidity ecstasy.  But drugs must wear off and so does the cheap money less Bernanke and crew want hyperinflation to take hold.  What comes next is recession and depression depending on the degree of built up malinvestment.  This means a contracting money supply and a hoarding of money which increases its value and prices fall.  Inflation must necessarily lead to deflation when the bust finally manifests itself.  There is no stopping this yet central bankers will try to with further credit expansion.  But if it weren’t for this unbacked credit expansion to begin with, deflation would not be viewed as a threat.

I myself draw more instruction from the depression of 1920-21, a slump as ugly and steep in its way as that of 1929-33, but with the simple and interesting difference that it ended. Top to bottom, spring 1920 to summer 1921, nominal GDP fell by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was inexactly measured, topped out at about 14% from a pre-bust low of as little as 2%. And how did the administration of Warren G. Harding meet this macroeconomic calamity? Why, it balanced the budget, the president declaring in 1921, as the economy seemed to be falling apart, “There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures.” And the fledgling Fed, face to face with its first big slump, what did it do? Why, it tightened, pushing up short rates in mid-depression to as high as 8.13% from a business cycle peak of 6%. It was the one and only time in the history of this institution that money rates at the trough of a cycle were higher than rates at the peak, according to Allan Meltzer.

But then something wonderful happened: Markets cleared, and a vibrant recovery began.

There is a reason the Depression of 1920-1921, which was the result of inflation engineered during World War 1, is never taught in school.  It provides a stark contrast to the Great Depression that lasted for over a decade and was marked by unprecedented government intervention.  The public school system, by virtue of it being “public,” must perpetuate the myth that Franklin Roosevelt saved capitalism.  How else do you breed future government parasites, excuse me, workers?  How else do you convince children that the government is there to soften the excesses of heartless capitalism?  How else do you keep the masses fooled?

The Depression of 1920-1921 is a purposefully forgotten lesson in both public schools and universities as it is a clear cut example of a market fixing itself absent government intervention.

The whole speech is well worth reading as Grant, in his usual wit and humor, offers a few suggestions on what he would do if he were Federal Reserve chairman.  Unfortunately, such a fantastic prospect is highly unlikely considering the amount of money, printed or non-printed, which rides on the Fed’s current policy of easing indefinitely.

We can all be thankful that Jim was able to travel into the depths of Mordor to return alive though!

U.S. Defense Secretary and Canadian Defense Minister Think Polls on War Don’t Matter

LvMIC:

Despite the apprehension many Austrian-grounded libertarians have toward highly regarded statements of governance (Constitutions, political speeches, etc.), the essence of one document in particular, the Declaration of Independence, is worthy of praise even from the anti-state point of view.  As Murray Rothbard noted in an address to the Libertarian Party in 1977:

There is something unfortunately symbolic about confining one’s celebration to 1776, the year of the Declaration of Independence. For as noble, as exciting, as profoundly libertarian as the Declaration was, it was still the necessary but not sufficient first step in the victory of what we have correctly identified as the First Libertarian Revolution. The Declaration was the rhetoric, the ideology, that set the stage; but the American revolutionaries, our libertarian forefathers, were not only interested in setting forth a glorious set of principles; having done that, they were also interested in action, in putting these principles into practice in the real world, in transforming the real world to give those principles life.

History will remember the Declaration of Independence not only for its impact on the American Revolution but for the profound language and ideas it espoused on man’s natural liberty and the complete disrobing of the divinity of any one state institution.  For if only the following words were to be wholeheartedly endorsed by more than just a minority of principled libertarians, market anarchists, and classical liberals, then perhaps a real check could be provided on the unceasing pursuit of control by the state.

Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

The key here is: deriving their just powers from the consent of the governed.  Whether or not you believe the state is a necessity for the prosperity of society, the premise behind most modern governments is that they operate under the approval of the public they represent.  That has proven to a deceitfully repeated mantra by statist apologists who use the public Treasury as their own piggy bank but the ideal remains.

When push comes to shove, the ruling class, infatuated with its own authority, will always act to benefit those who really pull the purse strings; the “consent of the governed” be damned!

Case in point was in full effect last Tuesday.  Despite the growing unpopularity of the continuing military occupation (what’s occurring ceased to be a “war” long ago) in Afghanistan, the head of the Defense Departments in both the United States and Canada see public sentiment as being irrelevant on the debate to carry on the mission.  What that mission is, this author is at a loss to explain.  The same most likely applies to 98% of the rest of the American and Canadian people.  From the Washington Post:

OTTAWA, Ontario — The war in Afghanistan can’t be determined by polls, Defense Secretary Leon Panetta said Tuesday, asserting that the U.S. must continue with its strategy in the decade-old conflict despite plummeting American confidence in the war.

Panetta said that there is no question that the American people are tired of war. But, he said, the public understands the U.S. is engaged in Afghanistan because of the attacks on Sept. 11, and to prevent al-Qaida from again finding safe havens there to launch attacks.

“We cannot fight wars by polls. If we do that we’re in deep trouble,” Panetta told reporters at a press conference after a day of meetings with Canadian and Mexican defense ministers here. “We have to operate based on what we believe is the best strategy to achieve the mission that we are embarked on. And the mission here is to safeguard our country by insuring that the Taliban and al-Qaida never again find a safe haven in Afghanistan.”

So even after declaring that only”50-100” al-Qaida member remain in Afghanistan, Panetta toes the line that the occupation must continue.  Forget what the people who pay your salary think, they clearly haven’t a clue on the complex nuances of nation building that haven’t made a centimeter of progress in over a decade.  That doesn’t even account for the over $4 trillion spent which will be paid back either through tax hikes, inflation, or the cutting of government benefits.  And of course the world is supposed to view al-Qaida as pure evil despite Secretary of State Hillary Clinton practically admitting the U.S. is supporting them in their opposition to the al-Assad regime in Syria.

“It is richly ironic that the unelected fundamentalist Sunni regimes of the Persian Gulf are supporting Al Qaeda affiliated groups within Syria purportedly to “bring about democratic reforms,” writes Professor Michel Chossudovsky. “This is the same dynamic that prevailed in Libya where the overthrow of that country’s government by Western and Gulf Arab powers has now led to a collapse in human rights and social conditions.”

But as Panetta asserts, “we cannot fight wars by polls”  Conspiring with declared enemies in one country while funding them in another is apparently how war should be fought.  Canadian Defense Minister Peter MacKay took it further:

“Polls are for dogs.”

“This is our generation’s war, this is a test of perseverance,” said MacKay, whose country has about 1,000 troops in Afghanistan, largely doing training.

Again it must be questioned, what does training have to do with war?  The answer is nothing and more of the public is realizing they are being duped into paying for a non-war, military excursion to the benefit of overfunded Defense Departments and military contractors.  This is why their opinions are “for dogs.”  From giving a well-received address to the deep pocketed Israeli lobby to backing another costly and unneeded toy of destruction, Panetta has proven himself to be a tool of the war profiteers.

In other comments Tuesday, Panetta restated his support for the F-35 stealth fighter, and said the U.S. needs it for the future. But said the U.S. needs to continue to do as much oversight as possible over the contract process. And MacKay said the fighter is still the aircraft that Canada wants, but there will be careful monitoring of the program.

In January, Panetta took the program off the probation which had been imposed by then-Defense Secretary Robert Gates a year earlier because it was experiencing “significant testing problems.”

Ten years in, the total F-35 program cost has jumped from $233 billion to an estimated $385 billion. Recent estimates suggest the entire program could exceed $1 trillion over 50 years.

One of the central tenants in the Constitution is to require the military to be under civilian control.  From Article 1, Sec. 8 which requires Congress to “raise and support armies” and provide necessary funding to Article II, Sec. 2 which grants the sitting President to be commander and chief, the framers were quite up front about their desire for a military not run by power-obsessed, sociopaths unanswerable to the people whom are forced to finance it.  Like any state apparatus however, size and sphere of control has grown exponentially to a degree where those in charge no longer feel obliged to the public.  Considering how, as Lew Rockwell puts it, all government expenditures are pork barrel spending at their core, the military industrial complex is too lucrative industry of an industry to give up the hundreds of billions of dollars appropriated to it every year.

Hence the cries of global Armageddon when the idea of defense (the better term is offense) spending cuts is floated.  These screams of protest are always issued by contractors who rely on ever-increasing appropriations, the hierarchy of the department who feed off the prestige of their position, and the Congressmen who have their campaigned paid for by war lobbyists .  Each profits off the perpetual waging of war.  And each regards taxpayers as easy targets for pilfering who are to be dismissed for their ignorance on what it takes to maintain an empire.

Peter MacKay is right in one regard; the Afghan occupation is a “test of perseverance.”  The gauge of success for the warmongers will be how long the excursion can be continued as casualties climb and Western nations currently engaged in fighting slowly bankrupt themselves.  With a litmus test like that, the sooner its failed the better.

WTO Discussing “Market Determined” Exchange Rates

LvMIC:

You have to hand it to the political class.  Their propensity to throw “forums” and “summits” for the purpose of discussing a vaguely titled, poverty reducing endeavor is never in short supply.  What these affairs are really is nothing more than an excuse for politically appointed bureaucrats to vacation in an exotic part of the world all on the taxpayer dime.  The only real work at these meetings is gathering in the grand ballroom of an extravagant hotel for a brief powwow and photo-op with the media that is more than to happy to tag along on the excursion as they enjoy the facilities as well.  The key is appearing to be hashing out a grand mission statement to make newspaper headlines for one day; only to be soundly forgotten the next.  The real goal is to live it up in a major city that isn’t the hotbed of extreme poverty or crime.

These statesmen with fancy titles are far too important to mingle amongst the great unwashed, don’t you know?

The past two days have seen yet another meeting of the World Trade Organization in the city of peace; also known as Geneva, Switzerland.  The official topic of discussion was currency exchange rates and trade.  In actuality, it was merely a forum to bash China for its currency manipulation and suppressing the value of the yuan.  From Reuters:

GENEVA, March 28 (Reuters) – A sharp exchange between the head of a Chinese state-owned bank and a U.S. Treasury official was the highlight of a closed-door currency debate at the World Trade Organization on Tuesday and Wednesday, diplomats said.

Brazil had organised the so-called “symposium” to draw attention to the difficulties that can arise when big currency movements affect a country’s trade competitiveness.

But the theoretical discussion got heated in the first session when one of the speakers, Li Ruogu, president of Exim Bank of China, faced opposition from Mark Sobel, the U.S. Treasury’s deputy assistant secretary for international monetary and financial policy.

Several diplomats emerged from the closed-door session grinning at the spectacle.

Like free trade agreements, the notion that an international bureaucracy like the WTO should manage or promote liberalized trade is an oxymoron.  Governments only ever stifle trade and the enriching market process.  It doesn’t take an overpaid bureaucrat to act as a middleman between two individuals transacting and residing in different countries.  International trade is actually done in a quasi-state of anarchy as Peter Leeson points out:

Large arenas of economic activity in the world remain anarchic, or nearly so, to this day. For example, there is no supranational sovereign with the authority to create formal international laws to regulate countries or to enforce such laws if they existed.  Adding to international anarchy is the absence of state-made, supranational commercial law to enforce contracts between private international traders.

It’s easy to see why this state of affairs draws forth all types of joint-governmental agencies wishing to regulate and plunder such a vibrant industry.  The state acts as a bully in the schoolyard on the constant search of opportunity to impose fear and achieve a worship-like respect from its victims.

What’s ironic about this squabble between a U.S. Treasury official and the rep. from the state-bank in China is the complete and utter irony that comes along with the U.S. pointing at anyone and accusing them of currency manipulation.  The very existence of a fiat monetary system means that governments manipulate currency supply; not some of the time, but always.  In a free market of money, the value of currency (or currencies depending on what commodities become widely used as mediums of exchange) is dependent upon all market actors and their collective time preferences.  It is not dependent on just a few central bankers meeting in secret and looking to goose the economy with cheap liquidity.

In brilliant Orwellian fashion, the U.S. Treasury, despite being the partner-in-crime to the antithesis of currency freedom, still attempts to paint itself as being in favor of the market:

U.S. participation in the WTO seminar is premised on the importance of trade liberalization and recognition that persistently misaligned exchange rates and competitive devaluations undercut an open trading system.

Treasury Deputy Assistant Secretary Mark Sobel stated: “A strong consensus now exists on the importance of promoting market-determined exchange rate systems, enhancing flexibility to reflect underlying economic fundamentals, avoiding persistent exchange rate misalignments and refraining from competitive currency devaluation.   Exchange rate management and policies need to allow real exchange rates to better reflect fundamentals.  This in turn will facilitate balanced international trade and give countries greater independence in pursuing domestic policy objectives.  When trading partners believe others are allowing their exchange rates to adjust in line with fundamentals, there is less pressure for protectionism and more support for trade liberalization. The IMF has a core mandate to exercise rigorous surveillance over its members’ exchange rate policies and it must carry out this vital core mission.”

Refrain from competitive currency devaluations?  Funny how criticism of this global prime pumping is nonexistent (courtesy of Zerohedge):


The Keynesian doctrine of devaluing one’s currency to boost exports- at the expense of the rest of the domestic economy- is a mathematical impossibility when all countries are attempting to do the same.  Given that all major central banks followed Ben Bernanke’s lead during the financial crisis and printed to “save the world,” they are all guilty of manipulation.  “Real” exchange rates as Mr. Sobel defines them were effectively destroyed with the advent of central banking.  The International Monetary Fund was never established to ensure trade liberalization but to facilitate worldwide inflation Henry Hazlitt shows when writing in 1963:

The real problem is how to bring this inflation to a halt. The real solution is to dismantle the International Monetary Fund system. This system has proved, in practice, a gigantic machine for world inflation. In the nearly 20 years of its existence, more and greater devaluations have occurred in national currencies than in any comparable period.

It’s no secret the Obama administration holds a grudge against China for undervaluing its currency to the benefit of its export sector.  Obama’s likely presidential contender in November, former Massachusetts Governor Mitt Romney, has been upfront with his disdain for China’s monetary policy on the campaign trail.  Both only see the highly manipulated growth and GDP figures the country has experienced over the past decade.  They fail to see the looming real estate bust which is the inevitable consequence of massive credit expansion.

The housing bubble in the United States was undoubtedly the product of currency manipulation and brought the world economy to stagnation.  When the Treasury Department accuses others of playing games with the value of their legal tender, it’s no better than the pot calling the kettle black.  Or better yet, the counterfeiter calling the counterfeiter a thief.

Bernanke Thinks He Saved the World, How Cute!

LvMIC:

Federal Reserve chairman Ben Bernanke has been feeling the love lately.  First there was Roger Lowenstein’s piece of slobbering adulation titled “The Hero: Ben Bernanke Saved the Global Economy.  So Why Does Everyone Hate Him?”  in the April 2012 issue of the Atlantic.

In the piece, Lowestein is convinced that Bernanke’s efforts to stave off the financial crisis have been successful thus far; meaning that from here on out, it’s only clear skies ahead.

This coincides with the U.S. economy’s continuing upward trend which saw the stock market recently hit an historic high.  Indicators are up, bidding wars in housing are on in major cities, and it’s hard to find a mainstream business publication not touting the so-dubbed recovery.  Yet none of these analysts seems to acknowledge the fact that M2 money supply growth really began perking up starting last July.

It’s more than likely that should inflation start getting out of control and Bernanke puts the brakes on money supply growth, the rails may come off the green shoots.  It’s actually not more than likely, it will happen.  The only question is time.  The opposite occurred in the summer of 2008 as the growth in money supply took a nose dive.  As Ludwig von Mises pronounced, “Depression is the aftermath of credit expansion.”  All Bernanke has really done since the housing market imploded years ago, thus wreaking havoc on the balance sheets of both the federal government and Wall Street, is kept the party from completely shutting down via continual monetary expansion.

This is what passes for success in the modern world of central banking.

Today, in the third of a four part series of lectures, Bernanke continues his PR crusade in order to fend off the growing criticism of the Fed which has snowballed and accelerated thanks to the 2008 presidential campaign of a lowly Texas Congressman.  After its nearly century long existence, a sitting Federal Reserve chairman is actually feeling the proverbial heat of a public finally seeing the central bank as responsible for a business cycle marked by inflation-driven good times followed by sharp develeraging and economic bust.  It only took trillions in secret loans in late 2008 and possibly trillions more in exposure and implicit guarantees to a financial system dependent on cheap liquidity to stay afloat.

With the printing press at your command, perhaps the price tag of untold trillions is fairly cheap.

From Bloomberg:

The Fed’s “forceful policy response” probably averted “much worse outcomes,” Bernanke said today in Washington in the third of four lectures to undergraduates at George Washington University. “In terms of economic consequences, the Great Depression was considerably more severe than the recent recession.”

The threat of a second Great Depression “was very real,” Bernanke told the class.
The financial system came under pressure in the summer of 2007 as the market for subprime mortgage bonds began to collapse, and by August the Fed responded by cutting the interest rate it charges on loans to banks borrowing at its discount window.

The Fed lowered its benchmark interest rate in a series of cuts, to 3 percent in January 2008 from 5.25 percent in August 2007. Yet in March 2008, the crisis intensified with the collapse of Bear Stearns Cos., the fifth-biggest U.S. securities firm, prompting the Fed to intervene and help JPMorgan Chase & Co. acquire the bank.

That didn’t end the crisis. In September 2008, Lehman Brothers filed the largest bankruptcy in U.S. history after the central bank and U.S. Treasury declined to intervene. One day later, the Fed made an $85 billion loan to American International Group Inc. (AIG) to avert the collapse of the New York- based insurance company.

Bernanke defended the central bank’s bailout of AIG. Its failure “would have had a massive effect on other financial firms and markets,” Bernanke said.

“The rescue of AIG prevented even greater shocks to the global financial system,” Bernanke said in slides. “Over time, AIG stabilized. It has repaid the Fed with interest and has made progress in reducing Treasury’s stake in the company.”

Rather than let the market clear itself of all malinvestment, Bernanke, his cohorts in the Fed, and the federal government decided to play their much favored game of picking winners and losers amongst an industry already tightly within its clutches.  What emerged from the wholly bailout-laden affair is a banking system effectively zombified to the point of being “public utilities” as former Kansas City Fed president Thomas Hoenig labeled them.

The truth is Bernanke would be a fool to not play up his record and the continuing performance of the U.S. economy.  He is, after all, trying to save the reputation of the Fed.

But to believe Bernanke saved the world by showering it with dollars is to believe that the creation of money in itself generates wealth.  No amount of paper bills or digital entries into bank accounts brings consumer goods into existence however.  The end result of all money printing, taken to its full extent, is to raise prices in proportion to the amount of money created.

Ironically, when Bernard von NotHaus was arrested and found guilty of “counterfeiting” Liberty Dollar coins to the tune of $7 million, he faced 25 years in prison.  During the height of the financial crisis, Bernanke expanded the Fed’s balance sheet, and therefore the monetary base of the dollar, to $2.3 trillion from $900 billion.  This author is no math expert but it would seem von NotHaus’ “counterfeiting efforts were a drop in the ocean compared to Helicopter Ben’s orgy of money printing.

Only one of the men faces a lengthy jail sentence.  Only one of these men mints money not out of thin air but for the purposes of providing a medium and exchange and store of value.   Only one of these men heads an institution that not only perpetuates the moral hazard of excessive fractional reserve banking, thus pyramiding thin-air credit creation on the back of Fed reserves, but monetizes the debt of the federal government.  And only one of these men has the legally sanctioned permission to counterfeit to the benefit of bankers and of the profligates of stolen funds otherwise known as politicians.  Is it any wonder why the latter is given the legal authority to counterfeit?

Ben Bernanke may have utilized the printing press and prevented a severe downturn for the time being but it will be the expense of a larger crisis in the future.  Papering over losses and propping up failed investment decisions doesn’t clear or liquidate the market; it merely extends the damage to be dealt on another day.  In this case, dollar users the world over had to pay for the popping of the housing bubble (caused, of course, by the Fed’s previous easy-money policies) with the diminishing purchasing power that follows any massive burst in currency creation.

In short, Bernanke saved nothing but his reputation for the time being.  Money printing only creates the illusion of wealth.

To fully understand the logical contradictions of the Bernanke and central bank apologist, please consider investor Pater Tenebrarum’s pertinent questions:

In spite of all this we are now supposed to somehow believe that enacting the exact same polices that were tried then – only on an even grander scale – have ‘saved us from a depression’? That they somehow ‘will work’ this time around, only because the recent economic data look good and the stock market is in an uptrend? Three years of rising stock prices are ‘proof positive’ that Bernanke has ‘saved’ us?

Harper Considering Free Trade? More Like Contemplating The Unlocking of the Serf’s Chains

LvMIC:

In a truly free world, trade is uninhibited and at the discretion of both parties involved.  The arbitrary boundaries imposed by various states are irrelevant.  Whether it be with the local grocer or a clothing merchant on the other side of the world, market transactions are always mutually beneficial for those in engagement.  More importantly, trade is conducted on an individual basis only.  No amount of awe-inspiring (vomit inducing is a better description from this writer’s perspective) nationalistic rhetoric ever nullifies such an economic truth.

Individuals trade; even in the most complex transactions.

It’s always a joy to hear politicians attempting to disprove this fact by passing “free trade” deals with other countries in an attempt to abolish (some, never all) restrictions on trade and liberalize markets.  Their allegiance lies not with the people they claim to represent but to the mother state.  The only reason limits on free trade were established was at the behest of politically favored industries and as a violent means to keep taxable wealth within national borders.  Trade restrictions are extensions of the antisocial mentality that finds itself gathered en masse in the parliaments and Congresses around the world.  They are about control and control only.

With that in mind, consider Canadian Prime Minister Stephen Harper recently announcing his desire to pursue a free trade agreement with Japan.  From The Globe and Mail:

During a weekend meeting in Tokyo, Mr. Harper and Japanese Prime Minister Yoshihiko Noda announced the formal launch of talks aimed at reaching a treaty to spur trade and investment between the nations.

Only in government would someone be paid to announce “the formal launch of talks”  “Time is money” may be the axiom of entrepreneurs battling it out for market share but the political class makes the utterly wasteful use of resources look like a professional sport.  Here is a question to Canadians, how much did you pay for PM Harper to fly to Japan to chit chat over possibly getting a better price on the big screen TV you were eying up at the local Walmart?  My guess is that the way any self-important narcissist, which is typically the personality one needs to run for public office, likes to or is accustomed to traveling, you probably got a raw deal just accounting for the security costs alone.

Free trade is such an enriching state of affairs that hardly any economist with an ounce of credibility questions it.  Even the love child of Keynesianism himself, Paul Krugman, has written a wonderful book on the topic.
That says a lot for a man who never found an excuse for central banks not to print money.

Those who deride free trade are often the tool of some special interest group who would rather use the guns of government to stop consumers from being just that; bargain seeking consumers.  Unions hate free trade because it creates too much flexibility in the worldwide division of labor and undermines the state’s ability to practice mercantilism.  Populists hate free trade because their short-sightedness sees immediate job loss without the subsequent prosperity brought by labor specialization and capital investment.  And of course politicians lose the authority to dictate whom private individuals can transact with if free trade flourishes.  Each of these groups sees wealth as a fixed pie to extract from by any means possible; most times involving state sanctioned coercion.  Their ignorance of the market process prevents them from seeing peace and transactional harmony as the best conditions for the improvement of the human condition.

But defenders of the market must be wary when political leaders get together to discuss free trade deals.  Just because the word “free” is tossed around doesn’t mean liberty in all commercial transactions will be restored after being violently prohibited.  As Murray Rothbard wrote at the time of the U.S. Congress considering the “North America Free Trade Agreement”

Bush’s major trade legacy, now coming to a head, is of course the much heralded Nafta. Well, it says “free trade” right there in the title, so it must be good, right? Wrong. But unfortunately, the push is on, and free-market economists are leading the hysterical propaganda parade for Nafta.

The point is this: while leftist critics of Nafta are wailing about evil Mexico avoiding those wonderful statist and welfarist U.S. “labor” and “environmental” regulations, the real problem is precisely the opposite. The real problem is that these rotten statist measures will be enforced by supra-government commissions, commissions which have acquired super-sovereignty, over Americans, Canadians, and Mexicans, thereby injuring the consumers and the economies of all three nations.

Government imposed free trade is an oxymoron.  Restrictions on trade are only the outcome of government intervention.   The need for a “free trade agreement” wouldn’t exist if not for previous barriers on the free flow of goods and services.  They are the product of force and deliberate pandering to vote suppliers.  To believe that the political class would voluntarily give up the authority they have spent decades, even centuries, confiscating is to misunderstand the whole nature of the state.

Much like macroeconomics which treats the science as completely alien to micro principles, the same fallacy is often applied to trade.  If my transacting with local retailers is mutually beneficial, the same must then apply to any seller around the globe.  Invocations of patriotism and “what’s good for the country” are often guises for those who profit off the state apparatus to convince the gullible of the merit of their argument.  Economic logic unfortunately takes a back seat to the blind allegiance some have to a flag.

Though free trade with Japan, or any country for that matter, would undeniably be beneficial for Canadians, it doesn’t take PM Harper schmoozing over a taxpayer-funded,catered lunch with Japan’s Prime Minister to make it so.  As Rothbard writes:

Real free trade doesn’t require codicils and compromises and agreements. If the Bush administration had wanted real free trade, all they’d have had to do is to cut tariffs and quotas, abolish the International Trade Commission, the “anti-dumping” laws, and the rest of the panoply of monopolistic trade restrictions that injure American consumers and coddle inefficient producers.

Any “free trade agreement” that is reached will hardly be “free.”  Government itself is an impediment to freedom; it can’t, by definition, grant liberty without at first abrogating it.  According to Manuel Ayau, NAFTA had “two thousand pages, nine hundred of which are tariff rates.”  In today’s modern governments where the length of laws is so deliberately enlarged with erroneous citations and references to obfuscate their true effects, cost, and hidden pork barrel spending, all free trade agreements should be fully scrutinized and not favored simply by the virtue of their name.

Mises said it best,

It is hopeless to expect a change by an international agreement. If a country thinks that more free trade is to its own advantage, then it may always open its frontiers.

Jon Corzine -Taking Care of His Friends With Insider Connections

LvMIC:

Few men have a resume quite like Jon Corzine.  Not only has Corzine served in the U.S. Senate and been governor of New Jersey, he has also been the CEO of Goldman Sachs and the recently imploded brokerage firm MF Global.   The insider blood filtrated through cronyism and the endless squandering of the public dime flows heavily through his veins.

When MF Global went belly up back in the fall, Corzine was finally revealed for the inept, overly connected bureaucrat he really is.  Corruption seemingly follows the former Senator, Governor, and banker like shadows on a sunny day.  Earlier this week, New Jersey was declared the least corruptible state in the union much to the surprise of, well, everyone.  But as the great Jonathan Weil pointed out, the methodology in the study conducted by the Center for Public Integrity was horribly flawed.  New Jersey has historically been defined with corruption:

…this is a state where in 2009 three mayors, two assemblymen and five rabbis were among 44 charged in a single money-laundering and bribery sting by the Federal Bureau of Investigation. One of those mayors, Peter Cammarano, was from Hoboken, where I live. He was sentenced to 24 months in prison. Five years before his arrest, another former Hoboken mayor, Anthony Russo, pleaded guilty to corruption charges. His son now sits on the city council.

Corzine was of course acquainted with one of the mayors listed and a member of his own cabinet faced investigation by the FBI during the same time period.  And that was only the man’s tenure as Governor.  Anyone who spends their time horse-trading in Congress is instantly guilty of corruption by definition.  Corzine was especially so as he coauthored the Sarbanes-Oxley financial regulatory bill which heaped another expense on start up businesses to the benefit of already established and politically favored firms.

Corzine’s political career was launched after his term heading the financial vampire squid known as Goldman Sachs which has its tentacles within practically every important or relevant governing authority around the globe.  During his time at GS, he served on a presidential commission for Bill Clinton and a committee in the U.S. Treasury.  In short, before his time heading MF Global, Corzine was an expert paper pusher whose connections in the political establishment were deeply rooted.  That’s why he made the perfect candidate for a multinational investment firm on the up and up.

Not too long after Corzine went to MF Global, he visited the New York branch of the Federal Reserve in an attempt to expedite the process by which MF could received the coveted “primary dealer” privilege.  This primary dealer position gave MF the ability to be one of the first financial institutions the NY Fed would purchase government securities and bonds from when the central bank wished to expand the monetary base.  It is the ultimate position any banking insider looking to game the system seeks.  Though an official from the NY Fed denies any special treatment was given to Corzine (as if they would own up to it in public anyway), as the Wall Street Journal explains, “the New York Fed doesn’t publicly discuss” decisions of granting primary dealership status, “but a source with knowledge of the process says that it sometimes takes several years for a firm to gain acceptance.”

And yet we are to believe that Corzine’s numerous connections didn’t help fast track this process?

It should be obvious by now how heavy a user Mr. Corzine is of the revolving door between Wall Street and Washington.  Insiders are able to make a fortune by occupying public office and subsequently being offered a prominent position in an industry seeking to exploit regulation by hiring those who know it best.  This often includes the authors of the regulations themselves.  Corzine is not only an experienced alumni of this group but a practical valedictorian.

For someone so experienced in this utterly corrupt dynamic, it came as a surprise to see MF Global crash and burn as the European debt crisis escalated.  Perhaps Corzine was betting on a more monetarily aggressive European Central Bank to bailout the profligate governments of the periphery?  Whatever the case, Corzine and co. were caught red handed as the firm declared bankruptcy and $1.2 billion of money supposed to be secured in customer accounts went missing.  At the time, Corzine pathetically told the Agricultural Committee in the House of Representatives:

“I simply do not know where the money is, or why the accounts have not been reconciled to date,”

As it turns out, Corzine should have known where at least some of the funds went.  From Bloomberg:

Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in a brokerage account with JPMorgan Chase & Co. (JPM), according to a memo written by congressional investigators.
Edith O’Brien, a treasurer for the firm, said in an e-mail quoted in the memo that the transfer was “Per JC’s direct instructions,” according to a copy of the memo obtained by Bloomberg News yesterday. The e-mail, dated Oct. 28, was sent three days before the company collapsed, the memo says. The memo does not indicate whether that phrase was the full text of the e-mail or an excerpt.

In what will surely be labeled an unfortunate coincidence, a fellow NY Fed primary dealer was given a helping hand as the firm knowingly imploded.

Talk about friends with benefits.

Corzine may be subpoenaed by Congress and used as a punching bag by Republicans looking to score political points but the dominant culture of increasing centralization and cronyism which is an ever-present aspect of state will carry on unchallenged.  Corzine will simply be the scapegoat of the political class looking to give off the mirage of integrity within government.  God forbid politicians not “do something” in the wake of a controversy they themselves are responsible for.

As economist Freidrich Hayek taught, power centers attract and breed unscrupulous behavior.  There is no institution more powerful than that of the state apparatus which feeds off the continual usurpation of authority and acts as the sole monopolizer of force over a given geographical area.  Governments don’t minimize class divisions, they are the originator of stagnant social mobility.  The Jon Corzines of the world feel entitled to their positions of prominence and will do anything to secure them as they blatantly skirt the law and protect their friends by any means necessary.  The normal rules imposed on society don’t apply to them for they are the rule makers.  The existence of central banks not bound by restraints on money creation and the backing of fractional reserve banking with taxpayer funds are simply extensions of the unceasing jackboot pressed down upon economic and social freedom.  This is why Ben Bernanke’s Fed fought tooth and nail to not disclose the amount of money “lent” out to big banks during the financial crisis.

If there is one good thing to come about from the whole MF Global affair, besides putting a stake in the heart of Corzine’s reputation, it was the fact that the firm wasn’t bailed out by by the Treasury or Fed.  The powers that be decided to let MF go as a possible sign that more of the public is becoming aware of the farce of a market the financial industry is which acts as a middleman between the government and the printing press.  Market forces don’t decide winners and losers in today’s banking industry; the members of the elite class do.

Lucas “Technocrat” Papademos Interviewed- No Choice But To Obfuscate

LvMIC:

Last week, the number one mainstream financial rag in the business, the Financial Times, interviewed Greece Prime Minister Lucas Papademos on the current state of the home of democracy.  For anyone paying the slightest bit of attention to the sovereign debt crisis, the situation is undoubtedly bleak.  The European Central Bank’s aggressive exercise in backdoor money printing has quelled panic for the time being.  Known as Long-Term Refinancing Operations, this indirect intervention to prop up the balance sheets of the EU periphery (with the exception of Greece) has resulted in the ECB’s balance sheet to hit a whopping $3.9 trillion.

“With the dramatic expansion of its balance sheet since last summer, the ECB has become the most active central bank in the world,” said Klaus Baader, chief euro-area economist at Societe Generale in London. “The ECB’s measures are absolutely justified, but it has to be aware of the risks on its balance sheet and think of an exit strategy.” (Source: Bloomberg)

Justified?  All the ECB has done is bail out politically favored banks who find themselves holding far too many government bonds.  In a just world, those bankers who financed the profligacy of EU politicians would suffer their due losses.  Instead the the money printer is working overtime to ensure that stupid decisions are papered over for another day when they will rear their ugly head.  This round of money printing will create fresh malinvestments which will eventually manifest themselves into another downturn and instance of restructuring.

As for Greece, with a 1-year bond yield over 1000%, the situation is different.  LTRO has done nothing to stop the fiscal train wreck.  Already private investors have “agreed” (it’s tough to agree to something when dealing with bureaucrats backed by the guns of the state) to a write down of their debt holdings; an outright default by any other name.  This exact outcome could have happened two years ago and would have been much cheaper but the seemingly determined nature of politicians to avoid reality and kick the can for the next clueless sap who takes his/her place prevented such.

As Papademos is interviewed, he is assured that “we are more than halfway along the path to economic recovery – although the fiscal consolidation process will last longer…Positive growth rates should be achieved within less than two years.”

How does Papademos know this?  Well, once the proper reform package is finally passed, things will be dandy of course!  What this reform package entails is not granted any detail except “a virtuous circle of structural reform, increasing activity and faster fiscal consolidation.”

If this was so simple, why did it not occur years ago when private investors started shying away from the country?  Perhaps because it isn’t so simple as decades of high government spending, regulation, corruption, and pandering to special interests has made Greece into a sort of entitlement state writ large.  The past few months have seen countless riots across Greece as that national parliament avoided and obscured debate on cutting government spending and liberalizing the economy.  Nobody wants to pull the spiked punch bowl away, even after the party is over and the cops have showed up.  Politicians want to save their hides and pad their pockets with special interest campaign donations.  Voting to allow competition in, say, the closed taxi industry doesn’t bode well on election day.

That’s why the austerity occurring in Greece and around the Eurozone isn’t the proper course of action for a region attempting to regain competitiveness.  From IMF bailouts to the ECB’s drastic liquidity injection, these “preserve the status quo” operations are nothing more than desperate attempts to keep people like Papademos in their job without causing a massive public uprising.  Creditors are being saved at the expense of debtors both in Greece and around the world.  This includes governments which not only waste resources by violently confiscating and spending them into use for preferred constituencies but also dictates the otherwise free lives of the citizens they claim to represent and protect.  That’s why tax increases to ensure the political class has a steady flow of private funds to keep the wheels of vote buying immediately go hand and hand with austerity measures.

Papademos remains committed to ensuring “that this was the last restructuring of Greek sovereign debt” with passing a lasting reform package.  Of course there is no guarantee that such a package, when passed, will actually achieve the results it’s supposed to.  A defining feature of the state is to operate under its own set of rules that are separate from those imposed on society.  There are countless examples exist of bills containing highways to nowhere or universal health insurance schemes that end up costing much more than originally stipulated.  If a package should pass the Greece Parliament without the country exploding, that doesn’t mean the next set of sociopaths vying to yield control over their fellow man takes over will enforce it.  Still, Papademos is rest assured that any passed reforms would continue under any government even after the elections due in late April, early May.  Ironically enough, Papadremos himself is no elected leader but merely a technocratic tool appointed as Prime Minister to ensure that the banks get bailed out.

Democracy is a despicable social system as minorities are at the coercive whim of the majority but even its home has abandoned it for the top-down rule of an ex-central banker.  It’ should be clear whose interests are really being protected in Greece.

Yet Papademos still invokes the will of the people who were never given the choice of his leadership to justify staying in the EZ:

Almost all opinion surveys have systematically indicated that a large majority of the people – I have seen figures ranging between 70 per cent and 80 per cent – very much support Greece’s continuing participation in the euro area and this implies that, despite the sacrifices and the short term adjustment costs, they are willing to do what has to be done in order for the country to remain in the euro.”

Even though it means suffering through higher taxes followed by not so less government spending or industry liberalizing measures, the people of Greece are rightfully wary of a return to the drachma.  They know, or should know, that such a return means literal hyperinflation as politicians scramble to pay back creditors and their favored interests.  This is why banking deposit outflows are at an all time high as many are seeking to protect their savings in the form of euros since a bank holiday would be declared if the country readopts the drachma and the currencies are forcefully switched.

While Papademos comes off as optimistic over Greece’s future, he has no choice but to do so.  His appointment to the office of Prime Minister was a ploy to ensure the country’s creditors would be saved by any means possible, even if that meant taking a bond haircut.  To Papademos, the protests over austerity are a mere hiccup to put down.  Government protesters are viewed as more of a pesky disturbance rather than raising a legitimate concern over any loss of freedom or economic livelihood.  As Doug Casey observers:

Political elites are primarily, and sometimes exclusively, composed of sociopaths.

Sociopaths consider themselves superior to everyone else, because they aren’t burdened by the emotions and ethics others have – they’re above all that. They’re arrogant. Although they pretend the opposite.

Sociopaths never accept the slightest responsibility for anything that goes wrong, even though they’re responsible for almost everything that goes wrong. You’ll never hear a sincere apology from them.

Papademos may not be personally responsible for Greece’s trouble (though his role at the ECB probably didn’t help) but his type is what plagues the continent and others.  Those who aspire to public office are totally out of sync with what is often called the golden rule as they seek to rule over others.  These men and women lie, cheat, and steal to get on top and stay there.  When Papademos claims that everything will be sunshine and lollipops, it most assuredly won’t be.  Lew Rockwell’s rule of thumb is to always believe the opposite of the intern-composed press releases and stump speeches of politicians.  It should be everyone’s rule.

Steven Pearlstein- Clueless As Always

LvMIC:

Back at the height of the financial crisis, Steven Pearlstein of the Washington Post wrote a number of contradictory columns both praising the bank bailout known as TARP while  issuing a scathing criticism on how the big banks were using taxpayer funds to pay shareholders and executive bonuses rather than lend credit.  According to Pearlstein, those ignorant folks wary of Uncle Sam padding the balance sheets of reckless bankers (emboldened by the housing policies of the federal government, its mortgage based GSEs, and cheap money of Alan Greenspan’s Federal Reserve) virtually free of charge just didn’t “get it.”

Apparently those who regard the virtue of private gains and losses as a fundamental necessity for markets to work efficiently are just too dense to comment on these matters.  The world was imploding (or so we were assured by a banking class desperate to keep the party going as well as its alumni occupying positions of authority within the Federal Reserve System and U.S. Treasury) so there was no time for critical analysis.  Taxpayers should have kept their claps shut and let their elected officials shove more squandered funds at an already zombified banking system.

To really bolster the merit of his opinion, Pearlstein cited his own Pulitzer Prize in a online chat with Washington Post readers as proof of his superior knowledge on such a serious affair.

Nobody has been more critical of the practices of banks and Wall Street and brokers than I have, probably long before you were even focused on this issue, so I certainly don’t owe you any apology on that one. If you want to check, you’ll see I won a certain prize for that.

Who knew the Pulitzer Prize gave you free reign to declare any opinions contrary to yours null and void?

Recently, Pearstein used his column to weigh in on Greg’s Smith controversial New York Times editorial “Why I am Leaving Goldman Sachs.”  Smith’s editorial caused quite a stir amongst the financial commentariat where everyone and their grandmother has weighed in on its significance and reasoning.  While those knowledgeable on the mutually satisfying nature of a free economy were critical of Smith’s attack of Goldman, many reveled on accusations of unfettered greed dominating the industry.  Pearlstein falls in the latter as he regards Smith’s piece as wholly demonstrative of the evil exuberance of the infamous vampire squid.

The predictable response from Wall Street was to dismiss Smith as hopelessly hypocritical and naïve — hypocritical because he didn’t resign from Goldman until after he had been passed over for promotion and after he received his 2011 bonus check, naïve for thinking that trading financial instruments with customers has ever been anything but a zero-sum game.

Such a dismissal would be more convincing, however, if it wasn’t merely the latest piece of evidence of the ethical deterioration at Goldman in particular, and on Wall Street more generally.

As it happens, just as Greg Smith was reminding us of how Wall Street rips off its customers, Washington was moving to roll back regulations designed to protect investors from that kind of predation.

So begins Pearlstein’s tirade on the opposition to banking regulations.  The rational for financial regulations falls back on the Marxist ideology that capitalism is some type of system of exploitation where clueless consumers and workers fall prey to cash-rich producers.  Because Joe Schmo happened to take a loan out he couldn’t really afford to pay back, nanny state bureaucrats have no other choice but to step in and protect him against his own choices.  But of course no one forced Joe to take out a loan or patronize a bank; he does so on his own accord and believes himself better off in taking the money.  Presuming anything else grants far too much insight to the observer who believes themselves all-knowing of any individual’s unique preferences.  It’s sort of like the central banker who attempts to dictate the proper borrowing interest rate for millions in lieu of a rate determined solely by the time preferences and spending habits of all market actors.

If Smith’s, as well as Pearlstein’s, assertions were true and Goldman really was ripping off its customers en masse, then simple market forces would put it out of business fairly quickly.  As John Tamny observed:

Indeed, what must be stressed here is that Goldman couldn’t purposefully do badly by its clients even if it tried; the firmwide ethos of “putting clients first” the tautological mantra of any business – irrespective of sector – that wants to remain in business for the long haul. It couldn’t because if it did, so great is the competition for its client list that it would soon find itself a hollow shadow of its former self.

For being a well regarded business columnist, Pearlstein somehow misses the fact that only consumers believing themselves to be benefited by the services or goods offered by a company determine said company’s success.  Going off this naive understanding, Pearlstein defends financial regulation.

What we also know from painful experience — from the mortgage and credit bubble, from Enron, Worldcom and the tech and telecom bubble, from the savings-and-loan crisis and the junk bond scandal and generations of penny-stock scandals — is that financial markets are incapable of self-regulation.

This would actually be a very good passage if it was just tweaked a bit to include the real cause of all the crises listed.  It should read like this:

What we also know from painful experience — from the mortgage and credit bubble, from Enron, Worldcom and the tech and telecom bubble, from the savings-and-loan crisis and the junk bond scandal and generations of penny-stock scandals — is that the Federal Reserve’s low interest rates policies perpetuate the continuance of asset bubbles.

Pearlstein’s argument would hold up if the financial industry was indeed void of any government regulation.  The fact is however that for almost a century, the Federal Reserve was put in charge of regulating the industry.  Prior to the Fed’s inception, regulation at the state level was prevalent.  Contrary to Pearlstein’s belief, the financial industry in the United States hasn’t operated under laissez-faire conditions in well over 150 years.

Financial markets are hotbeds of asymmetric information, when one party in a transaction knows much more about the thing being traded than the other.

Again, for an expert business columnist, Pearlstein comes off as uniformed on how markets really work.  There is hardly an industry out there where the same amount of information is held by all market participants.  The essence of entrepreneurship is superior forecasting skills; that is being more knowledgeable and in tune to consumer demands than competitors.  If Pearlstein is going to charge the financial industry with being unfair in the lack of evenly dispersed market information, he has to be critical of all sectors of the economy to stay consistent.

Financial markets are magnets for moral hazard, where people can take risks knowing that they won’t have to suffer the full consequences of those decisions because of government bailouts or insurance.

Thankfully Pearlstein recognizes the role moral hazard has in perpetuating risky behavior.  But instead of offering a cure to this dilemma, his recommended vaccine of further regulation is just more of the same disease already distorting the checks that would exist without government interference.  With the existence of the Federal Reserve, Federal Deposit Insurance Corporation, sanctioned fractional reserve lending, and Congress’s history of doing what it does best and throwing money at perceived emergencies, why wouldn’t Wall Street overly leverage itself if its losses are expected to be socialized?  Pearlstein surprisingly recognizes this dynamic:

And financial markets are highly conducive to herd behavior because bankers and money managers know that, no matter how disastrous their decisions turn out to be, they won’t lose their jobs or their standing in the industry if they were making the same bad decisions as everyone else.

Despite all this, Pearlstein still sees further regulation as necessary to curb the excesses of Wall Street.  This short sightedness doesn’t account for the role bureaucratic red tape plays in benefiting large firms such as Goldman Sachs by making it more costly for small start ups to establish themselves and pose as any sort of competition.  Pearlstein asks “Have you ever met an executive who said he liked regulation?”  Well Steve, considering the Federal Reserve was the product of scheming bankers, one of the largest private health insurance industry lobbying firms (AHIP) endorsed Obamacare, and the CEO of Walmart, the country’s biggest employer, called for a raising of the federal minimum wage just a few years ago; then yes, I have heard of the heads of big business actually liking regulation.

The real question to ask is if it’s really that inconceivable that big business is more than willing to get behind regulation if it poses as a financial burden on its competitors.  Considering the nature of the state is to grow in size and authority as it yields more control over the private lives of its citizenry, any savvy businessman would be naive in not attempting to co-opt such power for its own benefit.

Despite all of his accolades, Steve Pearlstein fails to understand how a free market uninhibited by government regulation would function.  He criticizes the laissez-faire views of those who don’t see markets as zero-sum contests of exploiters and saps while simultaneously advocating as much.  With opinions like this still permeating throughout the editorial sections of the nation’s most read newspapers, it shouldn’t come as a surprise that much of the public falls for them.

Bernanke Murdered The Gold Standard? Ha!

LvMIC:

Joe Weisenthal over at Business Insider is no friend of gold.  He frequently pulls a Keynes and attacks the precious metal as a “barbarous relic” while accusing proponents of the gold standard as cranks.  In a recent post praising Federal Reserve chairman Ben Bernanke and a lecture he gave to students at American University over the origins of central bank, Weisenthal really let’s gold have it.  I will address the simple criticisms in order.

To have a gold standard, you have to go dig up gold in South Africa and put it in a basement in New York. It’s nonsensical.

Being that all consumer goods, when traced back completely, come from the mixture of land and labor, attacking gold for having the same origins as any other good in existence is pretty embarrassing.  It’s akin to saying Hitler was a despicable human being because his mother gave birth to him.  But of course Weisenthal misses the point that the time and capital intensive process of mining and minting gold is a redeeming quality rather than a downfall.  Gold was supposed to serve as a check on continual money printing by central banks and prevent the type of cronyism prevalent in cartelized banking.   Money, either government fiat or gold based, is not neutral and effects the first receivers positively as it enters the economy and distorts relative prices.  Those who benefit financially from legal tender laws and government imposed monopolies over currency creation end up being the politically favored banker class.  This is why central banks are often the creation of elite bankers; the Federal Reserve is no different.  The current author is still waiting for pro-central bank types to rectify their devotion to the fascist nature which is a dominating feature of all central banking systems.  Perhaps Weisenthal has a framed picture of Mussolini in his office.

The gold standard ends up linking everyone’s currencies, causing policy in one country to transmit to another country (sort of how U.S. policy now transmits to China, because they’ve fixed the yuan price to the dollar). So for example, if the U.K. fixes the number of pounds to an ounce of gold, and the U.S. fixes the number of dollars to an ounce of gold, then the pound and the U.S. dollar inadvertently become linked.

To take issue, like Weisenthal does, with countries not being able to adjust currency exchanges, one must assume that countries themselves actually conduct trades.  Since countries are only ever composed of individuals who engage in trade with individuals in other countries, fretting over national governments being unable to adjust their currencies (read: inflate and devalue) means fretting over governments being unable to engage in currency wars.  Yet trade is always mutually beneficial from the individual perspective less it would cease to be committed in the first place.  What Weisenthal really means to say is that under a true gold standard, inflation can’t be used to goose the export industry at the expense of the rest of consumers.

It creates deflation, as William Jennings Bryan noted. The meaning of the “cross of gold” speech: Because farmers had debts fixed in gold, loss of pricing power in commodities killed them.

Weisenthal’s knowledge on money and history is truly lacking.  First off, any type of money can appreciate and therefore cause deflation.  This phenomenon isn’t unique to gold.  As time preferences lower and more people begin holding on to money and deferring from consumption, that money becomes scarcer and thus more valuable.  Prices then fall till the markets clear and spending increases.  This is true for paper standards, gold standards, or pig standards.  Second, William Jennings Bryan was a tool of Southern and silver-rich Mountain state interests.  As Murray Rothbard remarked:

The Greenbackers and later the pro-silver, inflationist, Bryanite Populist Party were not “agrarian parties”; they were collections of pietists aiming to stamp out personal and political sin.

Bryan’s opposition to gold was anything but economically based.

The gold standard tends to cause interest rates to rise during downturns and interest rates to fall during good times, the exact opposite of what monetary policy should be doing.

Weisenthal contradicts a previous point with this one.  If deflation occurs in the midst of a downturn (which Weisenthal sees as bad- no mention of previous inflationary policies which lead to subsequent deflation) then that means people are maintaining and adding to cash balances.  In this case, interest rates should drop as long as more money is sitting in banks.  The supply of loanable funds increases, thus driving down the borrowing cost.  This is just one feature of the market’s mechanism for adjustment. It’s hard to know what historic instance Weisenthal is referring to as he doesn’t give one.  But if he was referring to the Great Depression or other financial crises which occurred within the 19th century or early 20th, then Weisenthal is thoroughly confused on what a gold standard really entails.  For it was fractional reserve banking and the Fed’s policy of printing far more money than it had in gold reserves which caused the downturns prior to Nixon finally shutting the gold window.  Whatever interest rates were relevant at those times were distorted by a non-adherence to a gold standard.

The economy was far more volatile under the gold standard (all the depressions and recessions back in the pre-Fed days).

Again, those recessions and depressions prior to the Fed were caused by fractional reserve banking and perverse financial regulations at the state level.  Tom Woods elaborates:

Moreover, the post–Civil War panics in the United States were due in large part to the unit-banking regulations in many states that forbade branch banking of any sort. Confined to a single office, each bank was necessarily fragile and undiversified. Canada experienced none of these panics even though it did not establish a central bank…until 1934.

The simple fact that the biggest economic calamity of the past two centuries, the Great Depression, occurred under the guidance of the Federal Reserve seems to escape Weisenthal’s narrative.

The only way the gold standard works is if people are convinced that the central bank ONLY cares about maintaining the gold standard. The moment there’s a hint of another priority (like falling unemployment) it all falls apart.

Huh?  Who said central banks need to exist to establish a gold standard?  The gold standard was a product of market participants voluntarily choosing the metal to facilitate transactions.  As Mises pronounced, “The superiority of the gold standard consists in the fact that the value of gold develops independent of political actions.”  It’s hard to make sense of the second sentence.  Is Weisenthal saying that the minute central banks start inflating beyond gold reserves to elevate prices or boost employment, that the economy instantly falls apart?  This is certainly true as an end result but such actions take time to develop.

Gold standards leave central banks open to speculative runs, since they usually don’t hold all the gold.

Welcome to the fundamental problem with fractional reserve banking Joe!  Bank runs do indeed occur when the public suspects their money certificates are not redeemable in gold.  This is not a bad thing however but a great reactionary tool to force banks to be more prudent with their fractional reserve lending.  In our world of government guaranteed reserves, banks now have Joe Taxpayer to cover their losses if they should create too much money out of thin air and find themselves in a contractionary bind.  Moral hazard thus runs rampant as the ideal business model is distorted in the favor of bankers.

While Weisenthal was echoing many of Bernanke’s arguments against the gold standard; no doubt he shares the same feelings.  Gold standard critics are a funny bunch as they see the metal as the catalyst for financial crises when the policies they endorse are the true sickness.  If these are Bernanke’s, and Weisenthal’s, best arguments in opposition to the gold standard, then maybe the following chart is all that is needed to refute them:

For a history on the origins of the Federal Reserve, see my piece “The Federal Reserve A Populist Movement? Puhhhlease“

To see a good take down of Bernanke’s lecture, see Robert Wenzel.