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by Free Market Duck

The Paper Chase:
Dollar becomes pulp fiction as Fed injects trillions into the market…
But Dollar is not real capital, thus cannot stimulate the economy
(Jan 24, 2008)

The fallacy of the Federal Reserve pretending to “stimulate” the economy by injecting billions of non-backed Dollars into the market is:  Dollars are not “real capital” or “capital goods.”  The truth is that the Fed is merely injecting billions of pieces of little green paper printed up out of thin air.  The only result will be more inflation and unemployment.

What the economy needs is an injection of real capital, not fake money.  But only true entrepreneurs through a free market economy can bring capital to the market.  Central bankers do not possess capital.  They only possess non-backed paper.

What is truly needed is laissez-faire free market capitalism with real entrepreneurs injecting real capital, not a government-sanctioned group of private central bankers (the Federal Reserve) and their special interest groups hyper-inflating the U.S. economy with tons of pulp fiction.

Washington, DC – Listen up girl friends.  Pour yourself another hot cup of Rocket Java, pull up the floor, and have a seat.  Have you ever pondered the following important economic question, let’s say, during foreplay on a hot Friday night with Mr. Right, or whilst leisurely munching on a chocolate truffle in your big bubble bath overflowing with suds from The Body Shoppe?

   Really?  I’m shocked.

   OK, here’s the question:  When the Federal Reserve injects billions of dollars into the economy, what is it injecting:  only “paper” or “real capital?”  The fate of the entire world depends on your answer.  No pressure.  Finish your truffle, chocolate lips.

   While you’re thinking, let’s review basic Econ 101A.

   What is the difference between (1) money, (2) paper money, and (3) capital or capital goods?

   We already know that money is defined as a commodity and paper money is a receipt for that commodity.  But what is “capital?”

   To answer this important question, we must turn to Professor Ludwig von Mises, a free market economist from the Austrian School of Economic Thought:

   “At the outset of every step forward on the road to a more plentiful existence is saving – the provisionment of products that makes it possible to prolong the average period of time elapsing between the beginning of the production process and its turning out of a product ready for use and consumption.  The products accumulated for this purpose are either intermediary stages in the technological process, i.e., tools and half-finished products, or goods ready for consumption that make it possible for man to substitute, without suffering want during the waiting period, a more time-absorbing process for another absorbing a shorter time.  These goods are called capital goods.  Thus, saving and the resulting accumulation of capital goods are at the beginning of every attempt to improve the material conditions of man; they are the foundation of human civilization.  Without saving and capital accumulation there could not be any striving toward non-material ends.

   “From the notion of capital goods one must clearly distinguish the concept of capital.  The concept of capital is the fundamental concept of economic calculation, the foremost mental tool of the conduct of affairs in the market economy.  Its correlative is the concept of income.

   “The whole complex of goods destined for acquisition is evaluated in money terms, and this sum – the capital – is the starting point of economic calculation.  The immediate end of acquisitive action is to increase or, at least, to preserve the capital.  That amount that can be consumed within a definite period without lowering the capital is called income.  If consumption exceeds the income available, the difference is called capital consumption.  It the income available is greater than the amount consumed, the difference is called saving.  Among the main tasks of economic calculation are those of establishing the magnitudes of income, saving, and capital consumption.

   “Capital is the sum of the money equivalent of all assets minus the sum of the money equivalent of all liabilities as dedicated at a definite date to the conduct of the operations of a definite business unit.  It does not matter whether they are pieces of land, buildings, equipment, tools, goods of any kind and order, claims, receivables, cash, or whatever.”

   Please note:  when Professor Mises refers to “cash” or “money,” one must remember that he was writing his praxeological treatise on economics – Human Action, a thousand pages of complex, fun-time economic theory – in the 1920s through the 1960s and, at that time, “money” was either gold or silver, and paper money was a promissory note for gold or silver.  The important thing to understand is:  “cash,” “money,” and “capital” does not mean today’s non-backed U.S. Dollar, which is simply a piece of paper printed up out of thin air with no collateral.

   Because the U.S. went off the gold standard – partially in 1933 and totally in 1971 -- the U.S. Dollar, i.e., the Federal Reserve Note, is NOT “capital” or “capital goods” since it is not a tangible asset or backed by a tangible asset.  Once again, the U.S. Dollar is just a piece of fiat or “forced” government paper.  It is not pieces of land, buildings, equipment, tools, goods of any kind and order, claims, receivables, or cash.

   Therefore, the injection of billions of U.S. Dollars into the market by the Federal Reserve or the U.S. Government is merely the injection of more inflated paper, not capital.

   What the economy needs is an injection of real capital, not fake money.  But only true entrepreneurs through a free market economy can bring capital and capital goods to the market.  Central bankers do not possess capital.  They only possess non-backed paper.

   Nor would we expect the Federal Reserve central bankers to be able to inject “real capital” into the market since they do not possess “real capital.”  They only possess non-backed paper Dollars and deficit credit created out of thin air, an illegal “right” granted to them by a corrupt U.S. Congress.

   Which brings us to the question:  what is the function of the Federal Reserve, if all they are doing is manipulating fake paper money created out of thin air?  The short answer:  to strip you of your commodities, your capital, and capital goods, by “legally” creating a counterfeit vehicle, the Federal Reserve Note, with which to cleverly rob you through an infinite number of exchange processes (some tricky, some not so tricky) that funnel America’s real capital into their pockets in exchange for the Fed’s bogus Federal Reserve Notes.  This is precisely why the Fed had to force America, indeed the entire world, off the gold standard and onto their Monopoly Money.  Not to save you but to fleece you.

   First, let’s get one thing straight, girl friends.  The central bankers are NOT capitalists, they are not free marketers.  They are government interventionists, which is why they always want to be the Central Bank for a government, so they can exercise the exclusive power of force over the economy.  The true function of all central banks is not to ensure a free market, but rather to control the economy with fake Monopoly Money for their own aggrandizement, to enrich themselves.

   How?

   The Fed has a monopoly to create new fake money.  The Fed member banks get the new counterfeited money first.  Then the member banks loan the newly created fake money to themselves and then to other consumers at interest.  The income tax is used to pay off their fake “National Debt” created in your name.  Try not paying your income taxes and see how fast the taxman shows up to your door.  It was not a coincidence that the IRS was created at the same time as the Federal Reserve in 1913.  One entity creates the fake cash, the other kicks your butt.  The U.S. Congress approved all this because the Federal Reserve threw them a cookie:  deficit financing, which today has expanded into earmarks for local government, or deficit financing for all 50 states.

   What a deal for the bankers:  new money created out of thin air to loan to themselves and the American citizens at manipulated interest on the fake premise that the bankers are “saving” Americans from some future mysterious malady called a “recession,” which the bankers create themselves by their previous hyper-inflation of fake money.  And so this vicious cycle of boom and bust created by the central bankers goes on and on until the economy collapses, the government implements martial law to keep order, and then they start it up all over again.  Yippee!  The central bankers get richer, you get poorer.

   This charade has been going on for decades and, if you haven’t noticed, it is always the central bankers who prosper during booms, busts, recessions, and depressions, not the average worker or entrepreneurial capitalists and businessmen -- except the Fed’s special interest groups.  Once again, central bankers are not true free market capitalists.  Central bankers are, by definition, government interventionists.  The idea that the central bankers of the Federal Reserve are capitalists and that the current U.S. economy is a free market IS A BIG LIE.  The current U.S. market is, technically speaking, a form of state collectivism such as fascism, characterized by a group of international central bankers manipulating fiat currency to their own benefit with a complicit government, the U.S. Congress and an Executive Branch, continually intervening into the market with thousands and thousands of economic rules and regulations driving the economy towards a giant nationalized Welfare State.  All of this is founded upon the philosophical premise of altruistic state collectivism and espoused by both major political parties, the Democrats and the Republicans.  That’s why nothing ever changes, no matter which Party is elected to the Presidency or the U.S. Congress.

   Now we find ourselves in an economic recession, stagflation, and hyper-inflation with everybody screaming and arguing that the Federal Reserve and U.S. Government should inject hundreds of billions of new Dollars into the U.S. economy to “stimulate” spending by the consumer on the false premise that U.S. Dollars are real capital.

   But, the fallacy of the Federal Reserve pretending to “stimulate” the economy by injecting billions of non-backed Dollars into the market is:  Dollars are not “real capital” or “capital goods.”  The truth is that the Fed is merely injecting billions of pieces of little green paper printed up out of thin air.  The only result will be more inflation and unemployment.

   Listen to the words of Professor Mises as he describes the cause of America’s 1929 stock market crash that led into the Great Depression of the 1930s:

“No manipulations of the banks can provide the economic system with capital goods.  What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media.  The credit expansion boom is built on the [shifting] sands of [non-backed] banknotes and [deficit] deposits.  It must collapse.” – Prof Mises, on the American boom and crash of 1926-29

   What is truly needed is laissez-faire free market capitalism with real entrepreneurs injecting real capital, not a government-sanctioned group of private central bankers (the Federal Reserve) and their special interest groups hyper-inflating the U.S. economy with tons of pulp fiction. – FM Duck

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