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by Free Market Duck

U.S. bankers whine for 30 seconds, kiss Godfather Paulson’s ass, then sign off on bank nationalization
(Oct 25, 2008)

“What is this, the Mafia?” – Anonymous banker at Godfather Paulson’s Treasury meeting

Hey, wouldn’t it be easier for the Treasury and Federal Reserve to simply pass out Jr. Federal Printing Presses… or let the people run down to Fed-Ex Kinko’s Copy Shop and print up as much paper money as they want to spend in their local economy?  I mean, why are we bothering with the banks since it’s really spending that the Keynesian Government wants, not lending from Bank A to People B?

This time next year, we will either be on some type of international gold standard, forced by the free market, or a loaf of bread will cost $23 Billion.

Washington, DC – Last week, Treasury Secretary Hank Paulson called the CEOs of the nine largest banks in America into a conference room at the Treasury Department for a 3 pm meeting and told them to either sign off on the nationalization of their banks, that is, sign a piece of paper under duress (which is illegal), or else...  While Paulson and his central banking crooks thought the bankers would argue and put up a big fight, then take a break at 4:30 pm and finally come around sometime after 6 pm, the wussy CEOs whined for about 30 whole seconds, quickly signed off, and were outta there by 4 pm sharp.

   Do these pussy CEOs not understand that we are living under a U.S. Constitution with a Bill of Rights?  Did they know they were signing under duress?  Did they understand the future economic and social implications of what they just capitulated to?  Or, did they come to an understanding of how much more money they stood to rake in by cooperating with Treasury Secretary Hank Paulson and his Fascist Business Model for America?  Either way, you just witnessed a Coup d’Etat of the United States and virtually nobody said squat about the legality of it.

   What we are witnessing in the current global market meltdown is the death throes of Keynesian socialist economics, not free market capitalism.  Free market capitalism died a long time ago; it was dumped as soon as all the world governments dropped the gold standard and implemented Keynesian socialist economics.  The erroneous ideas of economist Lord John Maynard Keynes that ALL governments have been operating on for the last 50 years, have now been shown to be empty ideas, blowing in the wind – along with your disappearing savings account.

   Remember what the main thesis of Keynesian Economics is:  central bankers, such as the Federal Reserve, can lead a nation to perpetual economic wealth by injecting the economy with a continual increase in paper money.  They call it “targeted inflation.”  In fact, Lord John Maynard Keynes, who received a Nobel Prize in Economics for this balderdash, stated that a nation’s monetary managers could bury paper money all over the country, hold an Easter Egg Hunt for the booty, and its discoverers would create a business boom as they uncovered and spent their newly-found paper money.  That’s the premise under which U.S. Treasury Sec Hank Paulson and Fed Reserve Chief Ben Bernanke (and his non-free market predecessor Alan Greenspan) have been operating and that’s why they are so concerned, so adamant, about injecting trillions and trillions of paper money into the frozen financial market AND SPENDING IT LIKE MAD.  Spending through deficit financing is the central thesis of the Keynesian Economists. They actually believe their Keynesian Economic Fairy Tale and, in fact, obtained recent legislation from Congress to shove another $700 Billion down your throats whether you like it or not and – more importantly – whether it is sound economic theory or not, which it isn’t.

   Paulson and Bernanke and the Congressional Clowns in Washington are operating under false premises.  “Targeted inflation” is an illusion of temporary prosperity.  Keynes only looked at the initial results of monetary inflation, a temporary business “boom” and then drew his erroneous conclusions.  It’s the same as if counterfeiters pumped tons of fake paper money into a local economy.  At first, everybody thinks they’re rich, so they spend like drunken sailors on shore leave.  Then, when businesses start catching on to the increase in the money supply, they jack up their prices to account for the excess money.  This is called price inflation, a natural result of monetary inflation.

   Like a drug addict, the inflationary money managers have to inject bigger and bigger doses of their inflated paper money to get the same “boom” results.  That’s why it’s temporary.  It can’t last, for obvious reasons.  For example, you can’t counterfeit the pink slip to your ’57 Chevy, sell a million copies of your counterfeited pink slips in your neighborhood, and expect everybody to become rich by owning pink slips to non-existent ’57 Chevys.  But that’s exactly what the monetary managers are doing with the non-backed Dollar.  There is no collateral for the amount of paper money outstanding – which, at last count, is about $600 trillion in toxic derivatives.

   A “bust” looms just around the corner after every monetary “boom,” as soon as the people catch on to the inflated currency.  How does a “boom” get started?  The Keynesians inflate the money supply.  Businesses react by increasing prices.  Government increases the money supply again.  Businesses anticipate and counter by increasing prices again – especially if the government is a dummy (which it is) and announces its “targeted inflation rate” (which it does).  Government continues increasing the money supply… and holy moley it’s off to the races until no amount of new money creates a “boom.”  Finally, nobody trusts the non-backed, non-defined value of the hyper-inflated paper money and, thus, nobody will borrow it, lend it, or trade with it.  Why?  Because its value – let me emphasize that, its current and future value – constantly changes, cannot easily be determined, and thus no longer serves as a true medium of economic exchange.

   It’s not a shortage of money that is causing the current financial crisis; it’s a shortage of gold-backed money that is the problem.  As soon as we went off the gold standard in 1971, we lost a defined value, a defined measure, of our U.S. Dollar.  Similarly, as soon as the Keynesian-schooled idiots on Wall Street removed the connection between the value of a house as collateral for derivatives of subprime mortgages, we lost a defined value, a defined measure, for all the toxic derivatives on Wall Street.  Our commercial paper is not defined because its basic measuring stick, the U.S. Dollar, is also not defined, i.e., our paper money became a value-less piece of Pulp Fiction as soon as the words, “This is to certify that there is X-amount of gold or silver on deposit at the U.S. Treasury redeemable to the bearer on demand,” were erased from our U.S. Dollar.  In the same way, the word “house” was erased as collateral from the subsequent derivatives for subprime mortgages.  In the same manner that the U.S. Dollar is not traceable to a specified backing of gold, homes are not traceable to specific derivatives.  Nobody knows the value of derivatives because nobody knows which home, or fraction of a home, “backs” that derivative.  Nobody knows the value of a U.S. Dollar because nobody knows which gold, or fraction of gold, in the U.S. Treasury “backs” that Dollar.

   The Dollar is no longer a promissory note because it promises nothing.  The U.S. Dollar is not “capital” because it is not backed by redeemable “capital goods” owned by the issuer of the Notes, namely, the central bank or Treasury.  You, the people, own America’s GDP, not the banks.  Banks and governments cannot issue paper receipts or promissory notes for collateral that they don’t own.  I cannot issue promissory notes for my neighbor’s car or house.  It is sheer nonsense to claim that the U.S. Dollar is backed by America’s GDP.  It is not.  The monetary concept that Greenspan, Bernanke, and Paulson do not understand is that paper money must have a defined, redeemable value.  The Dollar is currently defined as Congressional hot air or Treasury horse shit, your choice, and, at the current rate of hyper-inflation by the Feds, that’s exactly what your savings account will soon be worth:  a big fat zero.

   And that’s where we are today:  the inevitable financial “bust” of Keynesian socialist economics.  First the Dollar was destroyed, then the housing market, next the car market will collapse, until finally we are living in a total state of economic collapse:  a Recession.  A Recession turns into a Depression when the Government refuses to go back to a sound monetary standard, i.e., gold, continues hyper-inflating its fake currency and imposes tons of absurd regulatory controls on all social and economic activity until everything essentially comes to a standstill.

   No nation can establish non-defined, irredeemable, empty, paper promises of nothing as its medium of economic exchange – as Paulson and Bernanke and all their Keynesian buddies have done (including former Fed Chief Alan Greenspan, see page 36 in his latest book, The Age of Turbulence, in which he claims economies can be mathematically modeled, thus managed).  Unfortunately, Greenspan and his Keynesian successors do not understand the difference between gold and Funny Money, the subjective theory of value, how prices can only evolve in a free market rather than a “managed” market, or the underlying moral philosophy of individual rights and freedoms as they relate to economic freedoms.

   In short, the fallacies of Keynesian socialist Economics have now destroyed all facets of our economy, including its culture, its social freedoms, its institutions, and its objectivity of law.  Keynesian socialist Economics, at its basic premise, is a violation of basic monetary contracts and, therefore, it is not surprising that its final results will be a further erosion of individual rights and freedoms, and eventually the total destruction of a nation’s objective legal system.

   Keynesianism is worse than just bad economics.  It is immoral and it’s patently unconstitutional in the United States.  Ultimately, Congress is guilty of abrogating its monetary authority and handing it over to a private group of central bankers, the Federal Reserve, which is now continuing to destroy what’s left of the U.S. financial and social system of justice.  This is the true meaning of an economic Depression:  the total loss of individual freedom and the loss of a rational culture.  The result is usually trade wars which then escalate into military wars.

   The global economy has literally become saturated with trillions and quadrillions of units of excess paper money (Dollars, Euros, Yuan, etc.) and nobody wants to borrow any more of the worthless paper money or go further into debt.  Nobody knows what the value of their money is or the value of all the tricky derivatives created on Wall Street.  They are now rushing to exchange their Dollars for tangible commodities:  coffee, canned goods, real estate, gold, silver, and anything (except paper money) that they can get their hands on.  This rush out of paper money and into hard commodities has already started in the undeveloped nations; it will soon spread to North America and Europe.

   But even this will not curtail the continual Keynesian actions of the government or central bankers who have been schooled in the belief that more and more paper money – Pulp Fiction which they erroneously confuse with real “capital,” “capital goods,” “liquidity,” and “value” -- are needed to be injected into the economy in the stupid belief that spending undefined, valueless, non-backed paper money per se is the panacea for what ails the global economy.

   What the world is dying for is a sound gold monetary system and the Keynesian socialists continue to flood the markets with more Pulp Fiction.

   But no matter what absurd monetary tricks the Keynesian central bankers and national legislatures dream up in their zeal to force everybody into their misguided deficit “spending” madness, it will all fail because the Keynesian Bozos are still operating under the illusion that spending per se creates wealth.  Nothing could be further from the truth and the only result will be a much bigger crash than if they allowed a quick return to a 100% gold standard and removed unnecessary interventions into what should be a free market.

   Remember, it was not a free market that caused the current financial meltdown.  It was a dumping of the gold standard, hyper-inflation of non-backed paper money, and continual intervention into the market by Congress and central bankers that caused our current problems.  Wall Street bankers pulled the triggers and shot their guns but they could have never done it without the Federal Reserve providing them with tons of monetary ammunition.  This was not a free market; this was socialist central banking at its best.  The worst is yet to come.

   In summary, toxic derivatives with non-defined values are a natural consequence of a non-defined U.S. Dollar, a Dollar that is not backed by, nor redeemable in, gold or some other hard commodity.  That is the true source of our current U.S. and global financial meltdown:  i.e., once again, It’s not a shortage of money that is causing the current financial crisis; it’s a shortage of gold-backed money that is the problem.  None of the current economic problems we are experiencing today could have happened on a 100% gold monetary standard.

   As a footnote, if you want to know how the current global crisis is going to play out, just read Ayn Rand’s novel, Atlas Shrugged, minus the ending of a John Galt showing up to save humanity.  The current Recession, at its basic premise, is a crisis of intellectual bankruptcy, a crisis of not understanding even the basic basics of what money is, and why. – FM Duck

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