Freedom Chatter Blog – Business

When It Comes to Deflation, You Are Walking Into a Trap

Friday, February 26th, 2010

There is a buzz going through the Interwebs. Deflation is back, they say.  The core CPI numbers declined for the first time since 1982, down 0.1%

I’m going to discuss 5 topics today so let’s dive right in.

1  Why Deflationists are always wrong.
2. Why deflation, in normal circumstances, is a great thing.
3. Why the CPI is a useless statistic
4. A realistic assessment of current price levels
5. Why the Federal Reserve wants you to worry your poor little head about a 0.1% drop in price.

Why Deflationists are always wrong

According to deflationists, falling prices are right around the corner.  The inflationists, on the other hand, predict rising prices but often say that the rise may not come for some time.  You won’t hear a deflationist predicting prices falling by massive amounts.  They can’t tell you how long it will last or how severe it will be.  You never hear the term “mass deflation.”
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Tags: Austrian Economics, banking, Bubble, Capitalism, Consumer Price Index, CPI, Deflation, Free Market, Gary North, Inflation, Murray Rothbard
Posted in Business, Current Events, Economy, Government, Historic Analysis, Public Policies | No Comments »

Avatar and the Principles of Libertarianism

Sunday, February 21st, 2010

James Cameron’s Avatar has shaken the entertainment industry in the past couple months, raking in more than $2.3 billion so far in the box office worldwide. I first saw the film in January and was blown away by the incredible visuals, a detailed exploration of the Na’vi culture, and what I thought was a masterfully told story (as common or predictable as it may be to some). Unfortunately, some conservative and libertarian writers condemn the movie as a wackjob combination of pro-Green, anti-military, and anti-capitalist thinking wrapped into a movie. However, when I saw the movie I thought it strongly reinforced the importance of private property, individual rights, and protection against central force.

Consider the planet Pandora, where the “savage” Na’vi tribes have made their residence for generations. Their planet is their property. When a human corporation backed by hired mercenaries (hardly a constitutional military used for national defense) establishes itself on the planet to further the exploration and mining of a valuable mineral called Unobtanium, they face severe blowback from the tribes. One of the first scenes in the movie shows a massive vehicle returning to base with several arrows stuck in the tires. The tribes understandably felt threatened and saw the human tactics as an invasion of their property. Is this really an attack on the principles of peaceful exchange common in a free market?

The Omiticaya tribe that is prominent in the film does not need anything the humans offer in return for the mineral whether it be roads, education, medicine, etc. Is this really unreasonable? Does an owner of a product not have the right to negotiate the terms of a transaction? The Na’vi are not being selfish, the humans simply do not have a product or service that is more valuable than the land itself is already worth to the Na’vi. It is the same as if someone was offering $10 for a family heirloom that you will never give up. Just because you refuse their offer doesn’t mean they can take that item by force, as the mercenaries in Avatar did.  Once again, this reinforces peaceful and voluntary exchange in a free market.
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Tags: Avatar, Capitalism, Choice, Community, cooperative, environment, exchange, Free Market, Freedom, Green, Hollywood, Individual, James Cameron, libertarian, Military, Mining, na'vi, Pandora, Principle, Property, spirituality, Spirtual, voluntary
Posted in Business, Current Events, Economy, Featured, Government | 1 Comment »

Yes, Virginia, There Are No Reserve Requirements

Sunday, February 14th, 2010

In Part 1, Fractional Reserve Banking in Pictures, we saw how the banking system creates fraudulent money by creating new money on top of old. The reserve requirement limit used in the example, 10%, is the figure usually given, which means that from a $10 deposit the banking system could generate $90 of new money. Also, the FED uses Open Market Operations to create new money by writing a check upon itself.
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Tags: banking, Banks, Citibank, Currency, Federal Reserve, Fractional Reserve, open market operations, virginia
Posted in Business, Government, Monetary Policy | No Comments »

Fractional Reserve Banking in Pictures

Saturday, February 6th, 2010

“The few who understand the system, will either be so interested in its profits, or so dependent on its favors, that there will be no opposition from that class. The great body of people, mentally incapable of comprehending the tremendous advantages, will bear its burden without complaint.”

- Lord Rothschild, European central banker

The below slides are meant to explain fractional reserve banking as simply as possible using pictures.  The below demonstration assumes a reserve requirement of 10%, which is the figure typically given by the banking industry and financial experts.  However, in Part 2 I will demonstrate there there is effectively NO set reserve requirement though the banking system obviously carry some level of cash reserves.
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Tags: Amschel Rothschild, banking, Banks, Currency, Debt, Dollar, Federal Reserve, Fiat Money, Fractional Reserve, henry ford, josiah stamp, loans, Thomas Paine
Posted in Business, Current Events, Economy, Historic Analysis, Monetary Policy | 2 Comments »

Is the Dollar a Ponzi Scheme?

Tuesday, January 12th, 2010

Ponzi scheme – a fraudulent investment operation that returns assets to the defrauded from assets they previously loaned to the scheme’s operators or assets paid by subsequent newer “investors” rather than from any actual profit earned

While it is (comparatively) well-known that the US dollar, while a currency, is a solely an instrument of credit issued by the Federal Reserve. All holders of dollars – including myself and most readers of this article – are in debt to the Federal Reserve. Now, this debt is really phantom debt, but the key really is printed on each dollar, more properly known as a Federal Reserve Note: “This note is legal tender for all debts, public and private.” (1)

The total federal debt issued was $11.933 trillion dollars at the end of fiscal year 2009 in September per the Treasury Department, an increase of $1.9 trillion from 2008. (page 37/123) This debt will continue to increase every year until the monetary system collapses due (just in part) to the compounding “miracle” of interest rates. Federal debt is bought at auction by primary dealers (Goldman Sachs, JP Morgan Chase, etc.) and “resold” to the FED, which then inflates the money supply by creating new dollars, or “injecting liquidity.” The FED can also “inject liquidity” by purchasing assets, such as toxic mortgage debt or even company stock like AIG or GM. Individual community banks, whether Citibank, Bank of America, or small local banks and credit unions, can also create new dollars with the fractional reserve system, which is can be viewed graphically here. However, a proof I wrote demonstrates that fractional reserve banking broke down years ago, and can be more aptly named as the “no-reserve lending” system.
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Tags: China, Currency, Fiat Money, Free Market, Gold, Legal Tender, Money, ponzi scheme, Treasury Department
Posted in Business, Current Events, Economy, Government, Historic Analysis, Investing, Public Policies | 1 Comment »

The Next Defense – Nullification of the Health Care Tax

Sunday, January 10th, 2010

“It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.” – C.S. Lewis

“In questions of powers, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” – Thomas Jefferson, from the Virginia Resolution of 1798

Last month both the House and Senate passed two very dissimilar bills with the same purpose – to tax the American people around $900 billion more, and intervene government bureaucrats into the private lives of each man, woman, and child. Congress is currently working out the differences, my prediction is that the bill will be quite the Frankenstein after the pork is added.

As I painstakingly laid out in my health care plank last summer, its unintended consequences will worsen the quality of care and affordability of health care.  I believe the TRUE issue at stake is affordability and cost - if an MRI cost $200 instead of $3,000, it would be a lot less imperative to suggest  drastic changes like socialized medicine.  The TRUE root cause is government-sponsored insurance cartels and quality-depleting, cost-increasing legislation such as the HMO Act of 1973.  After all, President Nixon was told “all the incentives [of HMOs] are toward less medical care, because the less care they give them, the more money they make and all the incentives run the right way.”
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Tags: Constitution, Health Care, health care sharing ministries, Hospitals, James Madison, Nancy Pelosi, Social Security, States, The Kentucky Resolutions of 1798, the virginia resolution of 1798, Thomas Jefferson
Posted in Business, Current Events, Government, Historic Analysis, Public Policies | No Comments »

Guns or Health Care?

Saturday, January 2nd, 2010

“We can do without butter, but, despite all our love of peace, not without arms.  One cannot shoot with butter, but with guns.” — Joseph Goebbels, Nazi Germany’s Reichminister of Propaganda

Throughout time, governments have strong tendencies to simultaneously splurge on both domestic spending and the more sinister business of warfare. This is referred to as the “guns versus butter” economic model. “Butter” is synonymous with domestic spending, while “guns” is synonymous with military spending. As with any economic goods or services, there is always scarcity of labor, machines, raw materials, land, et cetera. Individuals find it very easy to understand that if you want to spend 100% of one’s resources on “butter,” no “guns” can be purchased or vice versa; there is always a trade-off.  Steel can be formed into either a refrigerator or a tank; it can not be used for both.
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Tags: andrew carnegie, Bailouts, Constitution, Corporatism, Federal Reserve, food stamps, great society, habitat for humanity, Health Care, lyndon johnson, Medicare, red cross, Stimulus Package, United Nations, vietnam war
Posted in Business, Current Events, Economy, Foreign Policy, Government, Historic Analysis, Public Policies | 4 Comments »

The Flexner Report’s Stranglehold on Health Care

Thursday, November 12th, 2009

Congressman Ron Paul recently gave a speech on the House floor covering the topic of health care. In it he brought up the Flexner Report, an item few individuals have even heard about that is worthy of much more attention than it currently receives.

“A lot of problems were created in 20th century as a consequence the Flexner Report (1910), which was financed by the Carnegie Foundation and strongly supported by the AMA. Many medical schools were closed and the number of doctors was drastically reduced.” — Ron Paul; September 24, 2009

The seeds of the Flexner Report were planted in 1908 when the Carnegie Foundation for the Advancement of Teaching commissioned Abraham Flexner, a high school principle, to research and report on medical schools in the U.S. Flexner himself was not involved in the medical industry, but after being asked to take on the report he researched and grew fond of the medical systems in England, France, and Germany.

In the report, which was officially published in 1910, Flexner called homeopathic schools “a striking demonstration of the incompatibility of science and dogma.” What’s curious is that Flexner points out between 1900 and 1909 homeopathic schools decreased from 22 to 15 and students within the schools decreased from 1,909 to 1,009. Flexner uses these figures to conclude that “the rise of legal standard must inevitably affect homeopathic practitioners.” In short, even with the marketplace whittling out the unproductive and unsustainable homeopathic colleges (or any colleges, for that matter) that Flexner clearly did not appreciate, he still advocated increased government intervention to further clear out homeopathic schools.
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Tags: American Medical Association, Carnegie, Central Planning, Congress, Doctors, Education, Flexner Report, Health Care, Individual, Ron Paul, States
Posted in Business, Featured, Government, Historic Analysis, Public Policies | 1 Comment »

The FDIC and the Follies of Modern Banking: Part 1

Tuesday, September 1st, 2009

When the Federal Reserve was signed into law in 1913, it was largely on the basis that the independent organization would assume the role of “lender of last resort” to struggling banks and institutions. This would allow the Fed to extend credit in order to prevent short-term economic hardships. As I wrote in my article, Deception in “Free Market” Banking, banks had not experienced troubles because of the free market as is regularly assumed, but through the government-protected fractional reserve system that allowed banks to overextend themselves and deceive depositors:

After the Panic of 1907 and the umpteenth failure of fractional reserve lending, the attacks still were not aimed at the fractional reserve system. This system, when protected through law, gave banks the undoubted opportunity to inflate the money supply, overextend themselves in ways that would never be sustainable in a free market economy, and give little regard to the customers’ original property. Instead, economists began calling for a “lender of last resort” to bail out banks if they were caught overstretched in commitments. Many people don’t realize it, but the U.S. financial system has been in bailout mode for nearly a century since this event.

The Federal Reserve’s “last resort” lending powers did not meet the expectation of politicians. Banks still overextended themselves with depositors’ money despite the new powers of the central bank. In fact, between 1921 and 1929 there was an average of 600 bank failures every year, which exceeded the previous decade’s average (the one in which the Fed was created) by ten times.

During the last few months of 1930 people grew increasingly weary and cautious of the banking system. Understandably, people did not react well when they realized the banks did not have their deposited money. Banks retracted credit and liquidated assets, building up a financial perfect storm that resulted in 9,096 banks suspending operations between 1930 and 1934.

Many politicians reacted by proposing a system (that had been discussed in recent years) of deposit insurance backed and paid by a federal agency, despite the failure of similar state setups of deposit insurance in the same era. Since the early 1800s many states had attempted to offer some form of deposit insurance, many failing to live up to their initial claims. All of them were broke by 1930 (some reached their demise many years earlier, such as Michigan, New York, and Vermont in the mid-1800s).

This all changed when The Banking Act of 1933 was signed into law by Franklin D. Roosevelt on June 16, 1933. The Federal Deposit Insurance Corporation (FDIC) was established as a temporary agency that started operating on January 1, 1934. In its first year the FDIC fund carried a balance of $292 million. In 1935, with President Roosevelt’s signing of The Banking Act of 1935, the FDIC was established as a permanent government agency.The act also strengthened the Federal Reserve Board of Governors, the group of seven individuals who play a major role in controlling monetary policy.

The primary functions of the FDIC include insuring deposits through the Deposit Insurance Fund (DIF) and examining/supervising “financial institutions for safety and soundness and consumer protection.” This has been the basic mission of the FDIC in its 75 year existence, the details of which I won’t fully cover in this article.

Modern economics and politics often praise the development of the FDIC as a great and necessary banking program (this alone might be reason enough to question the FDIC’s role). The main curiosity that I have is the fact that rather than recognize the failure of a government-protected banking system that had failed numerous times leading up to the Great Depression, politicians decided to once again prop up the government system. According to information on the fdic.gov website, the original FDIC legislation drew support from those “who were determined to end destruction of circulating medium due to bank failures and those who sought to preserve the existing banking structure.” (Emphasis added.) These people either failed to realize or downright ignored that it was precisely the banking structure of the fractional reserve system that made such booms and busts so dreadful.

The failure of many banks in the Great Depression was not due to the free market. Fractional reserve banking, the process of banks loaning and investing more money than they actually have in reserve, had been shot down by market forces many times throughout the 1800s in the U.S. The numerous “financial panics” of the 19th century that people often pin on the free market would not have been possible had the states and federal government ceased in protecting the ability of banks to deceitfully loan away depositors’ money. A free market system would not involve government protecting banks in this process, but enforcing the distinction of contracts between demand deposits and time deposits.

• Click here for Part 2.
  

Tags: Banking Act of 1933, Banking Act of 1935, Banks, Central Bank, Deposit Insurance, Deposit Insurance Fund, FDIC, Federal Reserve, Fractional Reserve, Franklin Roosevelt, Free Market, Great Depression, Individual, Panic of 1907, Panics, Recession
Posted in Business, Featured, Government, Historic Analysis, Monetary Policy, Public Policies | 1 Comment »