Shock Doctrine: Banking Crisis and Fabian Socialism

"Hyman Minsky—an economist largely ignored during his lifetime and now held up as something of a prophet—argued that speculative bubbles, and the financial collapses that follow them, are an inevitable consequence of unregulated capitalism. Minsky, an economics professor at Washington University in St. Louis who died in 1996, warned: “The normal functioning of our economy leads to financial trauma and crises, inflation, currency depreciations, unemployment and poverty in the middle of what could be virtually universal affluence—in short … financially complex capitalism is inherently flawed.” He called for socialized banking and stimulus packages to protect workers." — Chris Hedges, Obama Has Missed His Moment

Hyman Minsky got it part right. Yes, much of the current economic mess is the inevitable consequence of unregulated capitalism in our existing system. But one very important point that escapes the notice of most people is that our existing system is not a free market system. Our current system is a centrally-planned system. Free market systems do not have central planners à la Volcker, Greenspan, and Bernanke. The root of these problems goes deeper than most people are willing to look.

Our existing economic system is fundamentally flawed. How so? It is based on a fiat currency system with no intrinsic value, a currency that is not backed by anything other than public confidence. Thought experiment: what would happen if the U.S. dollar was backed by a commodity such as silver or gold? Would it be possible for the arguably well-intentioned but misguided Federal Reserve/government to print money according to their whims? No. Would it be possible for the Fed/government to set interests rates artificially low, thereby allowing for cheap and widespread credit, in turn facilitating the housing bubble and subsequent collapse? No.

The reason we are in this financial mess is not due solely to deregulation. Yes, there was ill-conceived deregulation that took place, but there were equally terrible regulations enacted. For example, regulatory changes to the Community Reinvestment Act (1999, 2005), enactment of the Financial Services Modernization Act (1999), and amendments to the Federal Deposit Insurance Act (1999). The problem is not deregulation and overly free markets, but misguided regulation. The Fed made artificially cheap credit available, and the government encouraged and even compelled banks to extend that credit to poor-credit borrowers through many of the regulatory changes/additions mentioned above. As a result, housing prices climbed about 50% in 7 years while all the traditional market forces were trying to pull these prices down through higher interest rates. But the Fed prevented this natural correction from happening through their forced low interest rate policy in addition to bad government regulation and de-regulation. Couple this to massive leveraging of these bad debts (20x-30x, up to 100x in some instances), and we have the current economic crisis.

The root of the problem stems from our debt-based fiat currency system. This system facilitates derivatives, leveraging, and fractional reserve banking. In our current debt-based system, the markets need to be very carefully protected from manipulative/interventionist forces (i.e., artificial interest rates), and greedy casino-style banking interests (i.e., derivatives, leveraging, and fractional reserve banking). These are the excesses pandemic in our current debt-based financial system. Hence the need for regulation. But regulation would not be necessary if the financial system was a real asset-based system, as none of these "casino" capitalism activities would be possible.

The truth is that government knuckleheads (Democrats/Republicans--same difference) haven't the slightest clue what they are doing, nor do they appreciate the repercussions their actions will have on the economy. Why do we trust these people with either regulations or de-regulations that moves us towards increased central economic planning and unmitigated disaster?

The solution to all this is not a move towards socialism and increased government regulation as Hyman Minsky would suggest. That's just putting more power in the hands of our short-sighted knuckleheaded government officials. In any case, would you really trust them with even more control and power over our lives? Perhaps, if they were truly enlightened oligarchs. Perhaps, if they were truly operating in our best interests. But that is far from the case, as any 21st century politically disillusioned socio-politico critic would tell you.

No, what we need to do is replace the existing debt-based fiat currency with an asset-based non-fiat currency. Otherwise the problem will simply repeat itself in a more magnified form at some point in the future. Why? Because, as Hyman Minsky (partly) correctly stated, this boom and bust cycle is built into the existing "casino"-style financial system. We must replace this little piece of valueless paper with a currency that has intrinsic value with mandatory full non-fractional reserve banking. A 100% commodity-backed currency using silver or gold. This would prevent governments and banking institutions from printing money when they wanted it, which includes any form of derivative and/or leveraging, and would be the greatest restraint on government spending, borrowing and bank lending, not to mention dramatically curtailing government's imperialistic prerogative. This would be the end of the military-industrial complex, the end of the welfare state, and the dawn of limited government and a genuinely sound financial system.

References:

1. Ludwig von Mises Institute
2. Works of Ludwig von Mises
3. Works of Murray Rothbard
4. Works of Friedrich Hayek
5. Works of Peter Schiff
6. Works of Ron Paul

Predicting Recession: Negative GDP, Business Cycles, and Money

Congressman Ron Paul gave a compelling speech before Congress on May 15, 2000 that predicted much of what has happened in global financial circles, and very likely much of what will come. It's not difficult to see, one hardly needs to extrapolate the data to see the writing on the wall. However, it is important that we have reliable sources of information.

Many in financial circles believe that economic statistics provided by the U.S. government are reliable and accurately portray GDP, for example. According to these statistics, the economy has not shown two consequtive quarters of negative GDP. However, this is only because the official reported numbers are false. If one tracks the statistics according to how they were tracked a couple of decades ago, using (more) real measures, then the truth will out. In fact, we have had at least 12 consecutive quarters of negative GDP. For example, have a look at John Williams' Shadow Government Statistics site.

In actuality, we're in a massive stagflation. And the full force of this tsunami has yet to hit home. Give it a couple more years, and when it does—look out! The efforts on the part of the U.S. government's media machine are almost exclusively for perception management and controlling public opinion, invariably with false information in an ultimately futile attempt to keep the masses pacified thinking everything is just fine.

Further, counter to conventional wisdom, business cycles are not a part of true capitalism. True capitalism has rarely been seen, except perhaps to some degree prior to the institution of the Federal Reserve in 1913, or it's various attempts in the 19th century to obtain a monopoly on money creation in the United States. True captitalism leaves the government to perform only one task as far as economics is concered: protect the free market—keeping it truly free. Laissez-faire Capitalism = True Capitalism.

And what about the argument that business cycles have also occured prior to the establishment of the Federal Reserve? Although this may be true to some degree, it is largely due to the same interests involved influencing economic policy that sought to create the Fed in the first place. Prior to the Fed these interest groups did not have the official sanction of government; afterwards they did. For more information read, "The Creature from Jekyll Island" by G. Edward Griffin as one reputable source; there are several others, including works by Ludwig von Mises, Murray Rothbard, and even Ron Paul.

Ron Paul almost prophetically spoke of a massive economic "pullback" in the years to come. However, quite contrary to what many think, he was not referring to the collapse of the technology bubble but something far more comprehensive and pervasive: he was referrring to a global economic crisis. One in which our entire global economic system would be in a shambles—due largely to the fact that a fiat debt-based U.S. currency has been the world's reserve currency for the better part of a century, coupled to the realization that there isn't enough liquidity to finance this massive "credit card bill." If one reads the Gold Anti-Trust Action Committee (GATA) with any degree of regularity, one will see that over the last 2-3 years many central banks all over the world have been trying very quietly to divest themselves of US dollars, and then downplaying this divestiture in public circles so that they don't overly affect the markets, whilst at the same time ensuring they don't shoot themselves in the foot for the next round of divestiture.

The only way to have real, solid, non-superficial growth is to change the way our money is fashioned. We must divest ourselves of a debt-based Keynsian system in favour of an asset-based Misesian system. And gold-backed, silver-backed or any other difficult to obtain commodity backing is ideal for this purpose.

Ron Paul's insights into the nature of coin, currency and economics, are frighteningly accurate. Much of the economics we learn in college and university is largely a scam to perpetuate the existing power structures, groom us into a deluded self-assured malaise to occupy various positions in these instutitions, with the dangling promise that we too might be powerful, important, and wildly successful. And who knows? If we play our cards right, perhaps one day we might even become the keepers of these houses of cards.

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