Free market money

Will Western Civilization Rediscover The Moral Foundations Of Sound Money?

By Bill Frezza

What is money, and from where does it draw its value? This is a question Greece is facing as its people stare into the abyss. Our turn will come.

We are not the first to wonder. The 19th century French economist Frédéric Bastiat asked and answered that question in 1849, stating that money was a promise to “Pay the bearer a service equivalent to what he has rendered to society.” Note the past tense — a product or service must be rendered before money can properly come into existence.

Just as importantly, Bastiat recognized that equivalence was not fixed or even defined. Instead, it is up to the knowledge and judgment of each individual every time he or she engages in voluntary exchange. This freedom creates the information content that is known as a “price.” It is also how economies learn to effectively allocate resources and promote growth. Adam Smith dubbed it the “Invisible Hand.”

Wealth, or capital, is simply deferred consumption that is put to work. When done wisely, wealth multiplies, leaving more to consume tomorrow.

Money’s unredeemed promise might be tokenized by a paper note, a gold coin, or a few bits in a computer database. Every form of tokenization has its strengths and weaknesses. History demonstrates that the soundness of the token is directly proportional to the difficulty of its creation, as this helps ensure stability of the money supply.

The moral claim real money places on society on behalf of its bearer comes not from the intrinsic value of the token but from the fact that the bearer had previously produced some good or service deemed valuable by others. This is what gives money its moral legitimacy.

Western Civilization has forgotten this, and we are all paying the price.

Ironically, the inventors of democracy may be the first to rediscover the moral foundations of money, as barter networks begin springing up across a demonetized Greece. Hundreds of them are now in operation, many in anticipation of the shock to come when Greece is inevitably forced to say goodbye to the euro. These networks are lubricating commerce just as jobs and euros in the formal economy are running dry.

Members of barter clubs receive Local Alternative Units, or TEMs for their Greek acronym, in return for some product or service rendered to another member of the closed community. Fellow community members agree to redeem these TEMs in kind, and are cast out if they don’t. While it sounds primitive, and it is, TEMs are real money.

Through the use of TEMs, Greeks are becoming reacquainted with the moral foundations of money. “The most exciting thing you feel when you start is this sense of contribution,” a participant reports in a recent news story. “You have much more than your bank account says. You have your mind and your hands.”

Compare this to government fiat currency, which has largely displaced real money. Manufactured on the whim of unaccountable officials and rooted in government debt rather than private assets, fiat money is circulated, pyramid-like, through a fractional reserve banking system until its connection to reality is entirely severed.

Modern fiat currency fuels the growth of both government and the financial sector because it is not a promise to repay that which has been produced. Rather, it is a threat to squeeze the taxpayers of the future, including the yet unborn. And because the tokens can be manufactured at will, governments can harness the power of inflation to pay off their debts in coin that is worth less than the currency in which those debts were incurred.

Those near the source of modern money creation are expert at its manipulation, weaving it into complex financial instruments that function more like casino chips than real money.  Wealth accumulated under this system is not capital at all, but rather a pile of IOUs, the sum total of which can never be redeemed. When too many customers try to redeem these IOUs at the same time, financial institutions fail—unless these institutions are bailed out by governments, propped up with more IOUs. This can cascade until too many people try to redeem those IOUs, at which point governments begin to fail.

Which brings us back to Greece.

While more extreme in magnitude, what is going in Greece today is also going on throughout the Western world. Lined up like dominoes are other governments whose accumulated IOUs vastly exceed their ability to bully taxpayers into making good on them. Governments that squeeze producers and consumers too hard soon learn that growth suffers, making anticipated tax revenue evaporate before it is even collected.

It doesn’t have to be this way. But if we don’t learn from Greece’s mistakes we will surely repeat them. Let’s hope the rest of us rediscover the moral foundations of money before we are forced to experience barter clubs firsthand.

Food for thought

Biofuels: Fields Of Pipedreams

By Larry Bell

“Plant it and they will come.” Sure, but just when might we begin to expect those benefits; the ones promised with passage of costly federal legislation such as the Renewable Fuels Act (2005) and the Biofuels Security Act (2006)? We’re still waiting for some sign of taxpayer and consumer paybacks — or perhaps at least some hopelessly die-hard optimists are.

There is some indication that many members of Congress are beginning to join the pessimist camp. Last June the Senate sent a strong message to the U.S. ethanol industry in the form of an overwhelmingly bipartisan 73-27 vote as part of an economic development bill to eliminate its $6 billion of annual tax credit subsidies, along with foreign ethanol import tariffs. The House also voted 283-128 to bar public spending on special blender pumps and tanks necessary for higher ethanol concentrations — support the ethanol lobby has been seeking to replace tax credits and tariffs. Although bills providing such bans are unlikely to overcome White House vetoes, these sentiments may signal a different outcome when the current ethanol subsidy expires on December 31.

Ethanol refiners and other advocates typically cite energy independence as a compelling argument for the massive subsidies. Unfortunately, any notion that we can ever fuel our way towards energy security by planting waving fields of grain is seriously misguided.  Those who would have us believe otherwise grossly exaggerate potential capacities and ignore unpleasant consequences Both deceptions are prevalent in marketing hype that tells us what we might really wish to believe, namely that biofuels offer Earth-friendly, sustainable fossil alternatives that can wean us away from our “oil addiction.” Unfortunately, this is not the case.

For starters, let’s focus on corn ethanol (more commonly known as grain alcohol), since it is currently the only domestically-produced commercial biofuel. It really isn’t renewable at all when you consider that nearly as much fossil fuel-generated energy is required to produce it as it actually yields.

Then consider the land use requirements. An attempt to produce enough ethanol to replace gasoline altogether would require that about 71% of all U.S. farmland be dedicated to energy crops. By way of illustration, let’s just think about brewing all of our present U.S. corn production into 180-proof grain alcohol. That would displace, at most, about 14% of the gasoline we presently guzzle.

About 35% of the estimated 4.6 billion bushels of all U.S. corn grown this year will be consumed by the ethanol industry, producing nearly 14 billion gallons of alcohol. Congress has mandated that ethanol blended into U.S. gasoline will increase to 35 billion gallons per year by 2022. This will require that crop land dedicated for this purpose be expanded from 88 million acres now to about 233 million acres (slightly more than half of our 461 million acres total crop land to meet about 7% of our total automotive fuel needs).

Since U.S. farmland is scarce and expensive, each additional acre of corn used to produce ethanol is one less that is available for other crops such as soybeans and wheat, which have seen price increases of more than 240% over the past five years. This, in turn, produces a ripple effect that raises costs of meat, milk, eggs, and other foods with both national and international consequences. Since U.S. farmers provide about 70% of all global corn exports, even small diversions for ethanol production have produced high inflation levels in America and shortages abroad.

Cellulosic ethanol produced from switch grass and other low maintenance plant materials wouldn’t compete nearly as much for land needed for food crops, but has proven to be far more difficult to process than promoters have suggested. The generous government subsidies we have provided haven’t succeeded in nudging them anywhere close to commercial viability.

Ethanol also competes with people and livestock for water — lots and lots of water. It requires about 4 gallons of water to make one gallon of alcohol fuel. This is in addition to other water that production facilities typically recycle. Many Corn Belt regions where distillers are sited, particularly in the Midwest and the Great Plains, have already begun to experience significant water supply problems. Agricultural irrigation along with cattle feed lots located near the plants to take advantage of the co-product distillers grain add to local water demands. Consequently, aquifers in many areas are being depleted faster than they can recharge.

There’s also a big water pollution problem. Ethanol mandates are prompting more and more corn to be planted on land that is poorly suited for agriculture, causing erosion and pesticide runoff to infiltrate groundwater and aquifer resources. Rather than rotating corn planting with soybeans to replace soil nitrogen, many farmers are planting corn year after year and adding large amounts of nitrogen fertilizer. On average, about 30 pounds/acre of each 140 pounds/acre of nitrogen fertilizer leaches away and runs off into creeks, lakes and aquifers.  Even more runoff occurs when corn isn’t rotated with other crops because the soil develops clumps requiring more tilling that loosens it, resulting in more erosion. Some of that polluted runoff winds up in drinking water, posing special health problems for children and pregnant women.

And, unlike fossil fuels, wasn’t biofuel supposed to be “green.” Actually, it’s a lot browner than advertised. Even though ethanol fuel may produce marginally less CO2 emissions than gasoline does (in case you really care about that), this doesn’t account for the CO2 emissions released during corn planting, fertilizing, harvesting and distilling, which on balance, pretty much nullifies any difference. Burning ethanol also releases large quantities of nitrogen oxide (smog) that causes respiratory disease.

In fact there is growing evidence that biofuels may actually release more CO2 emissions than conventional petroleum-based petroleum does.

As reported in the journal Science, “Corn-based ethanol…instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years.” This is because big biofuel markets encourage farmers to level forests and convert wilderness areas that serve as CO2 sinks into farmlands.

Ethanol transportation imposes additional difficulties and costs. Unlike oil and natural gas, it can’t be moved through existing pipelines because it readily absorbs water and various impurities. Instead, it must be transported by truck or rail, either of which is more expensive.

Then there’s an ultimate problem with E-10 and greater ethanol blends, namely that they are lousy fuel. In addition to absorbing water, eating up fiberglass boat fuel tanks and rubber fuel line gaskets, clogging up valves and totally destroying small two-cycle engines, they deliver poor efficiency. (Trust your mechanic on these matters, not what you here from the Renewable Fuels Association trade organization.) Since the energy density is about one-third less than that of gasoline, more must be burned to produce the same amount of power, translating into reduced gas mileage per gallon.

So what about those promised benefits for us taxpayers and consumers? You may have surmised by now that we’re being hosed at the pump. According to a January 2010 Rice University Baker Institute for Public Policy study , the government spent $4 billion of our money in subsidies during 2008 to “replace” about 2% of our gasoline supply at an average taxpayer cost of $82 per barrel. That amounted to $1.95 per gallon on top of the average gasoline retail price.

It is high time to realize that ethanol alcohol clearly isn’t the big renewable and clean energy solution it was brewed up to be.

An epic bust is coming

China's Economy Goes From Boom To Bust

by IBD EDITORIAL

The news these days is filled with stories about the euro zone economies and their ongoing crisis. But another, potentially bigger and even more important crisis is brewing — this one in China.

Amid seemingly endless stories about the Chinese Miracle and how China's soaring economy is about to overtake the U.S. comes news that suggests the death of America as No. 1 may be exaggerated — and, in fact, may be dead wrong.

Indeed, China's economy may be on the cusp of a major growth reversal.

The cause: China's imploding real estate market. Since late summer, Chinese home prices have tumbled, partly a result of Chinese government policies intended to keep the economy from overheating.

Barclays Capital Research, the venerable British bank, predicts China's home prices will fall 10% to 30% next year, hitting the economy hard — and putting at risk the Chinese economy's 20-year string of 10% average GDP growth.

But that's only the beginning of the Big Cooldown.

Much of China's growth over the past three years has been fueled by a massive pile of debt. Chinese banks have lent an astounding $8 trillion since 2008 — an amount that dwarfs the Eurozone's $4 trillion in debt.

That debt binge is now abruptly ending as China begins to ratchet up interest rates and limit home-buying to keep prices in line. An epic bust is coming.

How big will the bust be? Earlier this week, the Conference Board predicted China's GDP growth will fall to 8.7% next year — about in line with Barclay's outlook.

But from there, if you're Chinese, things get scary. From 2013 to 2017, China's growth will average 6.6%. And after that, through 2025, it will average just 3.5%.

Doesn't sound so bad? Well, economists generally believe growth below 6% for China is tantamount to recession, given its huge debts, rampant rural poverty, tens of millions of underemployed, massive infrastructure investments and aging work force.

So, like fast-growing but overly indebted Japan before it, China may be entering a period of relative economic stagnation — marked by rising prices, increasing social pressures from rural Chinese seeking a better life in the big cities, and rising costs for its fast-aging population.

"If China's growth decelerates that fast, that far," wrote columnist Walter Russell Meade on his Via Meadia blog, "the biggest question in world politics won't be how the rest of us will accommodate China's rise. The question will shift to whether China can last."

That's quite a big change from headlines reading "China Will Overtake U.S. Economy" and "Age of America Nears End," both of which we saw just last summer.

Sure, China may dodge its economic bullet. But chances are it won't. And when it happens, China's bust will make the EU's — and U.S.' — seem tiny by comparison.

Yes, It Can

It Can’t Happen Here!

By Patrick J. Buchanan 

Friday, thousands in Moscow, giving Nazi salutes and carrying placards declaring, “Russia for the Russians!” marched through the city shouting racial slurs against peoples from the Caucasus.

In Nigeria, Boko Haram, which is Hausa for “Western education is sacrilege,” massacred 63 people in a terror campaign to bring about sharia law. Seven churches were bombed.

Sunday, the New York Times reported that Uzbeks in Kyrgyzstan are suffering “horrific abuse ^[1]” following last year’s pogrom.

Ethnic nationalism, what Albert Einstein dismissed as “the measles of mankind,” and religious fanaticism are making headlines and history.

Welcome to the new world disorder.

What has this to do with us? Perhaps little, perhaps everything.

In three weeks of my radio-TV tour to promote Suicide of a Superpower ^[2], no question has occurred more often than one about the chapter “The End of White America.” Invariably, the question boils down to this:

Why should we care if white Americans become a minority? America, interviewers remind me, assimilated the immigrants of a century ago — Italians, Poles, Jews, Slavs — and we can do the same with peoples from the Third World.

And perhaps they are right. Perhaps the year 2050 will see an America as united as the America of Dwight Eisenhower and JFK.

Yet there are reasons to worry.

First, the great American Melting Pot has been rejected by our elites as cultural genocide, in favor of a multiculturalism that is failing in Europe. Second, what we are attempting has no precedent in human history.

We are attempting to convert a republic, European and Christian in its origins and character, into an egalitarian democracy of all the races, religions, cultures and tribes of planet Earth.

We are turning America into a gargantuan replica of the U.N. General Assembly, a continental conclave of the most disparate and diverse peoples in all of history, who will have no common faith, no common moral code, no common language and no common culture.

What, then, will hold us together? A Constitution over whose meaning we have fought for 50 years?

Consider the contrasts between the old and new immigration. Where the total of immigrants in the “Great Wave” from 1890 to 1920 numbered 15 to 20 million, today there are 40 million here.

In 1924, the United States declared a timeout on all immigration. But for almost half a century since 1965, there has been no timeout. One to 2 million more immigrants, legal and illegal, arrive every year.

Where the old immigrants all came from Europe, the new are overwhelmingly people of color. But America has never had the same success in assimilating peoples of color.

The Indians we fought for centuries live on reservations. And if we did not succeed with a few million Native Americans, what makes us think we will succeed in assimilating 135 million Hispanics who will be here in 2050, scores of millions of Indian ancestry?

We have encountered immense difficulty, including a civil war, to bring black Americans, who have been here longer than any immigrant group, into full participation in our society.

This was a failing that the last two generations have invested immense effort and enormous wealth to correct. But we cannot deny the difficulty of the problem when, 50 years after the civil rights revolution, one yet hears daily the accusation of “racist!” on our TV channels and in our political discourse.

Ought we not first solve the problem of fully integrating people of color, before bringing in tens of millions more?

Another factor is faith. After several generations, Catholics and Jews melded with the Protestant majority. But Muslims come from a civilization that has never accepted Christian equality.

The world’s largest religion now, with 1.5 billion believers, Islam is growing in numbers, strength and militancy, even as Muslim fanatics engage in eradicating Christianity from Nigeria to Ethiopia to Sudan to Egypt to Iraq to Pakistan.

Is it wise to bring millions more into our country at such a time?

Will that advance national unity and social peace? Has it done so in the Turkish enclaves of Berlin, the banlieues of Paris, Londonistan or Moscow?

Here, again, are but a few of the differences between the old and new immigration:

Today’s numbers are twice as large. Where the old immigration stopped after 30 years, ours never ends.

Where the old immigrants were Europeans, today’s are Third World people who have never been fully assimilated by any Western country. Where those arrived from Christian nations, many of today’s come from a civilization that battled Christianity for 1,000 years.

Where Western powers ruled the world in 1920, today the West is aging and dying, and much of the world is on fire with anti-white and anti-Western resentment of 500 years of European domination.

In 1920, Western people were nearly one-third of mankind. Today, Western man is down to one-sixth of the world’s population, shrinking to one-eighth by 2050, and not a tenth by century’s end.

When did the American people assent to our taking this risk with their republic?

The Ministry of Truth

Justices Invoke 1984

By Kelley Vlahos

Most Americans seem to inured to the fact the government — in concert with the corporate sector — has found a zillion ways to pillage their privacy over the last decade using an ever-evolving range of technology: police who stop you on the side of the road can now extract everything from your cell phone if you’re naive enough to hand it to them for even a second. Police can also tell if you have outstanding parking tickets just by trolling a parking lot and aiming a laser thingy at your license plate. At the same time, Verizon has found a way to harvest all of your personal information — buying, surfing, even where you might stop off for a coffee — and sell it to the highest bidder. At some point, it might be the police or the federal government who come calling for that info — whether they have a warrant or not–  and they won’t need to pay.

If you are unlucky enough to be the target of a criminal investigation — or perhaps just tied in someway to someone who is (a boyfriend? a family member?), the police think they can, without a warrant, affix a GPS monitor under the carriage of your car — anywhere you can’t see it — and follow you around for as long as they like. Apparently tired of wearing the shoe leather down through good old fashioned police work, police have been doing this for a while.

There have been conflicting rulings about whether tracking people with GPS without warrant is a violation of the Fourth Amendment right against unlawful search and seizure. One such complaint was brought to court by a drug dealer appealing his conviction which was based in part on the use of GPS tracking and led to a life sentence in prison. The DC Federal Court of Appeals was the first court to challenge the practice when it threw out Antoine Jones’ conviction in 2010, finding that the use of GPS to follow him 24-hours a day for a month violated his Constitutional rights. The Justice Department is appealing, and that is where the case stands now, in the High Court.

This is a big one. The next critical test of that ever-thinning line between what constitutes technological evolution and what is in fact, the irrevocable erosion of one’s personal freedoms as codified by the Constitution. How will the justices rule? If they side with the government, most of us know that the aforementioned slippery slope will have hit an ice patch toward an all-out surveillance state: just take a look at the UK. They had to start somewhere.

But not all justices appear inclined to take the ride. In what might be the most positive development for holding the line since arguments began, a number of them yesterday invoked the menacing spector of Big Brother. Yes, that one, from George Orwell’s 1984.

Big Brother Is Watching, from film version of Orwell's 1984

From Wired yesterday:

Justice Stephen Breyer told Deputy Solicitor General Michael Dreeben that, “If you win this case, there is nothing to prevent the police or government from monitoring 24 hours a day every citizen of the United States.”Breyer said that “sounds like 1984.”Chief Justice John Roberts wondered aloud whether the government’s position was that it may secretly attach GPS devices to the cars of the nine members of the Supreme Court without a warrant.“You think they are entitled to do that?” Roberts asked.“The justices of the Supreme Court?” Dreeben replied.“So your answer is, ‘yes,” you could tomorrow decide that you put a GPS device on every one of our cars, follow us for a month; no problem under the Constitution?” the chief justice continued.“Well, equally, Mr. Chief Justice, if the FBI wanted to it could put its team of surveillance agents around the clock on any individual and follow that individual’s movements as they went around on the public streets …, Dreeben replied.Justice Sonia Sotomayor suggested the government’s position went too far, especially in the age of “smart phones” that contain GPS tracking devices.“It would be OK to put a computer chip and put it on somebody’s overcoat?” she asked. Dreeben said Sotomayor was off base because her scenario would allow GPS monitoring inside a home. “That is off-limits,” he said.However, “a car parked in the garage,” he added, “does not have a reasonable expectation of privacy.”But the justices seemed troubled on whether a warrant was always necessary, and whether they should take into account how long the monitoring continues. “Where do you draw the line?” Justice Samuel Alito asked.

Why go so far as ‘a chip?’ Why not suggest that our cellular phones would give police the same ability — to track us everywhere, even in our homes.

From Catherine Crump at the ACLU:
This kind of (GPS) tracking is extremely invasive, because if the government knows where you are, it knows who you are. As the Jones appellate court explained in its ruling that the government violated the Fourth Amendment, “A person who knows all of another’s travels can deduce whether he is a weekly churchgoer, a heavy drinker, a regular at the gym, an unfaithful husband, an outpatient receiving medical treatment, an associate of particular individuals or political groups — and not just one such fact about a person, but all such facts.”Cell phone tracking can reveal our private associations and relationships with one another. The government could make note of whenever people being tracked crossed path or spent time together, showing who our friends, associates and lovers are.

If you want to see where the slippery slope of warrantless GPS tracking goes, just check in with the Brits.

Britain’s largest police force is operating covert surveillance technology that can masquerade as a mobile phone network, transmitting a signal that allows authorities to shut off phones remotely, intercept communications and gather data about thousands of users in a targeted area.The surveillance system has been procured by the Metropolitan police from Leeds-based company Datong plc, which counts the US Secret Service, the Ministry of Defence and regimes in the Middle East among its customers. Strictly classified under government protocol as “Listed X”, it can emit a signal over an area of up to an estimated 10 sq km, forcing hundreds of mobile phones per minute to release their unique IMSI and IMEI identity codes, which can be used to track a person’s movements in real time.The disclosure has caused concern among lawyers and privacy groups that large numbers of innocent people could be unwittingly implicated in covert intelligence gathering. The Met has refused to confirm whether the system is used in public order situations, such as during large protests or demonstrations.

There are plenty of privacy activists who would say London is already 1984, given that Big Brother is everywhere there,and in addition, “the eye” in the sky is now carried around in the form of ubiquitous  iPhones and Smart Phones in coats and hip pockets, the GPS and clever “apps” monitoring their every activity online, and off, and without the Constitutional bulwark we enjoy here. For now. We may be one ruling away from becoming what we fear the most. I’m glad that at least some of the justices seem to know it.