Once more

Central banking is a form of central planning

by Kurt Schuler

I have been busy writing a paper that I will summarize in a later post, so I am only now making a belated reply to comments by David Glasner at his worthwhile blog, Uneasy Money, disputing my claim that central banking is a form of central planning. I will take one last shot at the subject for now because the idea that central banking is a form of central planning is a crucial part of free banking thought, and because I am amazed by Glasner’s view given that he once wrote a book on free banking,

Central planning need not extend to every economic activity. It is enough for the government to control key institutions, which Vladimir Lenin called “the commanding heights” of the economy. The monetary system is obviously one such institution. A monetary system that is not under government control is incompatible with central planning because it gives people a powerful and easy means of making decentralized exchanges that circumvent the plan.

As I wrote in a previous post, centrally planned economies have monobank systems, in which commercial banking is a government monopoly, whereas in more market-oriented economies, commercial banking is competitive. Even if a monetary system has competitive commercial banking, it remains true that central banking injects substantial elements of central planning. The whole point of central banking in the form in which it has existed since about World War I is to monopolize the monetary base; consciously use the monopoly to affect conditions throughout the economy; do so through a centralized, government institution; and prevent challenges to the monopoly that might end its power. None of these elements are present in a free banking system.

Glasner claims that in Hayek’s monograph Denationalisation of Money, “Hayek’s dismissal of central banking was crucially and explicitly dependent on an argument that private competitive banks would issue their own currencies defined in terms of units of their choosing not redeemable in terms of any outside asset not under the control of the issuing bank.” The monetary system Hayek discussed Denationalisation of Money was one of competing, bank-issued fiat currencies, but Hayek was also aware of the existence of competitive banking systems based on gold. Much earlier in his career he supervised Vera Smith’s dissertation, The Rationale of Central Banking, which discussed some historical episodes fitting that description. Hayek, like his teacher Ludwig von Mises, had an extraordinarily wide range of intellectual interests, of which monetary theory was only one. They did much, but left much still to be done by successors who were willing to focus on monetary theory alone. That helps explain why the building blocks of the idea that central banking is a form of central planning are present in Mises and Hayek, but not until Lawrence H. White and George Selgin in the 1980s did Austrian economists use the building blocks to construct a detailed argument.

We can agree that central banks are run by intelligent people who have good intentions. We can debate whether there is some element of natural monopoly in money that means certain tasks are better done by a central planner than by competitive markets. (If it really is a natural monopoly, why does the law need to forbid competitors?) It should be evident, though, that central banking is indeed a kind of central planning.

Europe slides into oblivion

World Shares of GDP

By Mark Perry

The USDA recently updated its international macroeconomic data set with world and country GDP data estimates for 2011.  Here are some observations:

1. The chart above of world GDP shares (data here) from 1969 to 2011 shows America's amazingly stable share of world output, which has remained at about 26% for more than forty years, with only a gradual decline in recent years.  The U.S. share of world GDP in 2011 (26%) was actually higher than in 1982 (25.8%). 

2. It's also interesting to note that: a) the shares of world GDP in 2011 were almost exactly the same for the U.S. (25.9%), the EU-15 (26.2%) and Asia/Oceania (26.9%). For both of the last two years (2010 and 2011), Asia/Oceania's share of world GDP has been slightly higher than both the EU15 and the USA.  The combined GDP of Latin America, Middle East and Africa has also been relatively stable at about 10%, with recent increases to above 12% in the last two years. 

3. The biggest changes over time have been the gradual decline in the EU-15's share of world GDP from almost 36% in 1969 to roughly 26% by 2011, while Asia/Oceania's share has increased from less than 15% in 1969 to almost 27% in 2011. The fact that America's share of world GDP has remained constant over time is a testament to how America's dynamism, resiliency, and culture of innovation and entrepreneurship have enabled us to continue to be productive and competitive in a "tough world."  In contrast, the EU-15's declining share of the world economy demonstrates the failure of anti-growth, European-style socialism with high taxes and excessive regulations that have created a culture of dependency and entitlement.     

4. For the first time ever, real world GDP (in 2005 dollars) exceeded $50 trillion in 2011, a new record high level of world output, and 2.7% above last year.  At the global level, there's been a complete recovery from the worldwide slowdown in 2008 and 2009 with world output now at an all-time high.    

Our betters know best

Is there no limit to Congress’s power?

By George F. Will

Shortly before the Supreme Court agreed to rule on the constitutionality of Obamacare’s individual mandate, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit affirmed its constitutionality. Writing for the majority, Judge Laurence H. Silberman, a Reagan appointee, brusquely acknowledged that upholding the mandate means there is no limit to Congress’s powers under the Commerce Clause. Fortunately, Silberman’s stark assertion may strengthen the counterargument. Silberman forces the Supreme Court’s five conservatives to face the sobering implications of affirming the power asserted with the mandate.

Does Congress’s enumerated power to regulate interstate commerce empower it to compel individuals, as a condition of living in the United States, to engage in a commercial activity? If any activity, or inactivity, can be said to have economic consequences, can it be regulated — or required — by Congress? Can Congress forbid the inactivity of not purchasing a product (health insurance) from a private provider? Silberman says yes:

“We acknowledge some discomfort with the government’s failure to advance any clear doctrinal principles limiting congressional mandates that any American purchase any product or service in interstate commerce. But to tell the truth, those limits are not apparent to us, either because the power to require the entry into commerce is symmetrical with the power to prohibit or condition commercial behavior, or because we have not yet perceived a qualitative limitation. That difficulty is troubling, but not fatal, not least because we are interpreting the scope of a long-established constitutional power, not recognizing a new constitutional right.”

Some discomfort about saying limited government is essentially a fiction? Silberman’s distinction between interpreting the scope of a government power and recognizing a right is spurious because rights begin where powers end.

So argues Florida International University’s Elizabeth Price Foley, constitutional litigator for the Institute for Justice. She is amazed by Silberman’s disregard of “the inherently symbiotic relationship between the scope of government powers and individual rights.”

She says Silberman has two false assumptions. One is that Congress compelling acts of commerce is “symmetrical” with prohibiting or regulating commerce. The other is that the lack of any principle to limit Congress when purporting to regulate interstate commerce is unimportant because it concerns only government power, not an important liberty interest of individuals.

Silberman’s supposed symmetry between compulsion and regulation ignores the momentous invasion of liberty by the former. If compulsion is authorized whenever Congress touches anything affecting commerce, this Leviathan power dwarfs all other enumerated powers.

Seventy-five years ago, the Supreme Court stopped defending many liberty interests it decided were unimportant. Since the New Deal, Foley says, the court has, without “textual or even contextual basis,” distinguished between economic and non-economic liberty. The latter has received robust judicial support. But economic liberty — freedom of individuals to engage in, or not engage in, consensual commercial transactions — has received scant protection against circumscription or elimination by government. This denial of judicial protection has served the progressive agenda of government supervision of economic life.

Judge Brett Kavanaugh, dissenting on the D.C. circuit court, dryly praised Silberman’s “candor” in “admitting that there is no real limiting principle” to the Commerce Clause jurisprudence embraced by the court’s majority. Kavanaugh, like Foley, emphasizes the asymmetry between, on the one hand, regulating or prohibiting commercial activity and, on the other hand, compelling such activity.

He says the limitlessness means “a law replacing Social Security with a system of mandatory private retirement accounts would be constitutional. So would a law mandating that parents purchase private college savings accounts.” Kavanaugh rejects the majority’s (Silberman’s) attempt “to mitigate the dramatic implications of its no-limiting-principle holding” by noting that “Congress is subject to a political check”:

“As the Supreme Court has told us time and again, the structural principles of the Constitution . . . protect individual liberty. And the courts historically have played an important role in enforcing those structural principles. . . . That Congress is subject to a political check does not absolve the judiciary of its duty to safeguard the constitutional structure and individual liberty.”

There is an abdication of judicial duty in Silberman’s complacent conclusion, which is: We can articulate no limit on Congress’s power flowing from the Commerce Clause; get over it. This might galvanize a Supreme Court majority to say “Enough!” and begin protecting individual liberty from a Commerce Clause that the court itself has transmogrified into an anti-constitutional gift to Congress of a virtually unlimited police power. This case can begin restoring Madison’s constitutional architecture for a government limited by the enumeration of its powers.

A giant hangover

Why E.U. collapse is more likely than the fall of the euro

By Niall Ferguson

European politics has become a giant Jenga game. Since June 2010 governments have fallen in the Netherlands, Slovakia, Belgium, Ireland, Finland, Portugal, Slovenia, Greece and Italy.

The question is not: Who will be next? That’s easy. (Spain’s Socialist government will be pulverized in this weekend’s elections.) The real question is: When will the Jenga tower topple?

Many people assume that the tipping point will come when one country — most likely Greece — leaves or is ejected from Europe’s monetary union. But the scenario that worries Eurocrats is different. They fear that a country could leave the European Union itself.

This is by no means an irrational anxiety. Under E.U. law, it would be much easier for Britain to leave the European Union than for Greece to leave the euro zone.

Thus the process of European integration has reached a richly ironic point: The breakdown of the European Union is now more likely than the collapse of the single currency that was supposed to bind it together.

This is not surprising. In March 2000, Larry Kotlikoff and I wrote in Foreign Affairs, “History offers few examples of successful adjustments on the scale necessary in certain European countries today. What it does offer are several examples of monetary unions disintegrating when fiscal strains became incompatible with the unpleasant arithmetic of a single currency.” The euro, we predicted, “could degenerate — not overnight, but within the next decade.”

Our timing was not bad. The degeneration of the single currency began in 2010, though the crisis has certainly intensified in recent months.

We specified “degeneration” to highlight the generational imbalances arising from Europe’s combination of aging populations and over-generous welfare systems. Even if there had been no financial crisis emanating from the U.S. subprime mortgage crisis that began in 2007, the European monetary system would still have degenerated as public debts soared.

But we also struggled to see how, once assembled, the euro zone could be dismantled. The costs of exit would be prohibitive for a small peripheral country such as Greece, which would overnight lose access to any source of external credit. And a Greek departure would raise the probability of others leaving, causing contagion throughout Southern Europe.

Finally, if all the weaker brethren were to leave the monetary union except Germany, Austria, the Netherlands and Finland, the strengthening of the euro would cause significant pain to the exporters of those countries. In short, almost nobody would gain from a breakup of the euro zone.

This is why I am not among the growing throng of pundits predicting the degeneration of the euro — a number of whom argued with equal self-confidence a dozen years ago that the euro would be a great success.

Anyone who closely followed events of the 1990s had a clear idea of what a monetary union with the Federal Republic of Germany would entail: short-term spending power but long-term unemployment mitigated by handouts.

Some doubt that German taxpayers will be as ready to pay doles to Lesbos and Livorno as they were to pay doles to Leipzig. But if the alternative is a breakup of the euro zone, they will do it. Chancellor Angela Merkel made that clear Monday when she urged her Christian Democrats to accept “not less Europe but more. . . . That means creating a Europe that ensures that the euro has a future. Our responsibility no longer stops at our countries’ borders.”

Those betting on a euro breakup believe that the inflation-phobic Germans will never permit large-scale bond purchases by the European Central Bank — the policy known in the United States as quantitative easing. But this needs to happen to bail out not only the Mediterranean governments but also insolvent banks — including German banks — throughout the euro zone.

In short, the European monetary union survives, albeit with a gloomy future of higher unemployment for southern Europe and higher taxes for the North.

But the fate of the European Union itself will be very different. The creation of the single currency — obeying the law of unintended consequences — set in motion a powerful process of European disintegration. The fact that not all 27 E.U. members joined the monetary union was its first manifestation. Today we have a two-tier system, with 17 member-states sharing the euro, but 10 other states — notably Britain — retaining their own currencies.

The result is that key decisions today — particularly those about the scale of transfers from core nations to the periphery — are being made by the 17, not the 27. But the 10 non-euro members may still find themselves on the hook to help fund whatever combination of bailout, haircut and bank recapitalization the 17 decide on. They may also face more stringent financial regulation or a financial transaction tax, ideas that are much more popular in Berlin than in London.

This is an unsustainable imbalance. If the euro countries are intent on going down the road to federalism — and they don’t have a better alternative — the non-euro countries will face a stark choice: giving up monetary sovereignty or accepting the role of second-class citizens within the E.U.

Under these circumstances, the logic of continued British membership in the E.U. looks less and less persuasive. British public opinion has long been deeply Euro-skeptic. If it came to a referendum, as many Conservatives would like, Britons might well vote to leave the E.U. And under Article 50 of the Treaty of European Union, withdrawal would simply need to be approved by a qualified majority of E.U. members.

In the great game of European Jenga, most people expect the French government of Nicolas Sarkozy will fall next year. But the thing that could cause the European Union to topple, or at least shrink in size, would be the outright withdrawal of Britain. And that has started to look quite possible.

Mark Steyn at his best

No Man’s Land

Penn State’s moral adolescents

By Mark Steyn

There is a famous if apocryphal tale of a Fleet Street theater critic covering the first night of a new play in the West End of London. At the end of the evening, he went to a public telephone and dictated his review. The following morning, a furious editor called him and demanded to know why he had neglected to mention that, midway through the third act, the theater had caught fire and burned to the ground. The critic sniffily replied that it was not his business to report fires, but that, if the editor had read more carefully, he would have observed that the review included a passage noting discreetly that the critic had been unable to remain for the final scenes.

That, more or less, is the position of those Americans defending the behavior of the Penn State establishment: It would be unreasonable to expect the college-football elite to show facility with an entirely separate discipline such as pedophilia-reporting procedures, and, besides, many of those officials who were aware of Jerry Sandusky’s child-sex activities did mention it to other officials who promised to look into mentioning it to someone else.

From the grand-jury indictment:

On March 1, 2002, a Penn State graduate assistant (“graduate assistant”) who was then 28 years old, entered the locker room at the Lasch Football Building on the University Park Campus on a Friday night. . . . He saw a naked boy, Victim 2, whose age he estimated to be ten years old, with his hands up against the wall, being subjected to anal intercourse by a naked Sandusky. The graduate assistant was shocked but noticed that both Victim 2 and Sandusky saw him. The graduate assistant left immediately, distraught.

The graduate assistant went to his office and called his father, reporting to him what he had seen. His father told the graduate assistant to leave the building and come to his home. The graduate assistant and his father decided that the graduate assistant had to promptly report what he had seen to Coach Joe Paterno (“Paterno”), head football coach of Penn State. The next morning, a Saturday, the graduate assistant telephoned Paterno . . .

Hold it right there. “The next morning”?

Here surely is an almost too perfect snapshot of a culture that simultaneously destroys childhood and infantilizes adulthood. The “child” in this vignette ought to be the ten-year-old boy, “hands up against the wall,” but instead the “man” appropriates the child role for himself: Why, the graduate assistant is so “distraught” that he has to leave and telephone his father. He is pushing 30, an age when previous generations would have had little boys of their own. But today, confronted by a grade-schooler being sodomized before his eyes, the poor distraught child-man approaching early middle-age seeks out some fatherly advice, like one of Fred MacMurray’s “My Three Sons” might have done had he seen the boy next door swiping a can of soda pop from the lunch counter.

The graduate assistant, Mike McQueary, is now pushing 40, and is sufficiently grown up to realize that the portrait of him that emerges from the indictment is not to his credit and to attempt, privately, to modify it. “No one can imagine my thoughts or wants to be in my shoes for those 30–45 seconds,” he e-mailed a friend a few days ago. “Trust me.”

“Trust me”? Maybe the ten-year-old boy did. And then watched Mr. McQueary leave the building. Perhaps the child-man should try “imagining” the ten-year-old’s thoughts or being in his shoes. Oh, wait. He wasn’t wearing any.

Defenders of McQueary and the broader Penn State protection racket argue that “nobody knows” what he would do in similar circumstances. In a New York Times piece headlined “Let’s All Feel Superior,” David Brooks turned in an eerily perfect parody of a David Brooks column and pointed out, with much reference to Kitty Genovese et al., how “studies show” that in extreme circumstances the human brain is prone to lapse into “normalcy bias.” To be sure, many of the Internet toughs bragging that they’d have punched Sandusky’s lights out would have done no such thing. As my e-mail correspondents always put it whenever such questions arise: “Yeah, right, Steyn. Like you’d be taking a bullet. We all know you’d be wetting your little girly panties,” etc.

For the sake of argument, let us so stipulate. Nevertheless, as the Canadian blogger Kathy Shaidle wrote some years ago: “When we say ‘we don’t know what we’d do under the same circumstances,’ we make cowardice the default position.”

I quote that line in my current book, in a section on the “no man’s land” of contemporary culture. It contrasts the behavior of the men on the Titanic who (notwithstanding James Cameron’s wretched movie) went down with the ship and those of the École Polytechnique in Montreal decades later who, ordered to leave the classroom by a lone gunman, meekly did as they were told and stood passively in the corridor as he shot all the women. Even if I’m wetting my panties, it’s better to have the social norm of the Titanic and fail to live up to it than to have the social norm of the Polytechnique and sink with it.

That’s the issue at the heart of Penn State’s institutional wickedness and its many deluded defenders. In my book, I also quote the writer George Jonas back when the Royal Canadian Mounted Police were revealed to be burning down the barns of Quebec separatists: With his characteristic insouciance, the prime minister Pierre Trudeau responded that, if people were so bothered by illegal barn burning by the Mounties, perhaps he would make it legal. Jonas pointed out that burning barns isn’t wrong because it’s illegal, it’s illegal because it’s wrong. A society that no longer understands that distinction is in deep trouble. To argue that a man witnessing child sex in progress has no responsibility other than to comply with procedures and report it to a colleague further up the chain of command represents a near-suicidal loss of that distinction.

A land of hyper-legalisms is not the same as a land of law. I’ve written recently about the insane proliferation of signage on America’s highways — the “Stop” sign, the “Stop Sign Ahead” sign, the red light, the sign before the red light instructing you that when the light is red you should stop here, accompanied by a smaller sign underneath with an arrow pointing to the precise point where “here” is . . . One assumes this expensive clutter is there to protect against potential liability issues. It certainly doesn’t do anything for American road safety, which is the worst in the developed world. We have three times the automobile fatality rate of the Netherlands, and at 62 in the global rankings we’re just ahead of Tajikistan and Papua New Guinea.

But that’s the least of it: When people get used to complying with micro-regulation, it’s but a small step to confusing regulatory compliance with the right thing to do — and then arguing that, in the absence of regulatory guidelines, there is no “right thing to do.”

In a hyper-legalistic culture, Penn State’s collaborators may have the law on their side. But there is no moral-liability waiver. You could hardly ask for a more poignant emblem of the hollow braggadocio of the West at twilight than the big, beefy, bulked-up shoulder pads and helmets of Penn State football, and the small stunted figures inside.

The great untouchable topic

The Self-Expropriation of the Patriotic Millionaires

By Jeffrey Tucker 

Do you want higher taxes? There is an easy answer. Pay more. No one is stopping you. You can overpay to the tax authorities. There is even a check box on the form, as I recall. Give to this charity you find worthy! No government in the history of the world has turned down money that its most “patriotic citizens” want to donate of their own free will.

Alas, that is not what the “Patriotic Millionaires for Fiscal Strength” — this is actually the name of a new organization — are calling for. A tax is not a voluntary contribution. Otherwise, it would be called a donation. A tax is a forcible extraction of private property by the state for the state to use for its own purposes. If it doesn’t involve force, it is not a tax. The use of force defines the tax. That even goes for excise taxes said to be voluntary: Try buying gas or cigarettes without paying the tax and see how far you get.

These many signatories of the Patriotic Millionaires are not just calling for their own taxes to be raised. They are calling for your taxes to be raised. The patriotic among us have ways of making the unpatriotic pay, and it is called lobbying government to loot the population even more than it does now.

The point is that this is not an act of self-sacrifice on their part. They are free to make a sacrifice anytime they want to. No, they are plotting to enlist you in their cause, whether you like it or not.

There is a long history of the rich getting together to call for higher taxes. Andrew Carnegie wrote passionately for a tax that would loot people at their deaths so that they could not pass on the wealth to others. In our own time, Bill Gates and Warren Buffett have earned the respect and admiration of the left-liberal elite by calling on the state to take more of their money.

Why would these people do this? Well, for one thing, it is a nice thing to earn the respect and admiration of the left-liberal elite, who are inclined to forgive any amount of wealth accumulation, provided that the accumulated is willing to sign up to support left-liberal causes. You can a pass this way, a badge of honor to cover what some people otherwise consider your ill-gotten wealth.

There are a myriad of psychological reasons that have been bandied about, too. Maybe these rich people are self-hating and filled with guilt. They need public policy to expiate their sins or otherwise vacuum clean their consciences.

Another theory is that the already rich are perfectly happy to lock in their gains with a policy that will prevent others from joining their ranks. A tax, then, becomes a method by which the wealthy elite fight back competition and entrench their monopoly position.

Or perhaps we should just take them at their word, that they really do believe in reducing the deficit. The truth is that all their wealth wouldn’t make a dent in the deficit. A 100% expropriation of everything that people who make over $10 million per year would barely cover the a few weeks of government spending. A progressive tax up to 70% on incomes over $1 million would barely cover 10% of the deficit. In fact, doubling the taxes of everyone today would not even balance the budget (all else equal).

The problem is not that taxes are too low for everyone; the problem is that government has no institutional mechanism that encourages any spending restraint.

In any case, this whole thing is bizarre. Why would anyone expect that the government would suddenly start restraining itself if it suddenly enjoyed a temporary windfall of revenue? There is absolutely no evidence to support this supposition. What does government do with more money? It spends it, if possible.

There is a much faster and much more sure way of imposing fiscal discipline. The government itself needs to face a market test of some sort. The best way to make sure that there is some sort of penalty for bad financial habits is to subject government debt to the same discipline faced by private debt. The Treasury bond needs a market-based default premium attached to it.

But that cannot happen so long as the Federal Reserve is there to be the lender of last resort for anything that the politicians do. No matter how bad the finance, how high the debt, how egregious the deficit is, the Fed is there with the promise that the money will be there. Funding it might require hyperinflation, but the money will be there. It might, eventually, be worth less than the linen it is printed on, but the money will be there.

The central bank is the real source of fiscal irresponsibility. But the millionaires won’t talk about that. It is the great untouchable topic, the one sacrosanct institution. Our own bank accounts are vulnerable to their lobbying pressure, but the Fed is perfectly safe. That’s what they called “patriotic.”

A quiet coup

HOT MUST SEE NIGEL FARAGE VIDEO--You Have Never Seen a Political Leader Say Anything Like This Before

This is awesome. Farage is calls out the banksters and their scheming to use the eurozone crisis as cover to create a  centrally planned Europe.

Some producers are more equal than others

Big Farm Raked in Record Profits This Yr. As Farm Land Soars, But They Harvested $10B in Handouts

 

By Mark Perry

According to the USDA, net income from U.S. farms is expected to set a new record this year of $103.6 billion on record cash receipts of $370.4 billion.  The record farm income this year is 31% above last year's income, and marks the first time in history that the combined income of U.S. farms has exceeded $100 billion.      

The USDA also estimates that the total value of farm real estate will approach $2 trillion this year, an increase of 7.12% from last year.  Separately, CNN is reporting record farmland prices based on Federal Reserve data, with 25% increases in Midwest farmland (and 31% in Iowa), the largest annual gains in three decades.

Even with record-level income, revenues and farm land values, farmers "harvested" more than $10 billion in direct government (taxpayer) payments (subsidies) this year. 

Whenever oil prices and "Big Oil" profits are high, politicians call for imposing "windfall profits taxes" and ending oil subsidies (even though oil companies don't actually get any direct government payments and only get the same tax deductions and cost recovery allowances that are available to all U.S. manufacturers), so maybe it's time for equal treatment of Big Farm?

Selecting a “kinder and gentler” candidate

Will the GOP Blow It? 

Conservatives must unite around one candidate to stop Mitt Romney.

By T. Sowell

martin van buuren

Justice Oliver Wendell Holmes said that a good catchphrase could stop thinking for 50 years. One of the often-repeated catchphrases of our time — “It’s the economy, stupid!” — has already stopped thinking in some quarters for a couple of decades.

There is no question that the state of the economy can affect elections. But there is also no iron law that all elections will be decided by the state of the economy.

Pres. Franklin D. Roosevelt was reelected for an unprecedented third term after two terms in which unemployment was in double digits for eight consecutive years.

Warren Harding

We may lament the number of people who are unemployed or who are on food stamps today. But those who give the Obama administration credit for coming to their rescue when they didn’t have a job are likely to greatly outnumber those who blame the administration for their not having a job in the first place.

An expansion of the welfare state in hard times seems to have been the secret of FDR’s great political success in the midst of economic disaster. An economic study published in a scholarly journal in 2004 concluded that the Roosevelt administration’s policies prolonged the Great Depression by several years. But few people read economic studies.

This economy has been sputtering along through most of the Obama administration, with the unemployment rate hovering around 9 percent. But none of that means that Barack Obama is going to lose the 2012 election.

Even polls that show “any Republican” with more public support than Obama do not mean that Obama will lose.

The president is not going to run against “any Republican.” He is going to run against some specific Republican, and that Republican can expect to be attacked, denounced, and denigrated for months on end before the November 2012 elections — not only by the Democrats, but also by the media, which is heavily pro-Democrat.

We have already seen how unsubstantiated allegations from women with questionable histories have dropped Herman Cain from front-runner status to third place in just a couple of weeks.

In short, it takes a candidate to beat a candidate, and everything depends on what kind of candidate that is.

The smart money inside the Beltway says that the Republicans need to pick a moderate candidate who can appeal to independent voters, not just to the conservative voters who turn out to vote in Republican primaries. Those who think this way say that you have to “reach out” to Hispanics, the elderly, and other constituencies.

What is remarkable is how seldom the smart-money folks look at what has actually been happening in presidential elections.

Ronald Reagan won two landslide elections when he ran as Ronald Reagan. Vice President George H. W. Bush then won when he ran as if he were another Ronald Reagan, with his famous statement, “Read my lips, no new taxes.”

But after Bush 41 was elected and turned “kinder and gentler” — to everyone except the taxpayers — he lost to an unknown governor from a small state.

Other Republican presidential candidates who went the “moderate” route — Bob Dole and John McCain — also came across as neither fish nor fowl and went down to defeat.

Now the smart money inside the Beltway is saying that Mitt Romney, who is nothing if not versatile in his positions, is the Republicans’ best hope for replacing Obama.

If conservative Republicans split their votes among a number of conservative candidates in the primaries, that can mean ending up with a presidential candidate in the Bob Dole–John McCain mold — and risking a Bob Dole–John McCain result in the next election.

The question now is whether the conservative Republican candidates who have enjoyed their successive and short-lived boomlets — Michele Bachmann, Rick Perry, and Herman Cain — are prepared to stay in the primary race to the bitter end, or whether their conservative principles will move them to withdraw and throw their support to another conservative candidate.

There has probably never been a time in the history of this country when we more urgently needed to get a president out of the White House, before he ruined the country. But will the conservative Republican candidates let that guide them?

“The debasement of paper money continues…”

Bank of England Announces More Currency Destruction

By Gary Gibson 

Detlev Schlichterv sent us his thoughts on the recent economic events…

“Hi Gary,“Weidmann’s position is understandable. He knows that this will lead to disaster. The Bundesbank is strongly opposed to the ECB’s buying of government bonds. I am pretty confident that concerns over this type of policy are also more widely shared, and more intensely felt, among the German public than in many other countries.

[Editor's note: Germany's recent history is real-world proof of the evils of monetizing government debt with newly created money. For a detailed account of hyperinflation in early 20th-century Germany, get a copy of When Money Dies here, for 20% off.]
“The President of Germany, Christian Wulff, has publicly opposed it, and two senior central bankers in Germany have resigned in protest: Axel Weber, who was a shoo-in to succeed Trichet as ECB president, and Jurgen Stark, who is still chief economist of the ECB, but will leave soon.“But none of this will change the final outcome. These people are fighting a battle they have already lost. The ECB is already committed to supporting the euro-government bond market. The ECB had bought €160 billion in bonds a few weeks back but has since bought more Italian debt. I guess they must be close to €200 billion in total by now. The ECB is the single largest creditor to the Greek government. But what about the treaty, the ‘ban on monetary financing’? Rubbish. The ECB has simply argued that it is buying these bonds to allow a proper transfer of its monetary policy, to sustain orderly markets. And if need be, politicians will simply change the treaty. These people do as they please.“The Bundesbank has two people on the ECB board. They can easily be outvoted. Those who left in protest will be replaced with more-compliant bureaucrats. While Weidmann was giving this interview to the Financial Times, the chief economist of Deutsche Bank was calling for unlimited purchases of Italian bonds by the ECB to keep yields below 5%!“This thing will unfold as I predicted.“Best wishes,“–Detlev”

Just a few hours after getting Detlev’s response, we woke up to find the world rushing to unfold just as Detlev has been predicting. Not to be outdone by the Fed and the ECB, the Bank of England pours on the speed in the quantitative easing marathon. We read in the Financial Times:

“Bank of England Signals More Quantitative Easing”“Economic activity will be ‘broadly flat’ until the middle of next year, the Bank of England warned in a gloomy inflation report which signalled that its monetary policy committee [MPC] will announce more quantitative easing in the coming months.“Sir Mervyn King, the governor, said on Wednesday that ‘inflation is more likely to be below than above the target’ over the next two years, implying that the bank believes more asset purchases will be necessary. The report’s central forecast shows inflation falling to far below the Bank’s 2% inflation target toward the end of 2013, the forecast horizon the MPC considers when deciding whether or not to conduct further quantitative easing.“The bank is due to finish buying the £75billion worth of asset purchases that the MPC announced in October by February. Analysts had already expected more quantitative easing to be announced at that point. But a further round of asset purchases could now be brought forward.“Chris Williamson of Markit said: ‘Concerns over deflation have grown. If the situation in the eurozone fails to improve, then there is a good chance that the MPC could introduce more QE at its December meeting, though it is more likely to wait until the new year.’”

We remind our long-suffering readers every chance we get: Price deflation is a good thing. It’s the thing that free markets do best…turning luxuries into increasingly affordable everyday commodities.

That’s what happens in an environment of free enterprise, competition…and a stable form of money (and stable forms of money are exactly the kind that the markets pick when left to their own devices… without a “flexible” currency imposed on them by a central bank with the force of government law behind it)…

The modern economic myth is that “deflation” — falling prices — is the bogeyman, the killer of economic growth. This myth supports the existence of central banks, whose primary mandates include “price stability.”

Ha! “Price stability” means pumping the economy with more and more money to keep prices from falling.

This is always a bad idea. Because money supply inflation by the government-backed monopoly currency issuer is legalized counterfeiting. It transfers wealth from savers to the central bank…which then doles it out to its commercial bank stooges and eventually to underwater governments…

But the pursuit of so-called price stability is especially malicious during a depression, when falling prices would help the common man the most.

During an economic depression, one of the breadwinners in a household may lose his or her job. The other may not get a raise for two or three years…or ever worse, the remaining jobholder may get a pay cut. Is it better for such a household to have “stable” or rising prices for groceries and gas? Or would they be better off if prices came to reflect general economic conditions and, you know, actually declined?

Governments and central banks don’t see it this way. FDR certainly didn’t when he did everything in his power to prop up food prices “to protect the farm industry” even as it became harder and harder for everyone to afford to eat.

And we haven’t even yet considered that central bank action is what makes the boom and its attendant bust possible in the first place. They cause the illness. Then they prevent the healing. When the condition of the economy worsens, they enthusiastically administer more of the virus.

The result? An increasingly weak economy. The politically well-connected make out just fine under such conditions. After all, they’re the ones who benefit from the inflation-wrought transfer of wealth!

The middle class, however, suffers. They slip into the ranks of the poor. And often, they have no idea why. The mainstream media aren’t exactly of much help in telling them either. In his article “Why the Old Media Ignore Ron Paul,” Thomas DiLorenzo explains why:

“All governments, Rothbard wrote, rely crucially on a set of myths and superstitions about its alleged greatness and benevolence, coupled with accompanying lies, myths and superstitions about the ‘evils’ of freedom, voluntarism, private enterprise and the civil society. These myths and superstitions are not spread by government bureaucrats as much as by various intellectual prostitutes in academe and in the media. The ‘court historians’ of academe spin tall tale after tall tale about the alleged need for more and more government (Keynesian economics would be a good example), while these ideas are spread about to the general public by pundits and journalists.“This, too, is why the media ignore Ron Paul. There are a few exceptions, but for the most part, they have invested many years of schooling and work as propaganda mouthpieces for the state. They are as much a part of the state apparatus as is any government bureaucrat or any politician.“They are the essential tool of the state in dumbing down the general population so that it will peacefully acquiesce in the never-ending expansion of the state and the financial enrichment of all its functionaries, while losing their own freedom and prosperity at the same time.“They are the paid professional liars who repeat, over and over, such absurdities as ‘Higher taxes and more government spending will make us prosperous’…”recessions and depressions are caused by sudden outbursts of greed and animal spirits” (according to John Maynard Keynes); ‘capitalists get rich by selling people products that harm or even kill them’; and on and on and on.”

With this in mind, we cast our dubious, Whiskey-soaked eye upon an article in The New York Times with the headline:

“Middle-Class Areas Shrink as America Divides Into ‘Two-Tiered Society’ of Rich and Poor“Study: 44% of families lived in middle-income neighborhoods in 2007, down from 65% in 1970.”

To be fair, the article didn’t prescribe the usual stuff — more regulations, more taxes on the productive, more redistribution. It just points out the growing gulf between the haves and have-nots, along with the social ramifications.

But it also failed to do what all the other articles from the mainstream media do. Like a cop on the take at a crime scene, it pretended not to notice the muddy footprints leading straight back to the perpetrator’s hideout.

The growing disparity in incomes started in the early 1970s. Despite nominal increases in their wages, working American families haven’t seen real increases in wages or purchasing power since around 1971.

Note, good patron, that was just after President Nixon severed the last ties of the U.S. dollar to gold. We’ve found our perp…and he’s still holding a smoking gun!

The world has been floating on a sea of unbacked currencies ever since. With the luxury of a flexible currency governments have been freer to rack up debts. The financial sector also benefited at the expense of manufacturing. And as Bill Bonner recently put it, “The fed’s funny money system caused the export of millions of good jobs to emerging markets.”

Wealth has been harder to build for the middle class, and now they’re falling hopelessly behind.

You won’t see the press or the academics talking about the damage wrought by unbacked fiat money, however. They’ll point you to the dangers of free trade…or the speculators…or the profit seekers.

They won’t tell you that the one thing that kept the state in check — the gold standard — was the only thing that could have prevented the collapse now unfolding across the world.

(For a more-thorough explanation of how the gold standard kept the state in check and provided the environment for economic progress, please read Congressman Ron Paul’s minority report, The Case for Gold.)

This catastrophe was inevitable. But all hope is not lost. Though the masses may find themselves falling into poverty — and while the mainstream media continue to mock gold and venerate central banking — those in the know have been taking the steps to protect themselves.

Step one is the ownership and continued purchasing of precious metals. Gold and silver are your very first line of defense as the central banks around the world continue to debase their currencies.

Sadly, gold and silver aren’t the bargains they used to be. As we mention from time to time, perhaps the world is slowly waking up to the nature of the problem. Sure, the media and benighted protesters around the world may call for more “help” from the state…but we get the sense that more and more people are figuring out the root of the problem. And they’re bidding up the prices of gold and silver.