Well, the eye of the storm appears to be passing, and the winds of inflation are picking back up. Take advantage of the low prices now to stock up, before the inflation hits the consumer level.
The interest on the long bond is continuing to rise, which will quickly wipe out the idea of housing recovery. Don't buy into this false real estate bottom. As mortgage rates rise up, the price of housing will fall.
Layoffs are going to be a huge problem going forward as well, as we have just begun to see the government cutting bloodbath, not to mention the collapse of the American car industry.
With joblessness, cost of living, and interest rates rising, combined with the negative supply trends of reverse migration and an aging population, the housing market is in for a long long fall. No need to rush there.
Commodities headed for the biggest monthly rally in 34 years, led by energy, as the slumping dollar boosted demand for raw materials as a hedge against inflation.
In May, the Reuters/Jefferies CRB Index of 19 energy, metal and agricultural prices has gained 14 percent, the most since July 1974. The dollar was poised for the biggest monthly drop since August against a basket of six major currencies.
Crude oil was set for the biggest monthly gain in a decade. Gasoline has soared more than 30 percent in May. Gold copper surged, while corn and soybeans reached the highest since September.
Crude-oil futures for July delivery rose $1.10, or 1.7 percent, to $66.18 a barrel on the New York Mercantile Exchange. This month, the price has jumped 29 percent, the most since March 1999.
Gasoline futures for June delivery rose 1.64 cents, or 0.9 percent, to $1.9269 a gallon. In May, the price has surged 31 percent, the most since March 2006.
Today, cotton jumped the most allowed by ICE Futures U.S. in New York. Gold futures topped $980 an ounce, and silver was poised for the biggest monthly gain in 22 years.
Friday, May 29, 2009
Monday, April 27, 2009
The Jubilee Solution to the Economic Crisis: the People’s Bailout
The worldwide economy is unraveling because of high debt. High debt is destroying the economy not only because businesses are forced to liquidate in the face of unpayable debt, but also because consumers won’t spend when their debt load gets too high. The high debt load is made worse by deflation, which makes older debt harder to pay off.
Jubilee means the forgiveness of debt, but can the principle of Jubilee debt forgiveness be applied to our current economic situation? Yes, it can. In fact, debt cancellation is the only solution to the problem, other than letting the problem run its course through a long period of economic depression, which cancels debt the slow and painful way.
The central governments of the world are currently attempting to inflate the money supply, through quantitative easing, to counter the deflation and stimulate growth. However, this approach is failing for a number of reasons. The basic disconnect is in giving the stimulus to banks, rather than directly to citizens.
Stimulation only works if the cash is spent. If the government prints a billion dollars only to bury it under the ground, obviously, no stimulus and no inflation will take place. Giving the cash to the banks is roughly equivalent to burying the new money under the ground. For one, the banks are using it to shore up their balance sheets, for two, consumers are already buried in debt and facing mass layoffs, so taking on more debt is not an option, so the money just sits in the banks.
The Jubilee economic solution would combine cash stimulus with debt cancellation. However, rather than bailing out the banks, and encouraging the people to go into greater debt, the government will give cash stimulus directly to the people. People will be targeted according to their debt, receiving cash payment equal to their debt level, payment going directly to the debt holder. In effect, everyone’s debt will be cancelled.
In order to prevent runaway inflation, the government will at the same time raise the banks’ cash reserve requirement in equal proportion to the cash stimulus. Thus, the cash will pass through the citizens, paying off their debt, and get soaked up back into the vaults of the banks.
The net effect will be a reset of the financial system, as all debts get fully paid off. Without the crushing weight of credit cards, mortgages, car payments, and student loans, people will be free to spend and invest again. The debt deflation will be totally defeated, and unemployment will quickly shrink as the business liquidation cycle ends and the economy takes off, with the desired upward effect on wages. The stage would be set for a new economic expansion as investments, inventions, and innovations are freed up to work their wealth-creating magic.
This is the Jubilee solution to our economic crisis. The beauty of the plan is that it would not require any new laws nor a Constitutional Amendment, and would not require the abrogation or violation of any contracts. Essentially, it could be done by executive action, but obviously, widespread Congressional support would be ideal as well.
What can you do to help make it happen? Spread the word however you can: tell your friends and family, blog it, forward it, provide the plan to your political representatives, run for office yourself, the possibilities are endless.
This is the Jubilee solution to our economic crisis, the people’s bailout. God bless us all.
note: by cash, I do not imply actual paper script to be printed and distributed; electronic credit money would actually work much better.
Jubilee means the forgiveness of debt, but can the principle of Jubilee debt forgiveness be applied to our current economic situation? Yes, it can. In fact, debt cancellation is the only solution to the problem, other than letting the problem run its course through a long period of economic depression, which cancels debt the slow and painful way.
The central governments of the world are currently attempting to inflate the money supply, through quantitative easing, to counter the deflation and stimulate growth. However, this approach is failing for a number of reasons. The basic disconnect is in giving the stimulus to banks, rather than directly to citizens.
Stimulation only works if the cash is spent. If the government prints a billion dollars only to bury it under the ground, obviously, no stimulus and no inflation will take place. Giving the cash to the banks is roughly equivalent to burying the new money under the ground. For one, the banks are using it to shore up their balance sheets, for two, consumers are already buried in debt and facing mass layoffs, so taking on more debt is not an option, so the money just sits in the banks.
The Jubilee economic solution would combine cash stimulus with debt cancellation. However, rather than bailing out the banks, and encouraging the people to go into greater debt, the government will give cash stimulus directly to the people. People will be targeted according to their debt, receiving cash payment equal to their debt level, payment going directly to the debt holder. In effect, everyone’s debt will be cancelled.
In order to prevent runaway inflation, the government will at the same time raise the banks’ cash reserve requirement in equal proportion to the cash stimulus. Thus, the cash will pass through the citizens, paying off their debt, and get soaked up back into the vaults of the banks.
The net effect will be a reset of the financial system, as all debts get fully paid off. Without the crushing weight of credit cards, mortgages, car payments, and student loans, people will be free to spend and invest again. The debt deflation will be totally defeated, and unemployment will quickly shrink as the business liquidation cycle ends and the economy takes off, with the desired upward effect on wages. The stage would be set for a new economic expansion as investments, inventions, and innovations are freed up to work their wealth-creating magic.
This is the Jubilee solution to our economic crisis. The beauty of the plan is that it would not require any new laws nor a Constitutional Amendment, and would not require the abrogation or violation of any contracts. Essentially, it could be done by executive action, but obviously, widespread Congressional support would be ideal as well.
What can you do to help make it happen? Spread the word however you can: tell your friends and family, blog it, forward it, provide the plan to your political representatives, run for office yourself, the possibilities are endless.
This is the Jubilee solution to our economic crisis, the people’s bailout. God bless us all.
note: by cash, I do not imply actual paper script to be printed and distributed; electronic credit money would actually work much better.
Thursday, April 16, 2009
Jubilee without Theft or Inflation
I believe that Jubilee could be accomplished without the complaints of theft or inflation that typically arise. Here is how it would work:
The government would issue checks to everyone to pay off their debts.
While doing so, the government would raise bank reserve requirements by the corresponding amount.
Thus, a huge new pool of money would come into existence to pay off people's debts, but then it would get sunk in the banks, never to recirculate to cause inflation.
No contracts would be violated, no cases could be dragged to court, no extra laws would have to be passed.
Viola! Rejoice in the Jubilee Year!
The government would issue checks to everyone to pay off their debts.
While doing so, the government would raise bank reserve requirements by the corresponding amount.
Thus, a huge new pool of money would come into existence to pay off people's debts, but then it would get sunk in the banks, never to recirculate to cause inflation.
No contracts would be violated, no cases could be dragged to court, no extra laws would have to be passed.
Viola! Rejoice in the Jubilee Year!
Tuesday, April 14, 2009
The Economic War against the Common Man
What really happened
Exerpts of a brilliant economic analysis follows, read the full essay here: http://www.marketoracle.co.uk/Article9986.html
Iceland’s financial crisis today is less an issue of international law as of outright lawlessness perpetrated by the purveyors of so-called free market democracy. Nations pressing Iceland for payment impose one set of laws for others while following quite a different set for themselves. Preaching to Iceland about international law, the United States and Great Britain themselves have broken the clearest of international laws – those against waging aggressive war. Their propagandists are skillful at using the language of capitalism and morality, yet they are neither capitalist nor moral. Their financial strategy is to play an ages-old psychological game. Make countries like Iceland feel guilty about being debtors rather than recognizing they have been victims of an international Ponzi scheme. In a nutshell, the game is to lay down “laws” for debtors in the form of destructive austerity programs fashioned by irresponsible and indeed, parasitic creditors. This “aid advice” ends in outright asset stripping, both public and private.
Asset stripping to pay debts has caused collapse time and again in history, but is strangely downplayed in today’s academic curriculum as an “inconvenient truth” as far as vested financial interests are concerned. Income is siphoned off by a scheme that is elegant and simple. Hapless victims – and now entire economies, not just individuals – are maneuvered onto a debt treadmill from which there is no escape. Creditors pile on credit and let the debts grow at the “magic of compound interest,” knowing that their loans cannot be repaid – except by asset sell-offs. No economy’s productivity can keep pace with exponentially compounding debt. Whatever was owned (and indeed, financed originally by public debt but now paid off) is stripped away for interest payments that never end. The aim is for these payments to absorb as much of the surplus as possible, so that the national economy in effect works to pay tribute to the new global financial class – bankers and money managers of mutual funds, pension funds and hedge funds.
The product they are selling is debt. They build up their own wealth by indebting others, and then forcing sell-offs to buyers who take on their own debt in the hope of making asset-price gains as property prices are impossibly inflated relative to the wages of living labor. This has become the new, euphemistically dubbed post-industrial form of wealth creation – a strategy that is now collapsing economies throughout the world.
The second important principle is how radically today’s post-capitalist order has inverted traditional ways of making money. Instead of making profits on new capital investment, the easiest path to quick riches in today’s global financial system is to foreclose at pennies on the dollar, and make a “capital gain” by flipping property onto world financial markets that are being inflated by central banks. While financial spokespersons promise that “there is no such thing as a free lunch,” today’s hit-and-run financial bubble, fraud and insider privatizations culminating in public-sector bailouts (“socializing the risk” while privatizing the profits and capital gains) – has become all about obtaining a free lunch.
But it is a zero-sum gambling game, with losers on the other side of the table from the winners. One party’s gain is another’s loss – and indeed, this kind of game ends up shrinking the economy by diverting resources away from real investment in tangible capital formation. Unlike industrial capitalism, which employs labor and invests in capital equipment to turn raw materials into salable commodities, today’s post-industrial financialized system only offers the virtual (and temporary) wealth of asset bubbles. Its financial managers claim to be acting in the tradition of classical economists and share their concept of free markets, but in actuality they have been part of an intellectual fraud that depicts their system as something other than the financialized wealth extraction on the real economy of production and consumption that it is. Financialized wealth is extractive, not productive. That is because loans, stocks and bond securities are claims on wealth, not real wealth itself.
Fortunately, this need not happen in countries that do not impose debt leveraging on themselves, but only in countries that let the public utility of money and credit creation be privatized in the hands of a cosmopolitan financial class.
Consider the role of banking in this neo-feudal order. Banks do not create credit to finance manufacturing – that is done mainly out of retained earnings and equity. Banks create credit primarily to lend against collateral already in place – loans that simply extract money from the economy. This is an inherently destructive act, one that is anti-capitalist in the sense that it undercuts industrial growth in favor of interest extraction and short-term speculative gains.
The trick is to get this policy welcomed as if it were progress, as “post-industrial” rather than a lapse backward. Only today is it becoming apparent that the collateral-based lending of banks “creates wealth” mainly by inflating asset-price bubbles, especially in real estate. Bankers calculate how much debt a given flow of residential or commercial real estate income can support, and create enough credit to make a loan large enough to absorb this surplus revenue. Bankers do the same with industry by lending corporate raiders enough money in take-over “junk” bonds to turn profits into a flow of interest payments for themselves, and with capital gains for the raiders. Central banks fuel this process by swamping economies with easy credit (that is, debt) that keeps the financial sector fat while impoverishing the increasingly indebted nation.
Finance thus is the historical antithesis of property, sanctifying its own right to expropriate indebted property owners. Originally denounced by Christianity, Judaism and Islam, interest-bearing debt has sanctified itself as the predominant form of wealth. This is not what the classical economists and democratic political reformers expected to see. They explained how to avoid this economic dystopia by appropriate government tax policy and regulation to minimize the economic role and political power of post-feudal bankers and rentiers. (Rentiers are people who live off interest and rents, that is, off absentee incomes paid on a regular basis.)
Bankers managed to convince ambitious fortune-seekers that the way to wealth and economic growth lay in debt leveraging, not in staying free of debt. Selling debt as their product, banks and speculators at the world’s financial core needed to prepare for what they must have known would lead to economic collapse and destroyed economies throughout history. They prepared the path to ruin by ideological engineering aimed at shaping how populations think about history, so as to accept debt pyramiding as a good economic strategy.
Turning economic power into political power - Creditors in most countries have been able to turn their economic power into political power with the aim of shifting the tax burden off themselves and onto labor and industry. The final coup de grace occurs when they get the government to bail them out from their losses on bad loans. In the United States, Congress has tripled the national debt in less than a year to bail out creditors with little thought of helping debtors, or even of prosecuting the massive financial fraud involved in its subprime real estate bubble and the sale of junk mortgages to gullible foreign buyers.
Allowing economies to be crippled with interest payments was unthinkable until recently. To achieve so radical a break in the public’s idea of prosperity and self-reliance, it has been necessary for creditors to wipe out knowledge of how legal systems have been amended to put creditor interests above those of debtors over the past eight centuries – and how the leading classical economists and Enlightenment cultural and religious leaders sought to subordinate creditor interests to those of growth and prosperity for the economy at large. But the new banking class has been clever enough to hire the best propagandists money can buy while remaining blind to the havoc they are wreaking with people’s lives.
The trick is to fool debtors into thinking that “free markets” means paying one’s debts. Creditors can succeed in letting debt leveraging and “the magic of compound interest” empty out economies only by diverting attention from what Adam Smith and other classical economists warned against. For them, a free market was one free of debt – especially foreign debt. In The Wealth of Nations (especially Book V, chapter 3), Smith warned against creditors becoming “free” enough to disable the ability of governments to protect citizens from creditors – especially the Dutch, who were the major investors in British monopolies created to be sold to pay for that nation’s seemingly eternal wars with France. The problem was that creditors sought to extract the wealth of nations for themselves, not to create wealth. Their greed was destructive to society as a whole, because it was easier to simply strip assets than to create real capital.
The tacit assumption is not that bankers’ exorbitant greed is achieved at the expense of the economy at large, but that the financial sector’s prosperity is a precondition for the economy to grow. The bankers try to cap matters by trotting out poor retirees (like the widows and orphans of old – presumably those living on “fixed incomes” in the form of trust funds) whose meager savings should be supported. Doing so just happens to save the financial oligarchy of billionaires at the top of the economic pyramid, but not the proverbial victims.
The use of human shields such as union members concerned about the investments of their pension funds to protect the wealth of the kleptocrats is likewise shameless. Wall Street sages in the United States, for example, shed crocodile tears over the fate of the working people suffering from the stock market collapse, knowing full well that financial assets are heavily concentrated at the top of the economic pyramid, with workers having, only a meager share of those stocks and bonds. Ignored is the fact that the government could bail out failing pension funds (like Social Security) directly at just a small fraction of the cost of propping up the assets of the affluent.
The best path for nations is to put their own economic growth before the interests of creditors. For many generations this ethic supported a set of political checks and balances that kept the growth of international debt in terms considered to be tolerable – much too heavy by the free-market standards of Smith and John Stuart Mill, but not so high as to prompt widespread defaults and debt repudiation.
This ethic has changed in recent years. Countries have accepted creditor propaganda that debts are a “point of honor,” much as the poor believe that paying their debts – even when they are in negative equity – is the “honest thing to do.” Obviously this ethic is not self-applied to the world’s largest financial institutions or real estate speculators. But Iceland accepted it in what is a characteristic of small, closely-knit communities where the word of neighbors is their bond. The root of Iceland’s ethic is mutual aid and prosperity for all. It is a fine, highly socialized attitude, and therefore tragic that it has helped lead the nation to fall prone to the snake oil of debt peonage.
Having stuck Third World countries with debts beyond their ability to pay, the IMF and World Bank used their creditor leverage to force governments to impose draconian austerity plans that had the effect of preventing growth toward industrial and agricultural self-sufficiency, thereby also crushing prospects for competitiveness. The IMF and World Bank then demanded that debtor countries sell off their public infrastructure, land, subsoil rights and other assets to pay the debts that these institutions sponsored so irresponsibly. (If IMF loans were not simply irresponsible, then they knowingly crippled debtor-country economies.) It is an age-old story of conquest, now accomplished without conventional warfare.
Psychologists have explained the creditor proclivity for violence by the tendency for rentiers to fight for unearned income – inheritance, or other “free wealth” that they have obtained without effort of their own. People who work for a living and are able to support themselves believe that they can survive, and so there is less of the kind of panic that creditors and other free lunchers feel at the thought that their extractive revenue may end. They fight passionately against the prospect of having to live on what they produce or earn by their own merits. So the last thing that rentiers really want is a free market. In a shameless irony, they tend to accuse populations of being terrorists if they seek to defend themselves against predatory creditors and land-grabbers!
This is just the opposite of the free markets that were promised them back in 1990-91. Instead of economic growth, the “real” economy of production and consumption shrunk, even as foreign financial inflows inflated property prices for housing and office space, fuel and public utilities. Real estate and utility services hitherto provided freely or at subsidy to the economy at large were turned into a predatory vehicle for foreigners to extract income, putting the domestic population on rations, much as what occurs under military occupation. Yet the public media, academic centers and parliaments have persuaded populations that this is part of a natural order, even the product of how a free-market is supposed to operate, rather than a retrogression back to quasi-feudal institutions. The simplistic idea is that making money is itself “capitalist” ipso facto, regardless of whether industrial capital is being created or dismantled and stripped.
Most societies throughout history have sought to provide credit legally in ways that do not permit creditor oligarchies to emerge. Today’s creditor advocates are at war with the spirit of this idea. And in taking this position, they reject the thrust of the Enlightenment’s anti-usury laws, classical political economy’s distinction between productive and sterile investment, the St. Simonian attempt at financial reform, and the Progressive Era’s attempt to mobilize national credit to fund productive industrial investment rather than being extractive, benefiting only the few. The classical idea of economic freedom itself was formulated as the antithesis to feudal-epoch finance. And the ideal of freedom from predatory finance is what is being threatened today, as if society has forgotten how long and hard the reform struggle has been.
The common thread in these ideas is that people deserve to receive the fruits of their labor. This means bringing prices in line with actual labor-costs of production. It also means that one’s wealth should be limited to only what one creates – not land and natural resources, or monopoly privileges to extract income via control of roads, the right to create money and other natural monopolies. The aim of social reform for many centuries has been to purge capitalism of its legacy of absentee rentier property ownership patterns and creditor-oriented laws inherited from medieval times. The way to do this is to treat banking like transportation and the broadcasting spectrum, as a public utility to form a just fiscal base, not something to be privatized so that individual rentiers can tax society at large for what rightly is a public utility.
The problem goes to the very foundation of economic theory. Any set of statistics reflects categories in economic theory, and in recent years the Chicago School has taken the lead in what is now a nationwide trend to exclude the history of economic thought from the academic curriculum. One can get all the way through a Ph.D. without having surveyed the evolution of classical economics from the Physiocrats through Adam Smith, John Stuart Mill and the Progressive Era reformers. The essence of social reform throughout the Enlightenment, and indeed extending all the way back to the Church Schoolmen is no longer taught – the distinctions between earned and unearned income and wealth, and productive and unproductive (or “sterile”) employment and investment. Post-classical thought insists that all income is productive in proportion to whatever it earns – including the collection of economic rent or extortion of monopoly super-profit, or financial charges for interest and credit card fees, and the exorbitant salaries and bonuses that financial managers pay themselves. All revenue – and therefore, all wealth – appears to be “earned.” By their definition. This denies the concept of “investment in zero-sum activities that merely transfer income into the unproductive sector’s pockets, in contrast to creating income.
As a guide to policy reform, classical economics aimed at creating an economic and fiscal system that would bring market prices in line with technologically necessary costs of production. All such costs ultimately are reducible to labor. The necessary complement to the labor theory of value (adjusted for different grades of labor, the cost of their education and the linkage between wage levels and productivity) was the analysis of economic rent – an institutional add-on reflecting property ownership patterns, financial charges and taxes, not inherent costs of production. The classical reform program was to minimize the cost of production and of living, making economies more competitive by purifying industrial capitalism and removing its remaining feudal legacies, above all the right of hereditary absentee owners (landlords) to siphon off a rental charge for access to land for sites supplied by nature and given value by local public spending (e.g., “location, location, and location,” as real estate agents explain matters to prospective buyers) – and the right of bankers to charge for creating credit that governments could freely create themselves.Fighting against progressive reforms, banks and other financial institutions have sought to preserve their special privileges by law, minimizing taxes on themselves by shifting the burden onto labor and industry. What they have achieved by financializing economies is (1) to raise the cost of living and the cost of doing business; (2) to free their major customers – mortgage borrowers – from taxation so as to leave as much surplus as possible available to be paid as interest; (3) to collect revenue hitherto used to finance the public sector by capitalizing it into interest charges and to inflate the price of housing and other real estate and privatized monopolies; (4) to effectively shift taxes onto labor and industry, thereby raising prices and undermining the competitive power of financialized economies. This is a travesty of classical “free market” policy. It is a policy for predators that mainly burdens economies with high interest and fees while also making the tax burden more oppressive while they reap the benefits.
John Maynard Keynes believed that the proper task of governments was to prevent over-indebtedness from leading to economic depression. He concluded his General Theory (1936) with a call for “euthanasia of the rentier.” Hoping to make credit productive, not extractive, his followers have advocated making banking a public utility so as to steer debt creation to fund growth in the means of production, not economic overhead by inflating property bubbles. Radical as this may appear today, this was the aim of the 19th century classical economists, and underlay the financial reforms that shaped the 20th-century economic takeoff. Only quite recently has the global financial press rediscovered this logic in the wake of today’s bubble meltdown.
Exerpts of a brilliant economic analysis follows, read the full essay here: http://www.marketoracle.co.uk/Article9986.html
Iceland’s financial crisis today is less an issue of international law as of outright lawlessness perpetrated by the purveyors of so-called free market democracy. Nations pressing Iceland for payment impose one set of laws for others while following quite a different set for themselves. Preaching to Iceland about international law, the United States and Great Britain themselves have broken the clearest of international laws – those against waging aggressive war. Their propagandists are skillful at using the language of capitalism and morality, yet they are neither capitalist nor moral. Their financial strategy is to play an ages-old psychological game. Make countries like Iceland feel guilty about being debtors rather than recognizing they have been victims of an international Ponzi scheme. In a nutshell, the game is to lay down “laws” for debtors in the form of destructive austerity programs fashioned by irresponsible and indeed, parasitic creditors. This “aid advice” ends in outright asset stripping, both public and private.
Asset stripping to pay debts has caused collapse time and again in history, but is strangely downplayed in today’s academic curriculum as an “inconvenient truth” as far as vested financial interests are concerned. Income is siphoned off by a scheme that is elegant and simple. Hapless victims – and now entire economies, not just individuals – are maneuvered onto a debt treadmill from which there is no escape. Creditors pile on credit and let the debts grow at the “magic of compound interest,” knowing that their loans cannot be repaid – except by asset sell-offs. No economy’s productivity can keep pace with exponentially compounding debt. Whatever was owned (and indeed, financed originally by public debt but now paid off) is stripped away for interest payments that never end. The aim is for these payments to absorb as much of the surplus as possible, so that the national economy in effect works to pay tribute to the new global financial class – bankers and money managers of mutual funds, pension funds and hedge funds.
The product they are selling is debt. They build up their own wealth by indebting others, and then forcing sell-offs to buyers who take on their own debt in the hope of making asset-price gains as property prices are impossibly inflated relative to the wages of living labor. This has become the new, euphemistically dubbed post-industrial form of wealth creation – a strategy that is now collapsing economies throughout the world.
The second important principle is how radically today’s post-capitalist order has inverted traditional ways of making money. Instead of making profits on new capital investment, the easiest path to quick riches in today’s global financial system is to foreclose at pennies on the dollar, and make a “capital gain” by flipping property onto world financial markets that are being inflated by central banks. While financial spokespersons promise that “there is no such thing as a free lunch,” today’s hit-and-run financial bubble, fraud and insider privatizations culminating in public-sector bailouts (“socializing the risk” while privatizing the profits and capital gains) – has become all about obtaining a free lunch.
But it is a zero-sum gambling game, with losers on the other side of the table from the winners. One party’s gain is another’s loss – and indeed, this kind of game ends up shrinking the economy by diverting resources away from real investment in tangible capital formation. Unlike industrial capitalism, which employs labor and invests in capital equipment to turn raw materials into salable commodities, today’s post-industrial financialized system only offers the virtual (and temporary) wealth of asset bubbles. Its financial managers claim to be acting in the tradition of classical economists and share their concept of free markets, but in actuality they have been part of an intellectual fraud that depicts their system as something other than the financialized wealth extraction on the real economy of production and consumption that it is. Financialized wealth is extractive, not productive. That is because loans, stocks and bond securities are claims on wealth, not real wealth itself.
Fortunately, this need not happen in countries that do not impose debt leveraging on themselves, but only in countries that let the public utility of money and credit creation be privatized in the hands of a cosmopolitan financial class.
Consider the role of banking in this neo-feudal order. Banks do not create credit to finance manufacturing – that is done mainly out of retained earnings and equity. Banks create credit primarily to lend against collateral already in place – loans that simply extract money from the economy. This is an inherently destructive act, one that is anti-capitalist in the sense that it undercuts industrial growth in favor of interest extraction and short-term speculative gains.
The trick is to get this policy welcomed as if it were progress, as “post-industrial” rather than a lapse backward. Only today is it becoming apparent that the collateral-based lending of banks “creates wealth” mainly by inflating asset-price bubbles, especially in real estate. Bankers calculate how much debt a given flow of residential or commercial real estate income can support, and create enough credit to make a loan large enough to absorb this surplus revenue. Bankers do the same with industry by lending corporate raiders enough money in take-over “junk” bonds to turn profits into a flow of interest payments for themselves, and with capital gains for the raiders. Central banks fuel this process by swamping economies with easy credit (that is, debt) that keeps the financial sector fat while impoverishing the increasingly indebted nation.
Finance thus is the historical antithesis of property, sanctifying its own right to expropriate indebted property owners. Originally denounced by Christianity, Judaism and Islam, interest-bearing debt has sanctified itself as the predominant form of wealth. This is not what the classical economists and democratic political reformers expected to see. They explained how to avoid this economic dystopia by appropriate government tax policy and regulation to minimize the economic role and political power of post-feudal bankers and rentiers. (Rentiers are people who live off interest and rents, that is, off absentee incomes paid on a regular basis.)
Bankers managed to convince ambitious fortune-seekers that the way to wealth and economic growth lay in debt leveraging, not in staying free of debt. Selling debt as their product, banks and speculators at the world’s financial core needed to prepare for what they must have known would lead to economic collapse and destroyed economies throughout history. They prepared the path to ruin by ideological engineering aimed at shaping how populations think about history, so as to accept debt pyramiding as a good economic strategy.
Turning economic power into political power - Creditors in most countries have been able to turn their economic power into political power with the aim of shifting the tax burden off themselves and onto labor and industry. The final coup de grace occurs when they get the government to bail them out from their losses on bad loans. In the United States, Congress has tripled the national debt in less than a year to bail out creditors with little thought of helping debtors, or even of prosecuting the massive financial fraud involved in its subprime real estate bubble and the sale of junk mortgages to gullible foreign buyers.
Allowing economies to be crippled with interest payments was unthinkable until recently. To achieve so radical a break in the public’s idea of prosperity and self-reliance, it has been necessary for creditors to wipe out knowledge of how legal systems have been amended to put creditor interests above those of debtors over the past eight centuries – and how the leading classical economists and Enlightenment cultural and religious leaders sought to subordinate creditor interests to those of growth and prosperity for the economy at large. But the new banking class has been clever enough to hire the best propagandists money can buy while remaining blind to the havoc they are wreaking with people’s lives.
The trick is to fool debtors into thinking that “free markets” means paying one’s debts. Creditors can succeed in letting debt leveraging and “the magic of compound interest” empty out economies only by diverting attention from what Adam Smith and other classical economists warned against. For them, a free market was one free of debt – especially foreign debt. In The Wealth of Nations (especially Book V, chapter 3), Smith warned against creditors becoming “free” enough to disable the ability of governments to protect citizens from creditors – especially the Dutch, who were the major investors in British monopolies created to be sold to pay for that nation’s seemingly eternal wars with France. The problem was that creditors sought to extract the wealth of nations for themselves, not to create wealth. Their greed was destructive to society as a whole, because it was easier to simply strip assets than to create real capital.
The tacit assumption is not that bankers’ exorbitant greed is achieved at the expense of the economy at large, but that the financial sector’s prosperity is a precondition for the economy to grow. The bankers try to cap matters by trotting out poor retirees (like the widows and orphans of old – presumably those living on “fixed incomes” in the form of trust funds) whose meager savings should be supported. Doing so just happens to save the financial oligarchy of billionaires at the top of the economic pyramid, but not the proverbial victims.
The use of human shields such as union members concerned about the investments of their pension funds to protect the wealth of the kleptocrats is likewise shameless. Wall Street sages in the United States, for example, shed crocodile tears over the fate of the working people suffering from the stock market collapse, knowing full well that financial assets are heavily concentrated at the top of the economic pyramid, with workers having, only a meager share of those stocks and bonds. Ignored is the fact that the government could bail out failing pension funds (like Social Security) directly at just a small fraction of the cost of propping up the assets of the affluent.
The best path for nations is to put their own economic growth before the interests of creditors. For many generations this ethic supported a set of political checks and balances that kept the growth of international debt in terms considered to be tolerable – much too heavy by the free-market standards of Smith and John Stuart Mill, but not so high as to prompt widespread defaults and debt repudiation.
This ethic has changed in recent years. Countries have accepted creditor propaganda that debts are a “point of honor,” much as the poor believe that paying their debts – even when they are in negative equity – is the “honest thing to do.” Obviously this ethic is not self-applied to the world’s largest financial institutions or real estate speculators. But Iceland accepted it in what is a characteristic of small, closely-knit communities where the word of neighbors is their bond. The root of Iceland’s ethic is mutual aid and prosperity for all. It is a fine, highly socialized attitude, and therefore tragic that it has helped lead the nation to fall prone to the snake oil of debt peonage.
Having stuck Third World countries with debts beyond their ability to pay, the IMF and World Bank used their creditor leverage to force governments to impose draconian austerity plans that had the effect of preventing growth toward industrial and agricultural self-sufficiency, thereby also crushing prospects for competitiveness. The IMF and World Bank then demanded that debtor countries sell off their public infrastructure, land, subsoil rights and other assets to pay the debts that these institutions sponsored so irresponsibly. (If IMF loans were not simply irresponsible, then they knowingly crippled debtor-country economies.) It is an age-old story of conquest, now accomplished without conventional warfare.
Psychologists have explained the creditor proclivity for violence by the tendency for rentiers to fight for unearned income – inheritance, or other “free wealth” that they have obtained without effort of their own. People who work for a living and are able to support themselves believe that they can survive, and so there is less of the kind of panic that creditors and other free lunchers feel at the thought that their extractive revenue may end. They fight passionately against the prospect of having to live on what they produce or earn by their own merits. So the last thing that rentiers really want is a free market. In a shameless irony, they tend to accuse populations of being terrorists if they seek to defend themselves against predatory creditors and land-grabbers!
This is just the opposite of the free markets that were promised them back in 1990-91. Instead of economic growth, the “real” economy of production and consumption shrunk, even as foreign financial inflows inflated property prices for housing and office space, fuel and public utilities. Real estate and utility services hitherto provided freely or at subsidy to the economy at large were turned into a predatory vehicle for foreigners to extract income, putting the domestic population on rations, much as what occurs under military occupation. Yet the public media, academic centers and parliaments have persuaded populations that this is part of a natural order, even the product of how a free-market is supposed to operate, rather than a retrogression back to quasi-feudal institutions. The simplistic idea is that making money is itself “capitalist” ipso facto, regardless of whether industrial capital is being created or dismantled and stripped.
Most societies throughout history have sought to provide credit legally in ways that do not permit creditor oligarchies to emerge. Today’s creditor advocates are at war with the spirit of this idea. And in taking this position, they reject the thrust of the Enlightenment’s anti-usury laws, classical political economy’s distinction between productive and sterile investment, the St. Simonian attempt at financial reform, and the Progressive Era’s attempt to mobilize national credit to fund productive industrial investment rather than being extractive, benefiting only the few. The classical idea of economic freedom itself was formulated as the antithesis to feudal-epoch finance. And the ideal of freedom from predatory finance is what is being threatened today, as if society has forgotten how long and hard the reform struggle has been.
The common thread in these ideas is that people deserve to receive the fruits of their labor. This means bringing prices in line with actual labor-costs of production. It also means that one’s wealth should be limited to only what one creates – not land and natural resources, or monopoly privileges to extract income via control of roads, the right to create money and other natural monopolies. The aim of social reform for many centuries has been to purge capitalism of its legacy of absentee rentier property ownership patterns and creditor-oriented laws inherited from medieval times. The way to do this is to treat banking like transportation and the broadcasting spectrum, as a public utility to form a just fiscal base, not something to be privatized so that individual rentiers can tax society at large for what rightly is a public utility.
The problem goes to the very foundation of economic theory. Any set of statistics reflects categories in economic theory, and in recent years the Chicago School has taken the lead in what is now a nationwide trend to exclude the history of economic thought from the academic curriculum. One can get all the way through a Ph.D. without having surveyed the evolution of classical economics from the Physiocrats through Adam Smith, John Stuart Mill and the Progressive Era reformers. The essence of social reform throughout the Enlightenment, and indeed extending all the way back to the Church Schoolmen is no longer taught – the distinctions between earned and unearned income and wealth, and productive and unproductive (or “sterile”) employment and investment. Post-classical thought insists that all income is productive in proportion to whatever it earns – including the collection of economic rent or extortion of monopoly super-profit, or financial charges for interest and credit card fees, and the exorbitant salaries and bonuses that financial managers pay themselves. All revenue – and therefore, all wealth – appears to be “earned.” By their definition. This denies the concept of “investment in zero-sum activities that merely transfer income into the unproductive sector’s pockets, in contrast to creating income.
As a guide to policy reform, classical economics aimed at creating an economic and fiscal system that would bring market prices in line with technologically necessary costs of production. All such costs ultimately are reducible to labor. The necessary complement to the labor theory of value (adjusted for different grades of labor, the cost of their education and the linkage between wage levels and productivity) was the analysis of economic rent – an institutional add-on reflecting property ownership patterns, financial charges and taxes, not inherent costs of production. The classical reform program was to minimize the cost of production and of living, making economies more competitive by purifying industrial capitalism and removing its remaining feudal legacies, above all the right of hereditary absentee owners (landlords) to siphon off a rental charge for access to land for sites supplied by nature and given value by local public spending (e.g., “location, location, and location,” as real estate agents explain matters to prospective buyers) – and the right of bankers to charge for creating credit that governments could freely create themselves.Fighting against progressive reforms, banks and other financial institutions have sought to preserve their special privileges by law, minimizing taxes on themselves by shifting the burden onto labor and industry. What they have achieved by financializing economies is (1) to raise the cost of living and the cost of doing business; (2) to free their major customers – mortgage borrowers – from taxation so as to leave as much surplus as possible available to be paid as interest; (3) to collect revenue hitherto used to finance the public sector by capitalizing it into interest charges and to inflate the price of housing and other real estate and privatized monopolies; (4) to effectively shift taxes onto labor and industry, thereby raising prices and undermining the competitive power of financialized economies. This is a travesty of classical “free market” policy. It is a policy for predators that mainly burdens economies with high interest and fees while also making the tax burden more oppressive while they reap the benefits.
John Maynard Keynes believed that the proper task of governments was to prevent over-indebtedness from leading to economic depression. He concluded his General Theory (1936) with a call for “euthanasia of the rentier.” Hoping to make credit productive, not extractive, his followers have advocated making banking a public utility so as to steer debt creation to fund growth in the means of production, not economic overhead by inflating property bubbles. Radical as this may appear today, this was the aim of the 19th century classical economists, and underlay the financial reforms that shaped the 20th-century economic takeoff. Only quite recently has the global financial press rediscovered this logic in the wake of today’s bubble meltdown.
Thursday, April 9, 2009
The Pyramid Scheme of Money Creation and Destruction
Money is created and destroyed in one giant chain of credit clearing, both by the government and banks.
It officially starts in the creation of the monetary base by the Federal Reserve when it buys US Treasury securities. The Fed acquires Treasury securities, meaning it finances a loan to the US government. The Treasury then pays interest to the Fed for holding its bonds. The Fed pays for the Treasury bonds in cash, but it does not really pay the Treasury, it pays the people, by disbursing the cash to banks and citizens.
Say you get a loan from the bank. The bank gives you the money, but creates a loan you have to pay back. The loan is a negative balance for you, but a positive balance for the bank.
But where did the bank get the money? From the Fed! The Fed did the same thing for the bank that the bank did for you. The bank takes a loan from the Fed, getting cash to spend, but having a negative balance with the Fed, owing the Fed that money.
Ok, good so far, but where does the Fed get the money? The Fed gets the money from the Treasury. The Fed balances its cash distributions with assets of US bonds. Technically, the Fed gave a loan to the Treasury, and receives interest payments from Treasury just like anyone else when they buy a Treasury bond.
When the Fed buys bonds from the public, they are paying out money to the public, thereby expanding the money supply. When the Fed sells bonds to the public, they are taking money in from the public, thereby shrinking the money supply. When the Fed buys bonds directly from the Treasury, they are going through the motions of giving a cash loan to the Treasury, which really means distributing cash to the public, thereby expanding the money supply.
Why does the Treasury take loans from the Fed, and pay the Fed interest on those loans, rather than just distributing the money directly to the people? Good question. There are many people calling for the Treasury to do just that, taking direct control of the money supply and eliminating the role of the Fed.
However, it is a mistake to assume that this process starts at and is controlled by the Fed. In actually, most money is actually created by banks. When a bank gives you a loan, they give you the cash, an asset for you, and they get the loan note, an asset for them.
They are required to have a certain reserve cash amount, to be equal to about 10% of outstanding loans. But they don't check their reserves before they give you the loan. They give you the loan, then later, check to see if they have enough reserves to cover their outstanding loans. If they are short on reserves, they borrow the money from other banks, or directly from the Fed.
This is the Fed's role as lender of last resort. As the public demands more and more loans, the Fed is in the back of the whole system, creating more and more cash for the banks to loan out.
This is why Obama and his banking handlers are always talking about "getting credit going again" and other vacuous phrases. To them, the whole thing is a top down process, but one based on people's appetite for loans. So, to them, encouraging the people to spend more and go into greater debt makes perfect sense.
The whole system is leveraged to the hilt, due to the effects of fractional reserve banking. Because a loan at one bank deposited elsewhere becomes the basis for a new loan, which is then deposited elsewhere to become the basis of a new loan, the whole money system becomes a huge pyramid scheme built up on the much smaller value of original loans.
Thus, one bad loan destroys at least 10X its own value of money in the rest of the system. This inevitably happens in a debt deflation, as loans go bad on a large scale, the monetary system collapses, feeding further loan failure, and further monetary destruction. The so-called "credit crunch", which is a monetary black hole created by bad debt sucking in all the money around it and gaining strength as it goes.
This deflationary black hole wipes out the value of capital which had been bid upwards with debt leverage. The falling value of capital then wipes out the loans built upon that inflated capital base, dragging down the value of the remaining capital in a vicious cycle. Productive enterprises are wiped out and labor laid off as loans fail and debts become unpayable.
It's all quite inevitable given our system of credit money and fractional reserve banks. It happened even when our currency was on the gold standard, so that is no panacea. In fact, many blame the gold standard for prolonging the crisis, since it prevented the government from inflating the money supply to counteract the deflation.
The current government effort to reinflate the system with cash reserve injections and happy-face propaganda cannot work because it is targetted precisely backwards. The effort should not be to pump the banks full of capital, because the whole system is based on the demand of the people for more loans and their ability to pay them back. The government should let each and every bad bank fail, but provide massive stimulus checks directly to the people. That would do more than anything else to keep consumer confidence high and stimulate spending, far more than the vague terror caused by seeing our banking system on life support. Or, more simply, as I have been advocating from the start, cancel massive amounts of debt, which would stimulate optimism and spending without the pernicious effects of currency inflation.
It officially starts in the creation of the monetary base by the Federal Reserve when it buys US Treasury securities. The Fed acquires Treasury securities, meaning it finances a loan to the US government. The Treasury then pays interest to the Fed for holding its bonds. The Fed pays for the Treasury bonds in cash, but it does not really pay the Treasury, it pays the people, by disbursing the cash to banks and citizens.
Say you get a loan from the bank. The bank gives you the money, but creates a loan you have to pay back. The loan is a negative balance for you, but a positive balance for the bank.
But where did the bank get the money? From the Fed! The Fed did the same thing for the bank that the bank did for you. The bank takes a loan from the Fed, getting cash to spend, but having a negative balance with the Fed, owing the Fed that money.
Ok, good so far, but where does the Fed get the money? The Fed gets the money from the Treasury. The Fed balances its cash distributions with assets of US bonds. Technically, the Fed gave a loan to the Treasury, and receives interest payments from Treasury just like anyone else when they buy a Treasury bond.
When the Fed buys bonds from the public, they are paying out money to the public, thereby expanding the money supply. When the Fed sells bonds to the public, they are taking money in from the public, thereby shrinking the money supply. When the Fed buys bonds directly from the Treasury, they are going through the motions of giving a cash loan to the Treasury, which really means distributing cash to the public, thereby expanding the money supply.
Why does the Treasury take loans from the Fed, and pay the Fed interest on those loans, rather than just distributing the money directly to the people? Good question. There are many people calling for the Treasury to do just that, taking direct control of the money supply and eliminating the role of the Fed.
However, it is a mistake to assume that this process starts at and is controlled by the Fed. In actually, most money is actually created by banks. When a bank gives you a loan, they give you the cash, an asset for you, and they get the loan note, an asset for them.
They are required to have a certain reserve cash amount, to be equal to about 10% of outstanding loans. But they don't check their reserves before they give you the loan. They give you the loan, then later, check to see if they have enough reserves to cover their outstanding loans. If they are short on reserves, they borrow the money from other banks, or directly from the Fed.
This is the Fed's role as lender of last resort. As the public demands more and more loans, the Fed is in the back of the whole system, creating more and more cash for the banks to loan out.
This is why Obama and his banking handlers are always talking about "getting credit going again" and other vacuous phrases. To them, the whole thing is a top down process, but one based on people's appetite for loans. So, to them, encouraging the people to spend more and go into greater debt makes perfect sense.
The whole system is leveraged to the hilt, due to the effects of fractional reserve banking. Because a loan at one bank deposited elsewhere becomes the basis for a new loan, which is then deposited elsewhere to become the basis of a new loan, the whole money system becomes a huge pyramid scheme built up on the much smaller value of original loans.
Thus, one bad loan destroys at least 10X its own value of money in the rest of the system. This inevitably happens in a debt deflation, as loans go bad on a large scale, the monetary system collapses, feeding further loan failure, and further monetary destruction. The so-called "credit crunch", which is a monetary black hole created by bad debt sucking in all the money around it and gaining strength as it goes.
This deflationary black hole wipes out the value of capital which had been bid upwards with debt leverage. The falling value of capital then wipes out the loans built upon that inflated capital base, dragging down the value of the remaining capital in a vicious cycle. Productive enterprises are wiped out and labor laid off as loans fail and debts become unpayable.
It's all quite inevitable given our system of credit money and fractional reserve banks. It happened even when our currency was on the gold standard, so that is no panacea. In fact, many blame the gold standard for prolonging the crisis, since it prevented the government from inflating the money supply to counteract the deflation.
The current government effort to reinflate the system with cash reserve injections and happy-face propaganda cannot work because it is targetted precisely backwards. The effort should not be to pump the banks full of capital, because the whole system is based on the demand of the people for more loans and their ability to pay them back. The government should let each and every bad bank fail, but provide massive stimulus checks directly to the people. That would do more than anything else to keep consumer confidence high and stimulate spending, far more than the vague terror caused by seeing our banking system on life support. Or, more simply, as I have been advocating from the start, cancel massive amounts of debt, which would stimulate optimism and spending without the pernicious effects of currency inflation.
Wednesday, April 1, 2009
Note to Government: Balance Your Budget
It is starting to hit people at every level of government with full force. After the "end of the world" budget cuts of last year, even more will need to be cut this year. California, for example, has to cut godawful amounts from their budget, and they are being cut off from any more credit.
The only solution left is budget cuts. Here is a simple idea: slash the budget across the board, starting with salaries, which make up the supermajority of all government budget items. For example, in education, salaries make up over 90% of the budget. Keep that in mind the next time you see some pathetic teacher protest over school budget cuts. It's never about saving the children, it's always about saving their salaries. What a joke. If government workers were willing to take a pay cut, there would be no need to cancel any programs.
Individual responsibility is going to return in a storm, as all the slackers, losers, welfare dregs and their social engineering leftist government-employed handlers are suddenly cut off from the public feedbag. Watching this unfold is a libertarian's wet dream.
Unfortunately for all of you reading this blog, our federal government is going to do its best to borrow and print money to pay the gap in all these deficits (not even to mention to yawning fiscal chasm known as the federal deficit).
What that means is, the savings and purchasing power of the working middle and upper classes are going to be siphoned away through inflation, to bail out those government programs.
Gear up for the fight now.
The only solution left is budget cuts. Here is a simple idea: slash the budget across the board, starting with salaries, which make up the supermajority of all government budget items. For example, in education, salaries make up over 90% of the budget. Keep that in mind the next time you see some pathetic teacher protest over school budget cuts. It's never about saving the children, it's always about saving their salaries. What a joke. If government workers were willing to take a pay cut, there would be no need to cancel any programs.
Individual responsibility is going to return in a storm, as all the slackers, losers, welfare dregs and their social engineering leftist government-employed handlers are suddenly cut off from the public feedbag. Watching this unfold is a libertarian's wet dream.
Unfortunately for all of you reading this blog, our federal government is going to do its best to borrow and print money to pay the gap in all these deficits (not even to mention to yawning fiscal chasm known as the federal deficit).
What that means is, the savings and purchasing power of the working middle and upper classes are going to be siphoned away through inflation, to bail out those government programs.
Gear up for the fight now.
Who Defends the Common Man?
The more things change the more they stay the same, eh? In 1896, William Jennings Bryant defended the economic well being of the common man against the finanacial interests of the east coast financial oligarchs. The country was on the gold standard, and the common man was pressed down with a heavy debt burden. Jennings stood for bimetalism, which meant inflating the money supply with silver to ease the debt burden under the deflationary gold standard. I have provided some exerpts from his speech. Notice how he denounces trickle-down economics, 90 years before Reagan introduced it to our modern ears. Amazing, truly amazing.
WJB's biography follows, he is my new hero:
William Jennings Bryan (March 19, 1860 – July 26, 1925) was the Democratic Party nominee for President of the United States in 1896, 1900 and 1908, a lawyer, and the Secretary of State under President Woodrow Wilson. One of the most popular speakers in American history, he was noted for a deep, commanding voice. Bryan was a devout Presbyterian, a supporter of popular democracy, a critic of banks and railroads, a leader of the silverite movement in the 1890s, a leading figure in the Democratic Party, a peace advocate, a prohibitionist, an opponent of Darwinism, and one of the most prominent leaders of Populism in the late 19th - and early 20th century. Because of his faith in the goodness and rightness of the common people, he was called "The Great Commoner."
The question remains more pressing than ever: who stands up for the common man? In Bryant's day, the Democratic Party proudly stood up for the average worker. Today, the same party actively engineers massive transfers of wealth to the investment classes. It is unreal. The common man has no one, absolutely no one.
Exerpts from his 1896 speech:
But we stand here representing people who are the equals before the law of the largest cities in the state of Massachusetts. When you come before us and tell us that we shall disturb your business interests, we reply that you have disturbed our business interests by your action. We say to you that you have made too limited in its application the definition of a businessman. The man who is employed for wages is as much a businessman as his employer. The attorney in a country town is as much a businessman as the corporation counsel in a great metropolis. The merchant at the crossroads store is as much a businessman as the merchant of New York. The farmer who goes forth in the morning and toils all day, begins in the spring and toils all summer, and by the application of brain and muscle to the natural resources of this country creates wealth, is as much a businessman as the man who goes upon the Board of Trade and bets upon the price of grain. The miners who go 1,000 feet into the earth or climb 2,000 feet upon the cliffs and bring forth from their hiding places the precious metals to be poured in the channels of trade are as much businessmen as the few financial magnates who in a backroom corner the money of the world.
We come to speak for this broader class of businessmen. My friends, we say not one word against those who live upon the Atlantic Coast; but those hardy pioneers who braved all the dangers of the wilderness, who have made the desert to blossom as the rose—those pioneers away out there, rearing their children near to nature’s heart, where they can mingle their voices with the voices of the birds—out there where they have erected schoolhouses for the education of their children and churches where they praise their Creator, and the cemeteries where sleep the ashes of their dead—are as deserving of the consideration of this party as any people in this country.
It is for these that we speak. We do not come as aggressors. Our war is not a war of conquest. We are fighting in the defense of our homes, our families, and posterity. We have petitioned, and our petitions have been scorned. We have entreated, and our entreaties have been disregarded. We have begged, and they have mocked when our calamity came.
We beg no longer; we entreat no more; we petition no more. We defy them!
The gentleman from Wisconsin has said he fears a Robespierre. My friend, in this land of the free you need fear no tyrant who will spring up from among the people. What we need is an Andrew Jackson to stand as Jackson stood, against the encroachments of aggregated wealth.
He says that we are opposing the national bank currency. It is true. If you will read what Thomas Benton said, you will find that he said that in searching history he could find but one parallel to Andrew Jackson. That was Cicero, who destroyed the conspiracies of Cataline and saved Rome. He did for Rome what Jackson did when he destroyed the bank conspiracy and saved America.
We say in our platform that we believe that the right to coin money and issue money is a function of government. We believe it. We believe it is a part of sovereignty and can no more with safety be delegated to private individuals than can the power to make penal statutes or levy laws for taxation.
Mr. Carlisle said in 1878 that this was a struggle between the idle holders of idle capital and the struggling masses who produce the wealth and pay the taxes of the country; and my friends, it is simply a question that we shall decide upon which side shall the Democratic Party fight. Upon the side of the idle holders of idle capital, or upon the side of the struggling masses? That is the question that the party must answer first; and then it must be answered by each individual hereafter. The sympathies of the Democratic Party, as described by the platform, are on the side of the struggling masses, who have ever been the foundation of the Democratic Party.
There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.
You come to us and tell us that the great cities are in favor of the gold standard. I tell you that the great cities rest upon these broad and fertile prairies. Burn down your cities and leave our farms, and your cities will spring up again as if by magic. But destroy our farms and the grass will grow in the streets of every city in the country.
If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.
WJB's biography follows, he is my new hero:
William Jennings Bryan (March 19, 1860 – July 26, 1925) was the Democratic Party nominee for President of the United States in 1896, 1900 and 1908, a lawyer, and the Secretary of State under President Woodrow Wilson. One of the most popular speakers in American history, he was noted for a deep, commanding voice. Bryan was a devout Presbyterian, a supporter of popular democracy, a critic of banks and railroads, a leader of the silverite movement in the 1890s, a leading figure in the Democratic Party, a peace advocate, a prohibitionist, an opponent of Darwinism, and one of the most prominent leaders of Populism in the late 19th - and early 20th century. Because of his faith in the goodness and rightness of the common people, he was called "The Great Commoner."
The question remains more pressing than ever: who stands up for the common man? In Bryant's day, the Democratic Party proudly stood up for the average worker. Today, the same party actively engineers massive transfers of wealth to the investment classes. It is unreal. The common man has no one, absolutely no one.
Exerpts from his 1896 speech:
But we stand here representing people who are the equals before the law of the largest cities in the state of Massachusetts. When you come before us and tell us that we shall disturb your business interests, we reply that you have disturbed our business interests by your action. We say to you that you have made too limited in its application the definition of a businessman. The man who is employed for wages is as much a businessman as his employer. The attorney in a country town is as much a businessman as the corporation counsel in a great metropolis. The merchant at the crossroads store is as much a businessman as the merchant of New York. The farmer who goes forth in the morning and toils all day, begins in the spring and toils all summer, and by the application of brain and muscle to the natural resources of this country creates wealth, is as much a businessman as the man who goes upon the Board of Trade and bets upon the price of grain. The miners who go 1,000 feet into the earth or climb 2,000 feet upon the cliffs and bring forth from their hiding places the precious metals to be poured in the channels of trade are as much businessmen as the few financial magnates who in a backroom corner the money of the world.
We come to speak for this broader class of businessmen. My friends, we say not one word against those who live upon the Atlantic Coast; but those hardy pioneers who braved all the dangers of the wilderness, who have made the desert to blossom as the rose—those pioneers away out there, rearing their children near to nature’s heart, where they can mingle their voices with the voices of the birds—out there where they have erected schoolhouses for the education of their children and churches where they praise their Creator, and the cemeteries where sleep the ashes of their dead—are as deserving of the consideration of this party as any people in this country.
It is for these that we speak. We do not come as aggressors. Our war is not a war of conquest. We are fighting in the defense of our homes, our families, and posterity. We have petitioned, and our petitions have been scorned. We have entreated, and our entreaties have been disregarded. We have begged, and they have mocked when our calamity came.
We beg no longer; we entreat no more; we petition no more. We defy them!
The gentleman from Wisconsin has said he fears a Robespierre. My friend, in this land of the free you need fear no tyrant who will spring up from among the people. What we need is an Andrew Jackson to stand as Jackson stood, against the encroachments of aggregated wealth.
He says that we are opposing the national bank currency. It is true. If you will read what Thomas Benton said, you will find that he said that in searching history he could find but one parallel to Andrew Jackson. That was Cicero, who destroyed the conspiracies of Cataline and saved Rome. He did for Rome what Jackson did when he destroyed the bank conspiracy and saved America.
We say in our platform that we believe that the right to coin money and issue money is a function of government. We believe it. We believe it is a part of sovereignty and can no more with safety be delegated to private individuals than can the power to make penal statutes or levy laws for taxation.
Mr. Carlisle said in 1878 that this was a struggle between the idle holders of idle capital and the struggling masses who produce the wealth and pay the taxes of the country; and my friends, it is simply a question that we shall decide upon which side shall the Democratic Party fight. Upon the side of the idle holders of idle capital, or upon the side of the struggling masses? That is the question that the party must answer first; and then it must be answered by each individual hereafter. The sympathies of the Democratic Party, as described by the platform, are on the side of the struggling masses, who have ever been the foundation of the Democratic Party.
There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.
You come to us and tell us that the great cities are in favor of the gold standard. I tell you that the great cities rest upon these broad and fertile prairies. Burn down your cities and leave our farms, and your cities will spring up again as if by magic. But destroy our farms and the grass will grow in the streets of every city in the country.
If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.
South Park calls for Jubilee
Everyone had a chance to see the new South Park episode about the economic crisis (go here if you haven't http://dailybail.com/home/financial-comedy-genius-south-park-is-in-recession-and-needs.html)?
In the end, guess what solves the economic crisis? One kid pays everyone's debt off. Makes sense, doesn't it? If no one is in debt anymore, the economy can recover.
Still have yet to hear anything about debt cancelation by anyone in government. Just more bailouts of the finance industry.
So, given the choice between helping the common man and helping the mega-rich, our government chooses the rich. Hmmm, weird how that works.
In the end, guess what solves the economic crisis? One kid pays everyone's debt off. Makes sense, doesn't it? If no one is in debt anymore, the economy can recover.
Still have yet to hear anything about debt cancelation by anyone in government. Just more bailouts of the finance industry.
So, given the choice between helping the common man and helping the mega-rich, our government chooses the rich. Hmmm, weird how that works.
The 4th Branch of Government: the Banking System
Lawmakers have often believed they could ignore the big questions on how our money system is structured. Right from the Constitutional Convention delegates ignored society’s monetary power and the excellent record of government issued money in building colonial infrastructure and giving us a nation. They left the money power up for grabs instead of properly placing it in a fourth, monetary branch of government.
History shows that the money power will be a fourth branch whether we recognize it as such or not. It’s not safe to leave so much power and privilege in private hands! It’s counter to our system of checks and balances. The developing financial crisis requires us to re-evaluate and focus on it now. Lets fulfill our responsibility to get a real understanding of this problem and the solution.
As the late Congressman Wright Patman, Chairman of the House Committee on Banking and Currency for over 16 years, said,
"I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money....I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with the Congress for sitting idly by and permitting such an idiotic system to continue."
http://www.monetary.org/amacolorpamphlet.pdf (page 3)
History shows that the money power will be a fourth branch whether we recognize it as such or not. It’s not safe to leave so much power and privilege in private hands! It’s counter to our system of checks and balances. The developing financial crisis requires us to re-evaluate and focus on it now. Lets fulfill our responsibility to get a real understanding of this problem and the solution.
As the late Congressman Wright Patman, Chairman of the House Committee on Banking and Currency for over 16 years, said,
"I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money....I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with the Congress for sitting idly by and permitting such an idiotic system to continue."
http://www.monetary.org/amacolorpamphlet.pdf (page 3)
Friday, March 27, 2009
China's Solution: Invest in America
Everyone is talking about China as a prisoner of the current currency problems, as the dollar gets devalued, wiping out their dollar reserves.
Here's a crazy idea: why don't the Chinese use their dollars the way international trade is supposed to work, and buy American. Why is everyone acting like their only choice is to buy more financial securities?
They should do like the Japanese in the 80's: invest in America. Specifically, use their dollars to build factories in America. Especially targeting things that the Chinese people need.
Lord, its like international balance of trade is a frickin' alien concept to the universe...
Newsflash to the Chinese, stop buying paper and debt, which only encourages our idiot politicians to do fiscally unsound things, and invest directly in American industry, which will both expand your bottom line and give you a great ability to trade with America.
Here's a crazy idea: why don't the Chinese use their dollars the way international trade is supposed to work, and buy American. Why is everyone acting like their only choice is to buy more financial securities?
They should do like the Japanese in the 80's: invest in America. Specifically, use their dollars to build factories in America. Especially targeting things that the Chinese people need.
Lord, its like international balance of trade is a frickin' alien concept to the universe...
Newsflash to the Chinese, stop buying paper and debt, which only encourages our idiot politicians to do fiscally unsound things, and invest directly in American industry, which will both expand your bottom line and give you a great ability to trade with America.
Wednesday, March 25, 2009
Sign the Petition to Cancel National Debt
http://www.petitiononline.com/repudiat/petition.html
To: US Congress and State Legislatures
We, the undersigned Americans, hereby call upon both houses of the US Congress to promptly pass, and upon the state legislatures to ratify, a constitutional amendment repealing section 4 of the 14th amendment, prohibiting future indebtedness and deficit spending on the part of the federal government, and repudiating all federal government debt and debt service obligations accrued prior to the ratification of said amendment.
Sincerely,
The Undersigned
go here to sign the petition
http://www.petitiononline.com/repudiat/petition-sign.html
The Repudiation of the US National Debt Petition to US Congress and State Legislatures was created by and written by Thomas L. Knapp (kubby.communications@gmail.com).
update 4/16/09 noon: 11 signatures
To: US Congress and State Legislatures
We, the undersigned Americans, hereby call upon both houses of the US Congress to promptly pass, and upon the state legislatures to ratify, a constitutional amendment repealing section 4 of the 14th amendment, prohibiting future indebtedness and deficit spending on the part of the federal government, and repudiating all federal government debt and debt service obligations accrued prior to the ratification of said amendment.
Sincerely,
The Undersigned
go here to sign the petition
http://www.petitiononline.com/repudiat/petition-sign.html
The Repudiation of the US National Debt Petition to US Congress and State Legislatures was created by and written by Thomas L. Knapp (kubby.communications@gmail.com).
update 4/16/09 noon: 11 signatures
Campaign to Cancel the National Debt
Join the Campaign to Cancel the Washington National Debt
We hereby resolve that most of the national debt is not a legitimate debt of the American people nor the future generations who would otherwise find their prosperity and financial security sacrificed for the profit of a few corrupt global financial elites and the politicians they own and control.
Thankfully, our Patriot Founding Fathers provided Article Five of the United States Constitution for a future time of congressional, judicial and presidential tyranny which provides for an option to assemble a national Convention to propose amendments to the United States Constitution as an alternative to the process of securing two-thirds approval in both houses of Congress.
We must work to pass "The Washington National Debt Constitutional Amendment" and repudiate much of the Washington government debt before it bankrupts every private American citizen. We fear the massive increase in the level of indebtedness due to the meltdown and depression will first bring down the Treasury market followed by the US dollar and this will destroy the American economy for years to come.
Washington’s illegitimate national debt is growing exponentially due to the bailouts as Congress tries to jumpstart a depression threatened economy but the added debt load will soon bankrupt our nation and impoverish every productive, working American.
To stop the economic tidal wave that will destroy the financial security and wealth of every American along with their savings, real estate, retirement plans, investments and their promised Social Security and Medicare benefits we have established "The Washington National Debt Constitutional Amendment Campaign" to cancel much of Washington’s debt before it is too late.
The Campaign will bypass a corrupt Congress and the leadership of both political parties often controlled by special interests at the national level and seek a debt solution through the constitutional amendment process starting at the state level which will repudiate any Treasury debt issued or rolled over after the deadline of 12/22/2013, exactly 100 years after the establishment of the Federal Reserve System.
The proposed constitutional amendment will first call upon the state legislatures to ratify an amendment repealing Section 4 of the 14th Amendment which outlawed even questioning the validity of the national debt; "The validity of the public debt of the United States, authorized by law….shall not be questioned", followed by language to further prohibit future indebtedness and deficit spending by the federal government and repudiate all federal government debt (except for obligations for Social Security Trust Funds) and debt and interest service obligations accrued after the 12/22/2013 deadline regardless of when the amendment is ratified by 2/3 of the states.
Contact us now at cancelthewashingtondebt@yahoo.com
We hereby resolve that most of the national debt is not a legitimate debt of the American people nor the future generations who would otherwise find their prosperity and financial security sacrificed for the profit of a few corrupt global financial elites and the politicians they own and control.
Thankfully, our Patriot Founding Fathers provided Article Five of the United States Constitution for a future time of congressional, judicial and presidential tyranny which provides for an option to assemble a national Convention to propose amendments to the United States Constitution as an alternative to the process of securing two-thirds approval in both houses of Congress.
We must work to pass "The Washington National Debt Constitutional Amendment" and repudiate much of the Washington government debt before it bankrupts every private American citizen. We fear the massive increase in the level of indebtedness due to the meltdown and depression will first bring down the Treasury market followed by the US dollar and this will destroy the American economy for years to come.
Washington’s illegitimate national debt is growing exponentially due to the bailouts as Congress tries to jumpstart a depression threatened economy but the added debt load will soon bankrupt our nation and impoverish every productive, working American.
To stop the economic tidal wave that will destroy the financial security and wealth of every American along with their savings, real estate, retirement plans, investments and their promised Social Security and Medicare benefits we have established "The Washington National Debt Constitutional Amendment Campaign" to cancel much of Washington’s debt before it is too late.
The Campaign will bypass a corrupt Congress and the leadership of both political parties often controlled by special interests at the national level and seek a debt solution through the constitutional amendment process starting at the state level which will repudiate any Treasury debt issued or rolled over after the deadline of 12/22/2013, exactly 100 years after the establishment of the Federal Reserve System.
The proposed constitutional amendment will first call upon the state legislatures to ratify an amendment repealing Section 4 of the 14th Amendment which outlawed even questioning the validity of the national debt; "The validity of the public debt of the United States, authorized by law….shall not be questioned", followed by language to further prohibit future indebtedness and deficit spending by the federal government and repudiate all federal government debt (except for obligations for Social Security Trust Funds) and debt and interest service obligations accrued after the 12/22/2013 deadline regardless of when the amendment is ratified by 2/3 of the states.
Contact us now at cancelthewashingtondebt@yahoo.com
Tuesday, March 24, 2009
Weimar Hyperinflation Details
How Does Inflation Get out of Control?
Many people consider Weimar Germany to be the worst hyperinflation ever, but it was just the best publicized. In fact, there have been hundreds of hyperinflations recorded in world history. According to Dollar Daze, the majority of all national currencies ever issued have been destroyed by hyperinflation.
So, what exactly causes a hyperinflation? Essentially, it boils down to a psychology in the government, a refusal to balance the budget combined with widespread financial guarantees to its citizens. Rather than balance expenditures with taxes or cut expenses, the government simply prints the money to make it's budget work. The printing of money causes a gradual inflation, which feeds itself. The alternative to inflation is unemployment and liquidation, which the government cannot abide, so the ever-widening budget gap is funded with ever-greater money printing.
Obviously, it is impossible not to notice that we have embarked upon that path today. Our government has determined to spend, borrow, and print its way out of an economic downturn. It is a first for the American government, which has one of the oldest stable currencies in the world, younger than only the British Pound. It is also a first time in the history of the world that the international reserve currency has flirted with hyperinflationary policies.
The following are some excerpts from a book on the Weimar hyperinflation, vignettes of the people's experiences, and their psychology which both enabled and sought to cope with the economic catastrophe. In the end, the German authorities did not choose to end their hyperinflation. Right to the very end, they consciously chose the path of hyperinflation to avoid the alternative of economic downturn. They considered inflation to be stimulation and dealt with its consequences, right up until the point when they could no longer forestall unemployment with stimulation, because they reached the point of both monetary insolvency AND high unemployment. At that point, the country's economic basis was nigh-well destroyed. The longer they delayed the economic adjustment, the more painful it finally was, and that on top of years of accumulated pain brought on by the hyper-inflation itself.
http://www.mises.org/resources/4016
Much as it may have been recognised that stability would have to be arranged some day, and that the greater the delay the harder it would be, there never seemed to be a good time to invite trouble of that order. Day by day through 1920, 1921 and 1922 the reckoning was postponed, the more (not the less) readily as the prospective consequences of inflation became more frightening. The conflicting objectives of avoiding unemployment and avoiding insolvency ceased at last to conflict when Germany had both.
The take-off point in the inflationary progress, after which the advent of hyperinflation was but a matter of time, the point indeed when it became self-generating and politically irreducible except for short periods, was not indeed to be found on the graph of the currency depreciation, or of the velocity of its circulation, or of the balance of payments deficit. Nor in Germany's case did it notably coincide with some ultimate crisis of confidence in the mark, at home or abroad — Rathenau's murder, or the occupation of the Rhine ports, or the London Ultimatum, all of which had immediate seismic effects upon it. Rather it lay on the falling curve of political possibility, with which was closely linked the degree of political power and courage that the government, sorely pressed as it was, was able to muster.
What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point therefore was not a financial but a moral one; and the political excuse was despicable, for no imaginable political circumstances could have been more unsuited to the imposition of a new financial order than those pertaining in November 1923, when inflation was no longer an option. The Rentenmark was itself hardly more than an expedient then, and could scarcely have been introduced successfully had not the mark lost its entire meaning. Stability came only when the abyss had been plumbed, when the credible mark could fall no more, when everything that four years of financial cowardice, wrong-headedness and mismanagement had been fashioned to avoid had in fact taken place, when the inconceivable had ineluct-ably arrived.
...
If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more. Inflation, already in its fourth year when revolution overthrew the old regime, added a new, overwhelming uncertainty to the many uncertainties that attended the birth of the Weimar Republic.
Thus were the Government's plans drawn up, wilfully and simply, for financing the war — not by taxation, but by borrowing; and with the printing press as the well to supply both the needs of the Government and the growing credit demand of private business. Taxation was to play not the smallest part in meeting the costs of war before 1916. Helfferich had actually announced to the Reichstag in March 1915 that the war was to be financed exclusively by borrowing. Issue after issue of War Loan transformed the greater part of German private fortunes into paper claims on the State. Our enemies, especially Britain, took another line. They met the cost of war with taxes aimed primarily at those industries and groups to whom the war spelled prosperity. Britain's policy of taxation proved socially more equitable than Germany's policy of War Loans which lost their value after the war was over …
As the war machine lumbered expensively on, circumstances and policies combined to pull the wool over the financial eyes of the German people, not least those classes who had most to lose. Every German stock exchange was closed for the duration, so that the effect of Reichsbank policies on stocks and shares was unknown. Further, foreign exchange rates were not published, and only those in contact with neutral markets such as Amsterdam or Zurich could guess what was going on. It was never clear how much the steep rise in domestic prices was due to economy measures and war shortages rather than to inflation — and even the relevance of those prices was rendered dubious by the much higher black market rates. Only when the war was over, with the veil of censorship lifted but the Allied blockade continuing, did it become clear to all with eyes to read that Germany had already met an economic disaster nearly as shattering as her military one. The scales may have fallen at last from German eyes with the coming of peace, but that did not mean that the difficulties and injustices created by war-time inflation had passed unnoticed.
It must be admitted generally now that the cause of the depreciation of our currency and of the purchasing power of the mark was neither the commercial balance during the war nor the estimate of our military situation abroad; but in the exploitation of our currency for the purpose of obtaining money for the Treasury, that is to say in a fictitious increase of our total income. In as much as the country issued milliards in the form of extraordinary levies, War Loans, Treasury bills, and so on, without withdrawing from circulation corresponding amounts in the shape of taxes, it created new paper income and wealth incessantly, while the real national wealth was steadily being diminished by the war.
Even the most respectable of Austrian citizens now breaks the law, unless he is prepared to starve for the sake of obeying it … The fact that the future is so uncertain has led to stagnation in industry and public works, and swelling numbers of unemployed supported by the State … yet it is impossible to get domestic servants or indeed any sort of workers …
The State has been obliged to put 10,000 kronen notes into circulation — each equivalent to two years' income from my capital. A suit costs about six times what it was in 1913, but some things like food are a hundred or two hundred times as much … Paper clothes are being sold. Never had I dreamed it possible that one could purchase so little for 10,000 kronen … Jealousy and envy flourish in this atmosphere, and if one has procured some harmless article of food, one is careful to conceal the fact from one's fellow men. Hunger reigns inexorably and selects its dumb and uncomplaining victims above all from the middle classes …
Twice a day we are all forced to await the quotation of the Zurich bourse. Every fresh drop in its value is followed by a wave of rising prices … The confidence of Austrian citizens in the currency administration of the State is shaken to its foundation. The State which is perpetually printing new banknotes deceives us with the face value … A housewife who has had no experience of the horrors of currency depreciation has no idea what a blessing stable money is, and how glorious it is to be able to buy with the note in one's purse the article one had intended to buy at the price one had intended to pay.
Speculation on the stock exchange has spread to all ranks of the population and shares rise like air balloons to limitless heights … My banker congratulates me on every new rise, but he does not dispel the secret uneasiness which my growing wealth arouses in me … it already amounts to millions.
The cost of living since the outbreak of the war had risen by nearly twelve times (compared with three times in the United States, almost four times in Britain and seven times in France). Food had accounted for half the family budget then, but now nearly three-quarters of any family's income went on it. The food for a family of four persons which cost 60 marks a week in April 1919, cost 198 marks by September 1920, and 230 marks by November 1920. Certain items such as lard, ham, tea and eggs rose to between thirty and forty times the pre-war price. On the bright side - in contrast to Austria - the official unemployed figure was low, and only 375,000 people were on the dole.
Indeed, the apparent health of industry was one of the factors which most effectively confused the inflation issue. Bolstered by a financial programme geared to subsidising in various vital ways an industrial front which continuous depreciation of the currency had already made highly competitive in foreign markets, the lot of German industry had materially improved over the previous twelve months.
Inflation provided the answer to the equation. If a budget did not balance, the deficit had to be made good somehow. In October 1920 Germany's national debt stood at 287,800 million marks. At the old 1914 parities this sum equalled £14,400 million; but at the new it represented only £1,200 million.* (Great Britain's national debt amounted then to £8,075 million.) A year before Germany's great inflation is generally thought to have started, Germany's national debt had all but been wiped out.
The daily creation of fresh paper money which the government requires in order to meet its obligations both at home and abroad (services and goods which it is 'obliged both to render and deliver') inevitably decreases the purchasing value of the mark and leads to fresh demands, which in turn bring about a further decline, and so on ad infinitum.
Even progressive increases in taxation could not completely meet the situation, since new impositions meant an increased cost of living, which automatically reduced the purchasing value of the mark, and in turn brought about more inflation and budget instability.
The newspaper complained of the 'quite small capitalist upper class' making huge profits by taking advantage of the exchange fluctuations, while foreigners were using the discrepancy between the home and foreign values of the mark 'to purchase our goods en masse'. It demanded that profits on exchange and dollar speculations be taxed intensively, and went on:
Blackett noted that the rent restriction Acts hit much the same classes, who were 'forced to starvation in order to subsidise the German workman's wages and the employer's profits'. The bread and rail subsidies, financed by inflation, combined with the rent restriction, enabled the foreigner to buy German goods well below world prices and, if he lived in or visited Germany, to travel, eat and occupy houses at ridiculously cheap rates. 'A gradual process of buying up and carrying off Germany's movable capital, secondhand furniture, pianos, etc., is taking place at the expense of Germany as a whole.'
SOCIAL unrest was one of the obvious symptoms of inflation. The disease, the Austrian and German financial world seemed to agree, was itself not containable without international goodwill and a significant relaxation of the obligations under the peace treaties. Germany's politicians therefore set about relieving the symptoms wherever possible. More measures were brought in so that the government might be seen publicly to be dealing with profiteering. The Prime Minister of Bavaria even submitted a Bill to the Reichsrat to make gluttony a penal offence.
But in this respect conditions are hopelessly unhealthy, and the public will continue to be swayed by rumours and to speculate either in goods or in stocks and shares.
The previous fall in the mark had also produced unfortunate results by driving the population in shoals into the shops in a mania of purchasing. While abusing the foreigner for buying out Germany with his profitable rate of exchange, the native has been no whit behind in emptying the shops of their stocks … Many thought that their money would soon have no value whatever and that it must be exchanged for goods while there was yet time: others realised that the purchasing mania would help the falling rate of exchange to raise prices, and they therefore bought on speculative grounds.
The press pointed out that a disastrous slump in trade could not but ensue when the purchasing power of the population was exhausted, and that meanwhile the poorer classes were suffering. All efforts, however, were in vain to drive sense into a panic-stricken people, and articles in the shops could be seen being marked up to a higher price day by day.
In the eight years since 1913, the price of rye bread had risen by 13 times; of beef by 17. Those were the commodities which had fared best. Sugar, milk (at 4.40 marks a litre), pork and even potatoes (at 1.50 marks a Ib.) had risen between 23 and 28 times; butter had gone up by 33 times. These were only the official prices — real prices were often a third higher — and all these prices were roughly half as much again as in October, only two months before.
The brief December recovery of the mark brought no relief. That event, which caused unemployment transiently to treble to 3 per cent, gave another warning of what would inevitably have to be suffered when, one day, the printing presses stopped printing banknotes to order. Before the war, when the mark was sound, there were normally about 9,500 bankruptcies a year. As wartime inflation increased, the number regularly dropped, from 7,739 in 1914, to 807 in 1918. The total number in 1921, during the first seven months of which the mark was fairly stable, was 2,975, more than double the 1920 figure and three times that of 1919.* (The annual bankruptcy figures from 1912 were: 9,218, 9,725, 7,739, 4,594, 2,279, 1,240, 807, 1,015, 1,324, 2,975.) The 1921 figures were the most indicative; for in comparing the number of bankruptcies during the various months of the year it could be shown that a falling mark was associated with a decline in bankruptcies, and vice-versa. The largest number, 845, was in the spring when the mark stood highest; but after it reached its lowest in November the number was 150. The Frankfurter Zeitung commented: 'It gives some inkling of the awful debacle which may be expected if a rapid and permanent improvement of the mark actually takes place.'
It was natural that a people in the grip of raging inflation should look about for someone to blame. They picked upon other classes, other races, other political parties, other nations. In blaming the greed of tourists, or the peasants, or the wage demands of labour, or the selfishness of the industrialists and profiteers, or the sharpness of the Jews, or the speculators making fortunes in the money markets, they were in large measure still blaming not the disease but the symptoms.
It was significant enough that union, demands were still for higher wages to meet rising prices rather than, before all else, stable prices and a stable currency. A few of the financially sophisticated could be heard blaming the government, and the Finance Minister in particular, but a typical view was that prices went up because the foreign exchange went up, that the exchange rate went up because of speculation on the Stock Exchange, and that this was obviously the fault of the Jews. Although the price of the dollar was a matter for almost universal discussion, it still appeared to most Germans that the dollar was going up, not that the mark was falling; that the price of food and clothing was being forcibly increased daily, not that the value of money was permanently sinking as the flood of paper marks diluted the purchasing power of the number already in circulation.
Most successful businessmen, however, stuck happily to the heresy that only by a continually falling exchange rate could Germany compete in neutral markets. After them, the deluge. Neither they, nor the politicians, nor the bankers — with distressingly few exceptions — perceived any direct connection between inflation and depreciation. And yet, as the printing presses churned out bank notes the exchange continued rapidly to fall. What impressed the ordinary politician was the danger of social unrest which would, in his opinion, inevitably arise if there were any scarcity of currency. He could not see, or intentionally ignored, the obvious danger which proceeded from continuous inflation. Social unrest appeared, just the same.
ONLY the country people were surviving in Germany in any comfort: anyone who lived off the land had the readiest access to real values. It was not surprising that even when they ensured that the money receipts for their goods were no more than equivalent in purchasing power to what they were used to, they were accused of extortion — the more so if they delayed the sales of produce in the full knowledge that prices would be higher the longer they waited. Erna von Pustau went to stay in the country and asked her hosts bluntly what they were doing with all the money they were squeezing out of the townspeople. They replied candidly that they were paying off their mortgages. The principle of Mark gleich Mark had helped agriculture enormously: for the country people, landowners, farmers or peasants, life had started again. At the end of August 1922 when the mark passed 2,000 to the dollar — 9,000 to the pound — a mortgage of seven or eight years' standing had been 399/4OOths paid off. When Frau von Pustau returned home the talk in the family was about prices going up, about the credits which had to be reduced, about the middle-class party, about big business and the workers who always asked for more … The contrast between country and city was so enormous that it cannot be understood by people who have not lived through it.
To condemn the individual's struggle for survival in such chaotic circumstances as either selfish, or unnatural, or wrong, was in many ways unjust. When people do not understand what is happening, or why it is happening, and have no idea about what to do about it, and are not told, panic must follow. Even so, that the countrypeople were behaving naturally brought no comfort to townspeople who had no goods to barter, and whose incomes remained static.
On September 9 the financial authorities announced that in the previous ten days 23 milliard marks had been printed and distributed, representing 10 per cent of the total circulation of paper in the country. 'The daily production of the Federal printing press,' the newspapers dutifully recorded, 'has now risen to 2.6 milliards of paper marks. In the course of this month it will be increased to almost 4 milliards of paper marks, at which figure it is hoped the shortage of money will be definitely overcome.'
Shortage of liquid cash, indeed, was acute, and the July emergency money law was coming into its own. Large industrial concerns began to pay their workmen partly in notes and partly in coupons of their own, which were accepted by local tradesmen on the understanding that they would be redeemed within a very short time. Municipalities, too, started to issue their own currencies, aware that any delay in receiving their pay packets would dangerously aggravate workers whose main concern was to spend them before they depreciated. The cities and towns developed a parallel fear of unemployment which on a large scale might lead to outbreaks of Communist-inspired disorder, and so began artificially to create employment for their staff. The citizens of Frankfort noted with alarm that large tracts of quite serviceable road were being repaired outside the town and that the overhead system of telephone wires was being converted into an underground one.
At home in Germany, where people were resorting to trade by barter and progressively turning to foreign currencies as the only reliable medium of exchange, new Orders were brought in relating to the purchase of foreign bills and the use of foreign exchange to settle inland payments. In addition to imprisonment, fines could now be imposed of up to ten times the amount of an illegal deal.
Sure enough, in the Ruhr, numerous factories were using various devices to avoid having to put men out on the streets. Bochumer Verein, in Essen, for example, engaged 1,500 men making stock articles for railways although there was no immediate requirement for them. Such measures, however, were only possible for firms with big financial reserves, and small firms were already dismissing workers in small numbers. With the November price increases -butter at 800 marks a lb., eggs at 22 marks each — shops were also cutting down on assistants because sales were dropping off.
The disparity between the rise in the cost of living and the rise in wages had now become very marked. Whereas since the war the former had gone up by about 1,500 times, the wages of the miner — in November 1922 the best paid worker — had gone up by barely 200 times. With the mark in mid-November at 27,000 to the pound and 6,400 to the dollar, and with prices following the course of both with unfailing regularity, not only were wages in general failing to keep pace but the workers were not even being paid what was their due. Owing to the shortage of paper money of all kinds, federal currency or Not geld, they were finding that by the time the balance was paid it had lost 50 per cent of its value. The best-paid workers were unable to purchase the barest necessities of life. The others and — as ever — those on fixed incomes or dependent on savings suffered accordingly.
Bonar Law, who fully appreciated that the stabilisation of the mark meant, for Germany, unemployment, an industrial crisis and enormous financial strain, whereas failure to stabilise meant catastrophe, was now equally unable to convince the French Prime Minister of the futility of amassing vast quantities of German paper marks by means of retortionary or extortionary measures.
'Inflation is like a drug in more ways than one,' remarked Lord D'Abernon. 'It is fatal in the end, but it gets its votaries over many difficult moments.' Hopelessly addicted, the Reichsbank ploughed on.
Petty crimp? the crime of desperation, was flourishing. Pilfering had of course been rife since the war, but now it began to occur on a larger, commercial scale. Metal plaques on national monuments had to be removed for safe-keeping. The brass bell plates were stolen from the front doors of the British Embassy in Berlin, part of a systematic campaign unpreventable by the police even in the Wilhelmstrasse and Unter den Linden. That members and families of the British Army of the Rhine suffered severely from burglaries probably reflected the fact, not that thieves had particular animus against the forces of occupation, but that these days foreigners were so much more robbable than anyone else. Over most of Germany the lead was beginning to disappear overnight from roofs. Petrol was syphoned from the tanks of motor cars. Barter was already a usual form of exchange; but now commodities such as brass and fuel were becoming the currency of ordinary purchase and payment. A cinema seat cost a lump of coal. With a bottle of paraffin one might buy a shirt; with that shirt, the potatoes needed by one's family. Herr von der Osten kept a girl friend in the provincial Capital, for whose room in 1922 he had paid half a pound of butter a month: by the summer of 1923 it was costing him a whole pound. 'The Middle Ages came back,' Erna von Pustau said.
Communities printed their own money, based on goods, on a certain amount of potatoes, or rye, for instance. Shoe factories paid their workers in bonds for shoes which they could exchange at the bakery for bread or the meat market for meat.
DR SCHACHT, the author of the reform, had no illusions about its shortcomings. He understood that the Rentenmark could hold the tide only so long, that new credits from abroad were essential, and that for that reason no departure could be made (despite the pleadings of the government, desperate for money) from the strictest discipline. Nothing could be done that would put at risk the currency stability or the budgetary balance. 'After a long devaluation,' Schacht held on January 24, 1924, 'stability can only be regained at the cost of a severe crisis. We are in the midst of this crisis. External commerce is at a standstill. The balance of trade is active [i.e. in Germany's favour] only because imports have ceased as importers have no means of paying. Industry is living on old stocks.'
Their numbers amounted to millions, and none was on the list of receivers of unemployed or short-time relief. They were the ones who had had their wealth shot away by the war, without knowing it. They looked in vain for charity to help, but the charitable institutions and the religious societies, just like the literary and scientific foundations and many of the universities and hospitals, had equally had the fountains of their incomes reduced to a trickle or less. Any who had held industrial debentures had lost their capital, to the benefit of industries who redeemed those debts with worthless paper. Any who had held industrial shares in 1913 would have had their capital reduced by three-quarters, and a pittance paid in dividend totals over the years -- but in practice most people had panicked long since and sold the bulk of their shares for what they could get for them to the industrial profiteers and speculators who amassed the nation's wealth to themselves, paying themselves not dividends, but 'fees'. Germany's capital had been redistributed in the most cruel way, no longer spread reasonably evenly among millions, but largely in coagulated blobs among the new plutocracy.
It was widely remarked that the destitution inflicted by the inflationary process was not general. The very evidence, indeed, of great wealth — ostentatiously flaunted by the new rich who had it -misled many observers, including the French, into supposing that Germany's refusal to pay reparations on the nail was Teutonic knavery. The existence until the Ruhr invasion of full employment, an obviously prosperous working class, a buoyant economy, a booming home market, a strongly competitive position in foreign markets, factories bursting with production — all made possible by the vast scale of Germany's borrowing — could have fooled anybody.
Once more, however, here was a false dawn. Germany's trouble was that the inflation boom had never been liquidated. Stabilisation had ended the period when entrepreneurs could borrow as much as they wished at the expense of everyone else. A vast number of enterprises, established or expanded during monetary plenty, rapidly became unproductive when capital grew short. More realistic transport, fuel and food prices, and the return of rents to economic levels meant that wages, too, had to be raised substantially in real terms.
Firms that mushroomed during the inflation now found that the real interest they paid on loans for the first time was positive rather than negative, lower though the rates appeared to be. Perhaps most significant, for the first time they were obliged to pay real taxes, many of which were extremely high because of the necessity rapidly to balance the budget and to bring official salaries, which had fallen disastrously, up to an acceptable level again. Companies were often unable to buy new machinery after stabilisation came, so much so that huge stocks of unsold iron and coal began to build up in the Ruhr. Not even the foreign loans flowing in were able to prevent the seizing up once again of the Ruhr mining industry where pit after pit, especially any producing poor quality coal, was forced to close. Workers were to flock from pit to agriculture, from mines and quarries and engineering to the production of food and direct consumer goods, and to building. Hugo Stinnes himself had been deceived by the artificial prosperity of inflation into a fanatical confidence in the future of coal. It was the post-stabilisation depression in the coal, iron and steel industries, contriving even the depopulation of Ruhr townships, which led eventually in June 1925 to the collapse of the Stinnes empire.
The Stinnes debacle demonstrated above all that great industrial possessions could not be held without adequate liquid resources (as early as June 1924, Stinnes had been trying to pledge Bochumer Verein and Gelsenkirchen shares against Dutch loans); and that vertical combines were inefficient and unprofitable except under the exceptional conditions which had bred them.
Germany which had undergone almost every conceivable form of collapse during the previous six years — military, political, social, financial, economic — now crashed downwards again just as her many times demoralised people had supposed that, with international help, she was beginning to rise from her knees. Confidence was shattered. The flow of foreign money slackened. The Reichs-bank policy of credit restriction was maintained as firmly as ever to counteract a net outflow of gold and foreign exchange. The shifting of the working population was accompanied by a new, terrifying increase in unemployment and short-time working. Because labour was a buyers' market, those with work were nonetheless often compelled to work a 54-hour week. There was such an alarming rise in the cost of living that to prevent agitation the index had to be cooked. And there was a new, spectacular toll of bankruptcies. Much though public works were instituted to try to mop up labour, the unemployed figure had passed 1,300,000 by December 1925, and was gathering pace daily. The return of rational conditions had brought a necessary but brutal slimming of the immensely swollen public services: those who had been dismissed from the posts and the railways were now being joined not only by former miners and steel-workers but by the many who had started businesses on their own.
In the inflationary period new factories were built, old establishments reorganised and extended, new plant laid down, participations in all fields of industrial activity bought up, and the great amorphous concerns founded. Too late, it was found that this process had undermined the capital structure of the country: capital was frozen in factories for which, because of the extermination of the rentier and the reduction of the real wages of so many of the great consumer classes, there was no economic demand. Once the demand for goods was shut off and the flow of cash dammed, the fate of the productive apparatus was sealed. Even in 1924, firms of undoubted solidity and large assets were unable to pay out trifling sums of money. In 1926 that apparatus was still too great in relation to the working capital and the nation's power of consumption. Thus, whereas in 1913 there were 7,700 bankruptcies, and in 1924 only 5,700, the figure for 1925 was 10,800; and between the third quarter of 1925 and the second of 1927, bankruptcies numbered 31,000 — a rate of 15,000 a year.
In practice, furthermore, a great many bankruptcies were refused by the courts in the absence of assets with which to meet claims. Between May and November 1925, the number of protested bills per week doubled from 2,691 to 5,406. Many banks were immobilised by having had to lend to their industrial customers who had had to be kept alive but now could not repay. The banks found it prohibitively hard and unrewarding to liquidate securities, and under those conditions were unwilling to take over bankrupt factories in lieu of money. With shares now at far below value in a moribund Stock Market, there were endless sellers and no buyers.
Throughout the later inflationary years the shrill argument had gone on over who was to blame and what was the cause of the unceasing, increasing financial crisis — never a true crisis because instead of coming to a head it always did the impossible by getting even worse. Month upon month every excuse was found for it but the right one; every attempt made to stem the fall of the mark but the fundamental one.
Nor was German honour inflation-proof. The corruption among officials in 1924, Lord D'Abernon reported, was 'appalling', whereas before the war bribery had been almost unknown, and a high degree of uncorruptibility evident in public and private, if not always in commercial, life. There were few in any class of society who were not infected by, or prey to, the pervasive, soul-destroying influence of the constant erosion of capital or earnings and uncertainty about the future. From tax-evasion, food-hoarding, currency speculation, or illegal exchange transactions — all crimes against the State, each of which to a greater or less degree became for individuals a matter of survival — it was a short step to breaching one or other of the Ten Commandments.
In Germany not until well after the return to stability did the nature and extent of the corruption in high places begin to be known. Events like the sentencing in March 1924 to three years' gaol of Dr Zeigner, the egregious ex-Premier of Saxony, for corrupt practices and bribery had raised scarcely a ripple. The end of the year brought to light a far more formidable array of financial scandals, enough to confirm the view that the old universal integrity had sunk in the whirlpool of inflation, and to deliver another stunning blow to the nation's morale.
How great does inflation have to be before a government can no longer control it? Most economists accept that mild inflation has certain therapeutic advantages for a nation which must deal with the social and economic problems to which industrial democracies are usually subject. Most electorates still accept the statements of their politicians' pious intentions in regard to controlling ever rising prices: and yet the Deutschmark, the currency of the country which had most reason to fear inflation, lost two-thirds of its purchasing power between 1948 and 1975. The pound lost almost half its purchasing power between 1970 and 1975. In neither instance, however, did such depreciation represent a deliberate, cynical policy; which, no doubt, would also have been claimed by the German bankers and governments of the early 1920, who looked for causes of their monetary difficulties beyond their own printing press and tax system — and found them, without difficulty and to their complete intellectual satisfaction. It remains so that once an inflation is well under way (as Schmb'lders has it) 'it develops a powerful lobby that has no interest in rational arguments.' This was as true for Austria and Hungary as for Germany.
There came a stage when it was politically impossible to halt inflation. In the middle of 1920, after the brief post-Kapp Putsch period of the mark's stability, the competitiveness of German exports declined, with unemployment beginning to build up as a result. The point was presumably not lost on the inflators. Recovery of the mark could not be achieved without immediate repercussions in terms of bankruptcies, redundancies, short-time working, unemployment, strikes, hunger, demonstrations, Communist agitation, violence, the collapse of civil order, and thus (so it was believed) insurrection and revolution itself.
In war, boots; in flight, a place in a boat or a seat on a lorry may be the most vital thing in the world, more desirable than untold millions. In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom.
Many people consider Weimar Germany to be the worst hyperinflation ever, but it was just the best publicized. In fact, there have been hundreds of hyperinflations recorded in world history. According to Dollar Daze, the majority of all national currencies ever issued have been destroyed by hyperinflation.
So, what exactly causes a hyperinflation? Essentially, it boils down to a psychology in the government, a refusal to balance the budget combined with widespread financial guarantees to its citizens. Rather than balance expenditures with taxes or cut expenses, the government simply prints the money to make it's budget work. The printing of money causes a gradual inflation, which feeds itself. The alternative to inflation is unemployment and liquidation, which the government cannot abide, so the ever-widening budget gap is funded with ever-greater money printing.
Obviously, it is impossible not to notice that we have embarked upon that path today. Our government has determined to spend, borrow, and print its way out of an economic downturn. It is a first for the American government, which has one of the oldest stable currencies in the world, younger than only the British Pound. It is also a first time in the history of the world that the international reserve currency has flirted with hyperinflationary policies.
The following are some excerpts from a book on the Weimar hyperinflation, vignettes of the people's experiences, and their psychology which both enabled and sought to cope with the economic catastrophe. In the end, the German authorities did not choose to end their hyperinflation. Right to the very end, they consciously chose the path of hyperinflation to avoid the alternative of economic downturn. They considered inflation to be stimulation and dealt with its consequences, right up until the point when they could no longer forestall unemployment with stimulation, because they reached the point of both monetary insolvency AND high unemployment. At that point, the country's economic basis was nigh-well destroyed. The longer they delayed the economic adjustment, the more painful it finally was, and that on top of years of accumulated pain brought on by the hyper-inflation itself.
http://www.mises.org/resources/4016
Much as it may have been recognised that stability would have to be arranged some day, and that the greater the delay the harder it would be, there never seemed to be a good time to invite trouble of that order. Day by day through 1920, 1921 and 1922 the reckoning was postponed, the more (not the less) readily as the prospective consequences of inflation became more frightening. The conflicting objectives of avoiding unemployment and avoiding insolvency ceased at last to conflict when Germany had both.
The take-off point in the inflationary progress, after which the advent of hyperinflation was but a matter of time, the point indeed when it became self-generating and politically irreducible except for short periods, was not indeed to be found on the graph of the currency depreciation, or of the velocity of its circulation, or of the balance of payments deficit. Nor in Germany's case did it notably coincide with some ultimate crisis of confidence in the mark, at home or abroad — Rathenau's murder, or the occupation of the Rhine ports, or the London Ultimatum, all of which had immediate seismic effects upon it. Rather it lay on the falling curve of political possibility, with which was closely linked the degree of political power and courage that the government, sorely pressed as it was, was able to muster.
What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point therefore was not a financial but a moral one; and the political excuse was despicable, for no imaginable political circumstances could have been more unsuited to the imposition of a new financial order than those pertaining in November 1923, when inflation was no longer an option. The Rentenmark was itself hardly more than an expedient then, and could scarcely have been introduced successfully had not the mark lost its entire meaning. Stability came only when the abyss had been plumbed, when the credible mark could fall no more, when everything that four years of financial cowardice, wrong-headedness and mismanagement had been fashioned to avoid had in fact taken place, when the inconceivable had ineluct-ably arrived.
...
If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more. Inflation, already in its fourth year when revolution overthrew the old regime, added a new, overwhelming uncertainty to the many uncertainties that attended the birth of the Weimar Republic.
Thus were the Government's plans drawn up, wilfully and simply, for financing the war — not by taxation, but by borrowing; and with the printing press as the well to supply both the needs of the Government and the growing credit demand of private business. Taxation was to play not the smallest part in meeting the costs of war before 1916. Helfferich had actually announced to the Reichstag in March 1915 that the war was to be financed exclusively by borrowing. Issue after issue of War Loan transformed the greater part of German private fortunes into paper claims on the State. Our enemies, especially Britain, took another line. They met the cost of war with taxes aimed primarily at those industries and groups to whom the war spelled prosperity. Britain's policy of taxation proved socially more equitable than Germany's policy of War Loans which lost their value after the war was over …
As the war machine lumbered expensively on, circumstances and policies combined to pull the wool over the financial eyes of the German people, not least those classes who had most to lose. Every German stock exchange was closed for the duration, so that the effect of Reichsbank policies on stocks and shares was unknown. Further, foreign exchange rates were not published, and only those in contact with neutral markets such as Amsterdam or Zurich could guess what was going on. It was never clear how much the steep rise in domestic prices was due to economy measures and war shortages rather than to inflation — and even the relevance of those prices was rendered dubious by the much higher black market rates. Only when the war was over, with the veil of censorship lifted but the Allied blockade continuing, did it become clear to all with eyes to read that Germany had already met an economic disaster nearly as shattering as her military one. The scales may have fallen at last from German eyes with the coming of peace, but that did not mean that the difficulties and injustices created by war-time inflation had passed unnoticed.
It must be admitted generally now that the cause of the depreciation of our currency and of the purchasing power of the mark was neither the commercial balance during the war nor the estimate of our military situation abroad; but in the exploitation of our currency for the purpose of obtaining money for the Treasury, that is to say in a fictitious increase of our total income. In as much as the country issued milliards in the form of extraordinary levies, War Loans, Treasury bills, and so on, without withdrawing from circulation corresponding amounts in the shape of taxes, it created new paper income and wealth incessantly, while the real national wealth was steadily being diminished by the war.
Even the most respectable of Austrian citizens now breaks the law, unless he is prepared to starve for the sake of obeying it … The fact that the future is so uncertain has led to stagnation in industry and public works, and swelling numbers of unemployed supported by the State … yet it is impossible to get domestic servants or indeed any sort of workers …
The State has been obliged to put 10,000 kronen notes into circulation — each equivalent to two years' income from my capital. A suit costs about six times what it was in 1913, but some things like food are a hundred or two hundred times as much … Paper clothes are being sold. Never had I dreamed it possible that one could purchase so little for 10,000 kronen … Jealousy and envy flourish in this atmosphere, and if one has procured some harmless article of food, one is careful to conceal the fact from one's fellow men. Hunger reigns inexorably and selects its dumb and uncomplaining victims above all from the middle classes …
Twice a day we are all forced to await the quotation of the Zurich bourse. Every fresh drop in its value is followed by a wave of rising prices … The confidence of Austrian citizens in the currency administration of the State is shaken to its foundation. The State which is perpetually printing new banknotes deceives us with the face value … A housewife who has had no experience of the horrors of currency depreciation has no idea what a blessing stable money is, and how glorious it is to be able to buy with the note in one's purse the article one had intended to buy at the price one had intended to pay.
Speculation on the stock exchange has spread to all ranks of the population and shares rise like air balloons to limitless heights … My banker congratulates me on every new rise, but he does not dispel the secret uneasiness which my growing wealth arouses in me … it already amounts to millions.
The cost of living since the outbreak of the war had risen by nearly twelve times (compared with three times in the United States, almost four times in Britain and seven times in France). Food had accounted for half the family budget then, but now nearly three-quarters of any family's income went on it. The food for a family of four persons which cost 60 marks a week in April 1919, cost 198 marks by September 1920, and 230 marks by November 1920. Certain items such as lard, ham, tea and eggs rose to between thirty and forty times the pre-war price. On the bright side - in contrast to Austria - the official unemployed figure was low, and only 375,000 people were on the dole.
Indeed, the apparent health of industry was one of the factors which most effectively confused the inflation issue. Bolstered by a financial programme geared to subsidising in various vital ways an industrial front which continuous depreciation of the currency had already made highly competitive in foreign markets, the lot of German industry had materially improved over the previous twelve months.
Inflation provided the answer to the equation. If a budget did not balance, the deficit had to be made good somehow. In October 1920 Germany's national debt stood at 287,800 million marks. At the old 1914 parities this sum equalled £14,400 million; but at the new it represented only £1,200 million.* (Great Britain's national debt amounted then to £8,075 million.) A year before Germany's great inflation is generally thought to have started, Germany's national debt had all but been wiped out.
The daily creation of fresh paper money which the government requires in order to meet its obligations both at home and abroad (services and goods which it is 'obliged both to render and deliver') inevitably decreases the purchasing value of the mark and leads to fresh demands, which in turn bring about a further decline, and so on ad infinitum.
Even progressive increases in taxation could not completely meet the situation, since new impositions meant an increased cost of living, which automatically reduced the purchasing value of the mark, and in turn brought about more inflation and budget instability.
The newspaper complained of the 'quite small capitalist upper class' making huge profits by taking advantage of the exchange fluctuations, while foreigners were using the discrepancy between the home and foreign values of the mark 'to purchase our goods en masse'. It demanded that profits on exchange and dollar speculations be taxed intensively, and went on:
Blackett noted that the rent restriction Acts hit much the same classes, who were 'forced to starvation in order to subsidise the German workman's wages and the employer's profits'. The bread and rail subsidies, financed by inflation, combined with the rent restriction, enabled the foreigner to buy German goods well below world prices and, if he lived in or visited Germany, to travel, eat and occupy houses at ridiculously cheap rates. 'A gradual process of buying up and carrying off Germany's movable capital, secondhand furniture, pianos, etc., is taking place at the expense of Germany as a whole.'
SOCIAL unrest was one of the obvious symptoms of inflation. The disease, the Austrian and German financial world seemed to agree, was itself not containable without international goodwill and a significant relaxation of the obligations under the peace treaties. Germany's politicians therefore set about relieving the symptoms wherever possible. More measures were brought in so that the government might be seen publicly to be dealing with profiteering. The Prime Minister of Bavaria even submitted a Bill to the Reichsrat to make gluttony a penal offence.
But in this respect conditions are hopelessly unhealthy, and the public will continue to be swayed by rumours and to speculate either in goods or in stocks and shares.
The previous fall in the mark had also produced unfortunate results by driving the population in shoals into the shops in a mania of purchasing. While abusing the foreigner for buying out Germany with his profitable rate of exchange, the native has been no whit behind in emptying the shops of their stocks … Many thought that their money would soon have no value whatever and that it must be exchanged for goods while there was yet time: others realised that the purchasing mania would help the falling rate of exchange to raise prices, and they therefore bought on speculative grounds.
The press pointed out that a disastrous slump in trade could not but ensue when the purchasing power of the population was exhausted, and that meanwhile the poorer classes were suffering. All efforts, however, were in vain to drive sense into a panic-stricken people, and articles in the shops could be seen being marked up to a higher price day by day.
In the eight years since 1913, the price of rye bread had risen by 13 times; of beef by 17. Those were the commodities which had fared best. Sugar, milk (at 4.40 marks a litre), pork and even potatoes (at 1.50 marks a Ib.) had risen between 23 and 28 times; butter had gone up by 33 times. These were only the official prices — real prices were often a third higher — and all these prices were roughly half as much again as in October, only two months before.
The brief December recovery of the mark brought no relief. That event, which caused unemployment transiently to treble to 3 per cent, gave another warning of what would inevitably have to be suffered when, one day, the printing presses stopped printing banknotes to order. Before the war, when the mark was sound, there were normally about 9,500 bankruptcies a year. As wartime inflation increased, the number regularly dropped, from 7,739 in 1914, to 807 in 1918. The total number in 1921, during the first seven months of which the mark was fairly stable, was 2,975, more than double the 1920 figure and three times that of 1919.* (The annual bankruptcy figures from 1912 were: 9,218, 9,725, 7,739, 4,594, 2,279, 1,240, 807, 1,015, 1,324, 2,975.) The 1921 figures were the most indicative; for in comparing the number of bankruptcies during the various months of the year it could be shown that a falling mark was associated with a decline in bankruptcies, and vice-versa. The largest number, 845, was in the spring when the mark stood highest; but after it reached its lowest in November the number was 150. The Frankfurter Zeitung commented: 'It gives some inkling of the awful debacle which may be expected if a rapid and permanent improvement of the mark actually takes place.'
It was natural that a people in the grip of raging inflation should look about for someone to blame. They picked upon other classes, other races, other political parties, other nations. In blaming the greed of tourists, or the peasants, or the wage demands of labour, or the selfishness of the industrialists and profiteers, or the sharpness of the Jews, or the speculators making fortunes in the money markets, they were in large measure still blaming not the disease but the symptoms.
It was significant enough that union, demands were still for higher wages to meet rising prices rather than, before all else, stable prices and a stable currency. A few of the financially sophisticated could be heard blaming the government, and the Finance Minister in particular, but a typical view was that prices went up because the foreign exchange went up, that the exchange rate went up because of speculation on the Stock Exchange, and that this was obviously the fault of the Jews. Although the price of the dollar was a matter for almost universal discussion, it still appeared to most Germans that the dollar was going up, not that the mark was falling; that the price of food and clothing was being forcibly increased daily, not that the value of money was permanently sinking as the flood of paper marks diluted the purchasing power of the number already in circulation.
Most successful businessmen, however, stuck happily to the heresy that only by a continually falling exchange rate could Germany compete in neutral markets. After them, the deluge. Neither they, nor the politicians, nor the bankers — with distressingly few exceptions — perceived any direct connection between inflation and depreciation. And yet, as the printing presses churned out bank notes the exchange continued rapidly to fall. What impressed the ordinary politician was the danger of social unrest which would, in his opinion, inevitably arise if there were any scarcity of currency. He could not see, or intentionally ignored, the obvious danger which proceeded from continuous inflation. Social unrest appeared, just the same.
ONLY the country people were surviving in Germany in any comfort: anyone who lived off the land had the readiest access to real values. It was not surprising that even when they ensured that the money receipts for their goods were no more than equivalent in purchasing power to what they were used to, they were accused of extortion — the more so if they delayed the sales of produce in the full knowledge that prices would be higher the longer they waited. Erna von Pustau went to stay in the country and asked her hosts bluntly what they were doing with all the money they were squeezing out of the townspeople. They replied candidly that they were paying off their mortgages. The principle of Mark gleich Mark had helped agriculture enormously: for the country people, landowners, farmers or peasants, life had started again. At the end of August 1922 when the mark passed 2,000 to the dollar — 9,000 to the pound — a mortgage of seven or eight years' standing had been 399/4OOths paid off. When Frau von Pustau returned home the talk in the family was about prices going up, about the credits which had to be reduced, about the middle-class party, about big business and the workers who always asked for more … The contrast between country and city was so enormous that it cannot be understood by people who have not lived through it.
To condemn the individual's struggle for survival in such chaotic circumstances as either selfish, or unnatural, or wrong, was in many ways unjust. When people do not understand what is happening, or why it is happening, and have no idea about what to do about it, and are not told, panic must follow. Even so, that the countrypeople were behaving naturally brought no comfort to townspeople who had no goods to barter, and whose incomes remained static.
On September 9 the financial authorities announced that in the previous ten days 23 milliard marks had been printed and distributed, representing 10 per cent of the total circulation of paper in the country. 'The daily production of the Federal printing press,' the newspapers dutifully recorded, 'has now risen to 2.6 milliards of paper marks. In the course of this month it will be increased to almost 4 milliards of paper marks, at which figure it is hoped the shortage of money will be definitely overcome.'
Shortage of liquid cash, indeed, was acute, and the July emergency money law was coming into its own. Large industrial concerns began to pay their workmen partly in notes and partly in coupons of their own, which were accepted by local tradesmen on the understanding that they would be redeemed within a very short time. Municipalities, too, started to issue their own currencies, aware that any delay in receiving their pay packets would dangerously aggravate workers whose main concern was to spend them before they depreciated. The cities and towns developed a parallel fear of unemployment which on a large scale might lead to outbreaks of Communist-inspired disorder, and so began artificially to create employment for their staff. The citizens of Frankfort noted with alarm that large tracts of quite serviceable road were being repaired outside the town and that the overhead system of telephone wires was being converted into an underground one.
At home in Germany, where people were resorting to trade by barter and progressively turning to foreign currencies as the only reliable medium of exchange, new Orders were brought in relating to the purchase of foreign bills and the use of foreign exchange to settle inland payments. In addition to imprisonment, fines could now be imposed of up to ten times the amount of an illegal deal.
Sure enough, in the Ruhr, numerous factories were using various devices to avoid having to put men out on the streets. Bochumer Verein, in Essen, for example, engaged 1,500 men making stock articles for railways although there was no immediate requirement for them. Such measures, however, were only possible for firms with big financial reserves, and small firms were already dismissing workers in small numbers. With the November price increases -butter at 800 marks a lb., eggs at 22 marks each — shops were also cutting down on assistants because sales were dropping off.
The disparity between the rise in the cost of living and the rise in wages had now become very marked. Whereas since the war the former had gone up by about 1,500 times, the wages of the miner — in November 1922 the best paid worker — had gone up by barely 200 times. With the mark in mid-November at 27,000 to the pound and 6,400 to the dollar, and with prices following the course of both with unfailing regularity, not only were wages in general failing to keep pace but the workers were not even being paid what was their due. Owing to the shortage of paper money of all kinds, federal currency or Not geld, they were finding that by the time the balance was paid it had lost 50 per cent of its value. The best-paid workers were unable to purchase the barest necessities of life. The others and — as ever — those on fixed incomes or dependent on savings suffered accordingly.
Bonar Law, who fully appreciated that the stabilisation of the mark meant, for Germany, unemployment, an industrial crisis and enormous financial strain, whereas failure to stabilise meant catastrophe, was now equally unable to convince the French Prime Minister of the futility of amassing vast quantities of German paper marks by means of retortionary or extortionary measures.
'Inflation is like a drug in more ways than one,' remarked Lord D'Abernon. 'It is fatal in the end, but it gets its votaries over many difficult moments.' Hopelessly addicted, the Reichsbank ploughed on.
Petty crimp? the crime of desperation, was flourishing. Pilfering had of course been rife since the war, but now it began to occur on a larger, commercial scale. Metal plaques on national monuments had to be removed for safe-keeping. The brass bell plates were stolen from the front doors of the British Embassy in Berlin, part of a systematic campaign unpreventable by the police even in the Wilhelmstrasse and Unter den Linden. That members and families of the British Army of the Rhine suffered severely from burglaries probably reflected the fact, not that thieves had particular animus against the forces of occupation, but that these days foreigners were so much more robbable than anyone else. Over most of Germany the lead was beginning to disappear overnight from roofs. Petrol was syphoned from the tanks of motor cars. Barter was already a usual form of exchange; but now commodities such as brass and fuel were becoming the currency of ordinary purchase and payment. A cinema seat cost a lump of coal. With a bottle of paraffin one might buy a shirt; with that shirt, the potatoes needed by one's family. Herr von der Osten kept a girl friend in the provincial Capital, for whose room in 1922 he had paid half a pound of butter a month: by the summer of 1923 it was costing him a whole pound. 'The Middle Ages came back,' Erna von Pustau said.
Communities printed their own money, based on goods, on a certain amount of potatoes, or rye, for instance. Shoe factories paid their workers in bonds for shoes which they could exchange at the bakery for bread or the meat market for meat.
DR SCHACHT, the author of the reform, had no illusions about its shortcomings. He understood that the Rentenmark could hold the tide only so long, that new credits from abroad were essential, and that for that reason no departure could be made (despite the pleadings of the government, desperate for money) from the strictest discipline. Nothing could be done that would put at risk the currency stability or the budgetary balance. 'After a long devaluation,' Schacht held on January 24, 1924, 'stability can only be regained at the cost of a severe crisis. We are in the midst of this crisis. External commerce is at a standstill. The balance of trade is active [i.e. in Germany's favour] only because imports have ceased as importers have no means of paying. Industry is living on old stocks.'
Their numbers amounted to millions, and none was on the list of receivers of unemployed or short-time relief. They were the ones who had had their wealth shot away by the war, without knowing it. They looked in vain for charity to help, but the charitable institutions and the religious societies, just like the literary and scientific foundations and many of the universities and hospitals, had equally had the fountains of their incomes reduced to a trickle or less. Any who had held industrial debentures had lost their capital, to the benefit of industries who redeemed those debts with worthless paper. Any who had held industrial shares in 1913 would have had their capital reduced by three-quarters, and a pittance paid in dividend totals over the years -- but in practice most people had panicked long since and sold the bulk of their shares for what they could get for them to the industrial profiteers and speculators who amassed the nation's wealth to themselves, paying themselves not dividends, but 'fees'. Germany's capital had been redistributed in the most cruel way, no longer spread reasonably evenly among millions, but largely in coagulated blobs among the new plutocracy.
It was widely remarked that the destitution inflicted by the inflationary process was not general. The very evidence, indeed, of great wealth — ostentatiously flaunted by the new rich who had it -misled many observers, including the French, into supposing that Germany's refusal to pay reparations on the nail was Teutonic knavery. The existence until the Ruhr invasion of full employment, an obviously prosperous working class, a buoyant economy, a booming home market, a strongly competitive position in foreign markets, factories bursting with production — all made possible by the vast scale of Germany's borrowing — could have fooled anybody.
Once more, however, here was a false dawn. Germany's trouble was that the inflation boom had never been liquidated. Stabilisation had ended the period when entrepreneurs could borrow as much as they wished at the expense of everyone else. A vast number of enterprises, established or expanded during monetary plenty, rapidly became unproductive when capital grew short. More realistic transport, fuel and food prices, and the return of rents to economic levels meant that wages, too, had to be raised substantially in real terms.
Firms that mushroomed during the inflation now found that the real interest they paid on loans for the first time was positive rather than negative, lower though the rates appeared to be. Perhaps most significant, for the first time they were obliged to pay real taxes, many of which were extremely high because of the necessity rapidly to balance the budget and to bring official salaries, which had fallen disastrously, up to an acceptable level again. Companies were often unable to buy new machinery after stabilisation came, so much so that huge stocks of unsold iron and coal began to build up in the Ruhr. Not even the foreign loans flowing in were able to prevent the seizing up once again of the Ruhr mining industry where pit after pit, especially any producing poor quality coal, was forced to close. Workers were to flock from pit to agriculture, from mines and quarries and engineering to the production of food and direct consumer goods, and to building. Hugo Stinnes himself had been deceived by the artificial prosperity of inflation into a fanatical confidence in the future of coal. It was the post-stabilisation depression in the coal, iron and steel industries, contriving even the depopulation of Ruhr townships, which led eventually in June 1925 to the collapse of the Stinnes empire.
The Stinnes debacle demonstrated above all that great industrial possessions could not be held without adequate liquid resources (as early as June 1924, Stinnes had been trying to pledge Bochumer Verein and Gelsenkirchen shares against Dutch loans); and that vertical combines were inefficient and unprofitable except under the exceptional conditions which had bred them.
Germany which had undergone almost every conceivable form of collapse during the previous six years — military, political, social, financial, economic — now crashed downwards again just as her many times demoralised people had supposed that, with international help, she was beginning to rise from her knees. Confidence was shattered. The flow of foreign money slackened. The Reichs-bank policy of credit restriction was maintained as firmly as ever to counteract a net outflow of gold and foreign exchange. The shifting of the working population was accompanied by a new, terrifying increase in unemployment and short-time working. Because labour was a buyers' market, those with work were nonetheless often compelled to work a 54-hour week. There was such an alarming rise in the cost of living that to prevent agitation the index had to be cooked. And there was a new, spectacular toll of bankruptcies. Much though public works were instituted to try to mop up labour, the unemployed figure had passed 1,300,000 by December 1925, and was gathering pace daily. The return of rational conditions had brought a necessary but brutal slimming of the immensely swollen public services: those who had been dismissed from the posts and the railways were now being joined not only by former miners and steel-workers but by the many who had started businesses on their own.
In the inflationary period new factories were built, old establishments reorganised and extended, new plant laid down, participations in all fields of industrial activity bought up, and the great amorphous concerns founded. Too late, it was found that this process had undermined the capital structure of the country: capital was frozen in factories for which, because of the extermination of the rentier and the reduction of the real wages of so many of the great consumer classes, there was no economic demand. Once the demand for goods was shut off and the flow of cash dammed, the fate of the productive apparatus was sealed. Even in 1924, firms of undoubted solidity and large assets were unable to pay out trifling sums of money. In 1926 that apparatus was still too great in relation to the working capital and the nation's power of consumption. Thus, whereas in 1913 there were 7,700 bankruptcies, and in 1924 only 5,700, the figure for 1925 was 10,800; and between the third quarter of 1925 and the second of 1927, bankruptcies numbered 31,000 — a rate of 15,000 a year.
In practice, furthermore, a great many bankruptcies were refused by the courts in the absence of assets with which to meet claims. Between May and November 1925, the number of protested bills per week doubled from 2,691 to 5,406. Many banks were immobilised by having had to lend to their industrial customers who had had to be kept alive but now could not repay. The banks found it prohibitively hard and unrewarding to liquidate securities, and under those conditions were unwilling to take over bankrupt factories in lieu of money. With shares now at far below value in a moribund Stock Market, there were endless sellers and no buyers.
Throughout the later inflationary years the shrill argument had gone on over who was to blame and what was the cause of the unceasing, increasing financial crisis — never a true crisis because instead of coming to a head it always did the impossible by getting even worse. Month upon month every excuse was found for it but the right one; every attempt made to stem the fall of the mark but the fundamental one.
Nor was German honour inflation-proof. The corruption among officials in 1924, Lord D'Abernon reported, was 'appalling', whereas before the war bribery had been almost unknown, and a high degree of uncorruptibility evident in public and private, if not always in commercial, life. There were few in any class of society who were not infected by, or prey to, the pervasive, soul-destroying influence of the constant erosion of capital or earnings and uncertainty about the future. From tax-evasion, food-hoarding, currency speculation, or illegal exchange transactions — all crimes against the State, each of which to a greater or less degree became for individuals a matter of survival — it was a short step to breaching one or other of the Ten Commandments.
In Germany not until well after the return to stability did the nature and extent of the corruption in high places begin to be known. Events like the sentencing in March 1924 to three years' gaol of Dr Zeigner, the egregious ex-Premier of Saxony, for corrupt practices and bribery had raised scarcely a ripple. The end of the year brought to light a far more formidable array of financial scandals, enough to confirm the view that the old universal integrity had sunk in the whirlpool of inflation, and to deliver another stunning blow to the nation's morale.
How great does inflation have to be before a government can no longer control it? Most economists accept that mild inflation has certain therapeutic advantages for a nation which must deal with the social and economic problems to which industrial democracies are usually subject. Most electorates still accept the statements of their politicians' pious intentions in regard to controlling ever rising prices: and yet the Deutschmark, the currency of the country which had most reason to fear inflation, lost two-thirds of its purchasing power between 1948 and 1975. The pound lost almost half its purchasing power between 1970 and 1975. In neither instance, however, did such depreciation represent a deliberate, cynical policy; which, no doubt, would also have been claimed by the German bankers and governments of the early 1920, who looked for causes of their monetary difficulties beyond their own printing press and tax system — and found them, without difficulty and to their complete intellectual satisfaction. It remains so that once an inflation is well under way (as Schmb'lders has it) 'it develops a powerful lobby that has no interest in rational arguments.' This was as true for Austria and Hungary as for Germany.
There came a stage when it was politically impossible to halt inflation. In the middle of 1920, after the brief post-Kapp Putsch period of the mark's stability, the competitiveness of German exports declined, with unemployment beginning to build up as a result. The point was presumably not lost on the inflators. Recovery of the mark could not be achieved without immediate repercussions in terms of bankruptcies, redundancies, short-time working, unemployment, strikes, hunger, demonstrations, Communist agitation, violence, the collapse of civil order, and thus (so it was believed) insurrection and revolution itself.
In war, boots; in flight, a place in a boat or a seat on a lorry may be the most vital thing in the world, more desirable than untold millions. In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom.
Student Loan Jubilee
Student loans contribute to the problem of over-priced and unaffordable education. Additionally, they lead people to wrack up debt that can't be paid off, at a time when they are too young to understand the long-term implications. And, most unjustly of all, student loan debt cannot be discharged, ever, not even in bankruptcy. All in all, it is a very unjust and exploitative system, and student loan debt should be high on the list of areas for Jubilee forgiveness.
http://news.yahoo.com/s/bw/20090324/bs_bw/mar2009bs20090323558993
In just two short months, Robert Applebaum has become something of a spokesman for a generation of people burdened with student loan debt. Applebaum, a 35-year-old attorney in New York, started a Facebook group in January called "Cancel Student Loan Debt to Stimulate the Economy," fed up with news reports about bank executives spending millions to redecorate their offices and receiving hefty bonuses. "I wanted to rant, so instead of sending an e-mail to a couple of my friends, I decided to start a Facebook group," says Applebaum, who finished law school owing $80,000 in student loans. "I figured maybe just a few of my friends would join."
He was wrong. By the end of the second week 2,500 people had joined, and the group now has more than 138,500 members, many of whom are pressing their representatives in Congress for legislation that would forgive student loan debt. "It's just snowballed," says Applebaum.
Student loan repayment can be difficult for young people starting off their careers and has become even more challenging now with the economic downturn, as recent graduates lose their jobs or struggle to land one. Groups like Applebaum's on Facebook, and other organizations such as StudentLoanJustice.org, are part of a new movement advocating for an overhaul of the country's troubled student loan system. Frustrated with often unaffordable monthly payments, loans that are nearly impossible to discharge, and restrictive loan repayment plans, student borrowers are pushing the government and private loan companies to devise new solutions.
Assets of a Couch and a TV
"I think the economic crisis and the sort of clamor from borrowers like we see on that Facebook group should help make that case," says Edie Irons, a spokeswoman for the Project on Student Debt, a Berkeley (Calif.)-based nonprofit that raises awareness about student financial aid. "The size of the group really illustrates how concerned people are."
Applebaum, who graduated from Fordham Law School in 1998, took a job as an attorney at the Brooklyn District Attorney's Office after graduation, at a starting salary of $36,000 a year. His salary was so low that he put his loans in forbearance for five years, until they ballooned to $100,000. "Despite having a law degree, I'm middle class and I don't have any money at all," he says. "I don't own a house or a car. My only assets are my couch and television."
Applebaum is one of thousands of graduates struggling with the repercussions of student loans years after graduation. There were nearly $131 billion in outstanding private loans in 2008, according to Mark Kantrowitz, founder of FinAid.org, which tracks the college financial aid industry. In addition, there is $544 billion in outstanding federal loans for fiscal year 2009, up from $502 billion in 2008, according to the Education Dept.
Shackled by Student Loans
Meanwhile, the average debts of students graduating with loans rose from $18,796 in 2006 to $20,098 in 2007, according to the Project on Student Debt.
For some, the debt is unshakable. Mel Crow of American Fork, Utah, owes $60,000 in student loans from his days at the Academy of Art University in San Francisco. He has spent the last five years struggling to find a computer animation job in his field, with no luck. His parents had to refinance their home so he could consolidate his loans, and he now pays them $500 a month with the $10.50-per-hour he earns at a local cosmetic company. If he defaults on his loan, his parents will lose their home, Crow says. Meanwhile, he and his wife, an algebra teacher, are barely scraping by, living in the basement of her parents' home. Because of Crow's debt, he says the couple will have to delay buying a home and having kids for several years.
"Sometimes I think going to school is the worst single mistake I've ever made," says Crow, a member of Applebaum's Facebook group and the first in his family to attend college. "I could have worked at Wal-Mart (NYSE:WMT - News) for four years and been in a better position than I am now. I feel like I'm almost a slave to this debt."
Signs of Change
Others, like Eric Zapata, an aircraft mechanic in California, say their student debt is a constant worry. Zapata owes about $48,000 in student loans and worries he won't be able to afford an engagement ring for his girlfriend. "I've been saving now for two years, but I haven't been able to get the ring yet," he says. "The $400 in monthly (debt) payments just kills me."
There are already some signs that change is on the way, at least for those with federal loans. The Income-Based Repayment plan, part of the College Cost Reduction and Access Act of 2007, will provide some relief to federal student loan borrowers when it goes into effect on July 1. The program will cap most borrowers' monthly payments at less than 10% of their gross income for 25 years, after which any remaining debt will be forgiven. Another program, the Public Service Loan Forgiveness, allows borrowers to make income-based repayments and have their debt discharged after 10 years. "These programs actually provide some major help now and in the immediate future," says Irons of the Project on Student Debt.
But the situation is not quite as rosy for private loan borrowers. Many of these debtors have been unable to meet their monthly payments, putting their loans in forbearance for several years or, in the worst-case scenario, defaulting on their loans. Making matters worse for private borrowers is a clause in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act that included private student loans as one of 10 debts that can't be forgiven in bankruptcy cases.
Continuing the Fight
Alan Collinge, author of The Student Loan Scam and founder of StudentLoanJustice.org, has been a student loan activist for nearly four years. He is working to reverse the bankruptcy laws and establish limits on how lenders pursue borrowers. Collinge graduated with three degrees in aerospace engineering from the University of California several years ago and $38,000 in student debt, which he's still working to pay off. He's traveled around the country talking to elected officials and working to restore what he considers "basic consumer" rights. As of yet, he's had no luck, but he hasn't given up hope. "Until someone shows me why student loans should specifically be exempt from bankruptcy protections, it's definitely a fight worth fighting," he says.
http://news.yahoo.com/s/bw/20090324/bs_bw/mar2009bs20090323558993
In just two short months, Robert Applebaum has become something of a spokesman for a generation of people burdened with student loan debt. Applebaum, a 35-year-old attorney in New York, started a Facebook group in January called "Cancel Student Loan Debt to Stimulate the Economy," fed up with news reports about bank executives spending millions to redecorate their offices and receiving hefty bonuses. "I wanted to rant, so instead of sending an e-mail to a couple of my friends, I decided to start a Facebook group," says Applebaum, who finished law school owing $80,000 in student loans. "I figured maybe just a few of my friends would join."
He was wrong. By the end of the second week 2,500 people had joined, and the group now has more than 138,500 members, many of whom are pressing their representatives in Congress for legislation that would forgive student loan debt. "It's just snowballed," says Applebaum.
Student loan repayment can be difficult for young people starting off their careers and has become even more challenging now with the economic downturn, as recent graduates lose their jobs or struggle to land one. Groups like Applebaum's on Facebook, and other organizations such as StudentLoanJustice.org, are part of a new movement advocating for an overhaul of the country's troubled student loan system. Frustrated with often unaffordable monthly payments, loans that are nearly impossible to discharge, and restrictive loan repayment plans, student borrowers are pushing the government and private loan companies to devise new solutions.
Assets of a Couch and a TV
"I think the economic crisis and the sort of clamor from borrowers like we see on that Facebook group should help make that case," says Edie Irons, a spokeswoman for the Project on Student Debt, a Berkeley (Calif.)-based nonprofit that raises awareness about student financial aid. "The size of the group really illustrates how concerned people are."
Applebaum, who graduated from Fordham Law School in 1998, took a job as an attorney at the Brooklyn District Attorney's Office after graduation, at a starting salary of $36,000 a year. His salary was so low that he put his loans in forbearance for five years, until they ballooned to $100,000. "Despite having a law degree, I'm middle class and I don't have any money at all," he says. "I don't own a house or a car. My only assets are my couch and television."
Applebaum is one of thousands of graduates struggling with the repercussions of student loans years after graduation. There were nearly $131 billion in outstanding private loans in 2008, according to Mark Kantrowitz, founder of FinAid.org, which tracks the college financial aid industry. In addition, there is $544 billion in outstanding federal loans for fiscal year 2009, up from $502 billion in 2008, according to the Education Dept.
Shackled by Student Loans
Meanwhile, the average debts of students graduating with loans rose from $18,796 in 2006 to $20,098 in 2007, according to the Project on Student Debt.
For some, the debt is unshakable. Mel Crow of American Fork, Utah, owes $60,000 in student loans from his days at the Academy of Art University in San Francisco. He has spent the last five years struggling to find a computer animation job in his field, with no luck. His parents had to refinance their home so he could consolidate his loans, and he now pays them $500 a month with the $10.50-per-hour he earns at a local cosmetic company. If he defaults on his loan, his parents will lose their home, Crow says. Meanwhile, he and his wife, an algebra teacher, are barely scraping by, living in the basement of her parents' home. Because of Crow's debt, he says the couple will have to delay buying a home and having kids for several years.
"Sometimes I think going to school is the worst single mistake I've ever made," says Crow, a member of Applebaum's Facebook group and the first in his family to attend college. "I could have worked at Wal-Mart (NYSE:WMT - News) for four years and been in a better position than I am now. I feel like I'm almost a slave to this debt."
Signs of Change
Others, like Eric Zapata, an aircraft mechanic in California, say their student debt is a constant worry. Zapata owes about $48,000 in student loans and worries he won't be able to afford an engagement ring for his girlfriend. "I've been saving now for two years, but I haven't been able to get the ring yet," he says. "The $400 in monthly (debt) payments just kills me."
There are already some signs that change is on the way, at least for those with federal loans. The Income-Based Repayment plan, part of the College Cost Reduction and Access Act of 2007, will provide some relief to federal student loan borrowers when it goes into effect on July 1. The program will cap most borrowers' monthly payments at less than 10% of their gross income for 25 years, after which any remaining debt will be forgiven. Another program, the Public Service Loan Forgiveness, allows borrowers to make income-based repayments and have their debt discharged after 10 years. "These programs actually provide some major help now and in the immediate future," says Irons of the Project on Student Debt.
But the situation is not quite as rosy for private loan borrowers. Many of these debtors have been unable to meet their monthly payments, putting their loans in forbearance for several years or, in the worst-case scenario, defaulting on their loans. Making matters worse for private borrowers is a clause in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act that included private student loans as one of 10 debts that can't be forgiven in bankruptcy cases.
Continuing the Fight
Alan Collinge, author of The Student Loan Scam and founder of StudentLoanJustice.org, has been a student loan activist for nearly four years. He is working to reverse the bankruptcy laws and establish limits on how lenders pursue borrowers. Collinge graduated with three degrees in aerospace engineering from the University of California several years ago and $38,000 in student debt, which he's still working to pay off. He's traveled around the country talking to elected officials and working to restore what he considers "basic consumer" rights. As of yet, he's had no luck, but he hasn't given up hope. "Until someone shows me why student loans should specifically be exempt from bankruptcy protections, it's definitely a fight worth fighting," he says.
Wednesday, March 18, 2009
Debt Spending Inflation is Taxation, not Stimulus
Fantastic piece below about government-caused inflation. Printing money, as the Fed today calls it, quantitative easing or buying bank assets or whatever, is legal counterfeiting! It is a form of taxation. As this article brilliantly puts it, it is not placing a debt burden on a future generation, it is really stealing money from people today.
Think about it! The government prints the money today (the so-called debt) to co-opt economic resources now. That money removes wealth from people's pockets today, by debasing the value of their dollars because of the inflation of the money supply. It is the ultimate trickery. People think they are getting a stimulus, but in reality, they are getting screwed because of of their money is worth less. Rather than declare a Jubilee, which would honestly and openly cancel debt to the benefit of the common man, the government is determined to inflate the dollar to clear our debt, to the disadvantage of the common man.
Legal counterfeit blends with the genuine money supply and is indistinguishable from it. It is, therefore, more insidious and, through sheer volume, vastly more destructive of the power of the monetary unit than is illegal counterfeit. It inevitably manifests itself in higher prices of goods and services. The public is bewildered by the higher prices, and it requires but slight propaganda by the author of the inflation, the Government, to deflect criticism onto private business which, in the end, is always obliged to bring the bad news of rising prices to the people. The public does not realize that it is, in effect, indirectly paying taxes over the merchant's counter instead of paying them directly to the tax collector. The Government finds this a ready way to increase taxation without being detected.
To collect sufficient taxes to balance an extravagant budget brings citizen resistance if the tax collection is obvious. However, inflation taxation is not only covert; it operates by seemingly putting a dollar into the taxpayer's pocket instead of taking one out. By lavish counterfeiting and spending, the Government increases the number of dollars in circulation and thereby creates an appearance of prosperity.
We delude ourselves, moreover, if we think that deficits, or government "debts," are deferred taxes to be paid by future generations. They are current taxes, paid not only by the non-bondholders to the bondholders as interest, but by the bondholders themselves through the depreciation of the purchasing power of the dollars represented by the very securities that they hold.
Strictly speaking, there is never and there cannot be a government deficit. All government expenses are and must be paid by taxes. What is commonly called taxes is merely that shown in formal tax revenues, whereas the amount which is called deficit is in reality another bracket of taxes—inflation taxes—and this the most vicious form, since it disturbs and ultimately destroys the monetary system upon which the entire economy depends.
Even tax-conscious persons think only of the taxes shown by government revenue receipts. They tell us that the United States is approaching the danger point of a tax collection rate that is thirty per cent of the national income. They do not realize that it has already passed beyond this point, because they do not reckon the unaccounted taxation, actual and potential, through the depreciation of the dollar -- inflation taxation. As inflation accelerates, the rate at which conventional taxes are levied will not be able to keep up with the national income—this despite the false dollar prosperity floating the citizenry into progressively higher income tax brackets. The relative percentage will decline, giving to those who take this narrow view the impression of a decline in taxation. It is but a fool's paradise. Can anyone blame the politician for employing this painless way of plucking the goose?
Thus it may be seen that more than fifty per cent of today's dollar is "water" injected by government-created "dollars." But this is not to say that the total supply of counterfeit has yet manifested itself. Actual inflation and potential inflation are two different things. Prices are determined not by the total monetary unit supply relative to the total goods supply, but rather by the amount of each that actually meet in the market. All of these dollars are being held out of the market, hoarded under the illusion that they will grow through savings. But even with a moderate rise in prices, more is lost from the principal than accrues from interest or dividends. Gradually, this will become more and more evident to more and more people, thus causing holders of government securities and savings deposits to convert into goods and property. This will bring into the market a flood of dollars that are now inactive.
The resulting price rise will pinch the population of low and fixed incomes and thus throw upon the government the obligation (under the now prevalent idea that the government owes every man a living) to issue additional counterfeit dollars. This in turn will cause further price rises, calling for further counterfeit and so forth until the dollar is completely extinguished.
Realism therefore compels us to recognize that inflation will continue until the point is reached at which the dollar will be worthless. The Government will find it much easier to let taxation by inflation wipe out its debt than to liquidate its debt through direct taxes by running a surplus budget. The nation born under the slogan, "No taxation without representation," is now practicing taxation by misrepresentation.
http://www.newapproachtofreedom.info/ffi/chapter05.html
Think about it! The government prints the money today (the so-called debt) to co-opt economic resources now. That money removes wealth from people's pockets today, by debasing the value of their dollars because of the inflation of the money supply. It is the ultimate trickery. People think they are getting a stimulus, but in reality, they are getting screwed because of of their money is worth less. Rather than declare a Jubilee, which would honestly and openly cancel debt to the benefit of the common man, the government is determined to inflate the dollar to clear our debt, to the disadvantage of the common man.
Legal counterfeit blends with the genuine money supply and is indistinguishable from it. It is, therefore, more insidious and, through sheer volume, vastly more destructive of the power of the monetary unit than is illegal counterfeit. It inevitably manifests itself in higher prices of goods and services. The public is bewildered by the higher prices, and it requires but slight propaganda by the author of the inflation, the Government, to deflect criticism onto private business which, in the end, is always obliged to bring the bad news of rising prices to the people. The public does not realize that it is, in effect, indirectly paying taxes over the merchant's counter instead of paying them directly to the tax collector. The Government finds this a ready way to increase taxation without being detected.
To collect sufficient taxes to balance an extravagant budget brings citizen resistance if the tax collection is obvious. However, inflation taxation is not only covert; it operates by seemingly putting a dollar into the taxpayer's pocket instead of taking one out. By lavish counterfeiting and spending, the Government increases the number of dollars in circulation and thereby creates an appearance of prosperity.
We delude ourselves, moreover, if we think that deficits, or government "debts," are deferred taxes to be paid by future generations. They are current taxes, paid not only by the non-bondholders to the bondholders as interest, but by the bondholders themselves through the depreciation of the purchasing power of the dollars represented by the very securities that they hold.
Strictly speaking, there is never and there cannot be a government deficit. All government expenses are and must be paid by taxes. What is commonly called taxes is merely that shown in formal tax revenues, whereas the amount which is called deficit is in reality another bracket of taxes—inflation taxes—and this the most vicious form, since it disturbs and ultimately destroys the monetary system upon which the entire economy depends.
Even tax-conscious persons think only of the taxes shown by government revenue receipts. They tell us that the United States is approaching the danger point of a tax collection rate that is thirty per cent of the national income. They do not realize that it has already passed beyond this point, because they do not reckon the unaccounted taxation, actual and potential, through the depreciation of the dollar -- inflation taxation. As inflation accelerates, the rate at which conventional taxes are levied will not be able to keep up with the national income—this despite the false dollar prosperity floating the citizenry into progressively higher income tax brackets. The relative percentage will decline, giving to those who take this narrow view the impression of a decline in taxation. It is but a fool's paradise. Can anyone blame the politician for employing this painless way of plucking the goose?
Thus it may be seen that more than fifty per cent of today's dollar is "water" injected by government-created "dollars." But this is not to say that the total supply of counterfeit has yet manifested itself. Actual inflation and potential inflation are two different things. Prices are determined not by the total monetary unit supply relative to the total goods supply, but rather by the amount of each that actually meet in the market. All of these dollars are being held out of the market, hoarded under the illusion that they will grow through savings. But even with a moderate rise in prices, more is lost from the principal than accrues from interest or dividends. Gradually, this will become more and more evident to more and more people, thus causing holders of government securities and savings deposits to convert into goods and property. This will bring into the market a flood of dollars that are now inactive.
The resulting price rise will pinch the population of low and fixed incomes and thus throw upon the government the obligation (under the now prevalent idea that the government owes every man a living) to issue additional counterfeit dollars. This in turn will cause further price rises, calling for further counterfeit and so forth until the dollar is completely extinguished.
Realism therefore compels us to recognize that inflation will continue until the point is reached at which the dollar will be worthless. The Government will find it much easier to let taxation by inflation wipe out its debt than to liquidate its debt through direct taxes by running a surplus budget. The nation born under the slogan, "No taxation without representation," is now practicing taxation by misrepresentation.
http://www.newapproachtofreedom.info/ffi/chapter05.html
Subscribe to:
Posts (Atom)
