One economic myth is that paper money is wealth. The proponents of big government oppose honest money for a very specific reason. Inflation, the creation of new money, is used to finance government programs not generally endorsed by the producing members of society.
It is a deceptive tool whereby a 'tax' is levied without the people as a whole being aware of it. Since the recipients of the newly created money, as well as the politicians, whose only concern is the next election, benefit from this practice, it's in their interest to perpetuate it.
For this reason, misconceptions are promulgated about the 'merits' of paper money and the 'demerits' of gold. Some of the myths are promoted deliberately, but many times they are a result of convenient rationalizations and ignorance.
Paper money managers and proponents of government intervention believe that money itself- especially if created out of thin air - is wealth. A close corollary of this myth - which they also believe - is that money supply growth is required for economic growth.
Paper money is not wealth. Wealth comes from production. There's no other way to create it. Capital comes from production in excess of consumption. This excess is either reinvested, saved, or loaned to others to be used to further produce and invest.
Duplicating paper money unites creates no wealth whatsoever, it distorts the economy, and it steals wealth from savers. It acts as capital in the early stages of inflation only because it steals real wealth from those who hold dollars or have loaned them to someone.
Esther George, president of the Federal Reserve Bank of Kansas City, stepped forward as a new, high-profile internal critic of the Federal Reserve's easy-money policies.
Ms. George told an audience in Kansas City, Mo., Thursday that current Fed policies made her "uneasy" and warned that the Fed "must not ignore the possibility" that monetary policy could contribute to new bubbles that harm the financial system.
"A long period of unusually low interest rates is changing investors' behavior and is reshaping the products and the asset mix of financial institutions," she said.
Ms. George noted bond and farmland prices are at very high levels. If there were a big correction in those prices, it could be "destabilizing and cause employment to swing away from its full-employment level and inflation to decline to uncomfortably low levels," she said.
She also said the Fed's purchases of government and mortgage securities would "almost certainly" complicate the task of tightening credit down the road when the Fed wants to pull back its policies.
... Ralph Benko, editor of the Lehrman Institute's monetary policy website, recently attacked the platinum coin proposal, noting its violation of a monetary principle first established by the famed astronomer Copernicus. He also pointed to the hyper-inflation experienced recently in Zimbabwe, when its government violated the same principle.
In spite of left-wing opposition to spending cuts, there is a huge spending problem in the U.S. The editorial board of Investor’s Business Daily reminded readers of that very fact on Jan. 7, writing that Obama’s debt commission “made clear that spending is the driving force behind the nation’s debt crisis.” The final report of the commission said, “We should cut all excess spending -- including defense, domestic programs, entitlement spending, and spending in the tax code.”
Who caused the financial collapse? Just about everyone.
To appreciate this landmark work it is necessary to know a bit about the author’s background.
John Allison is not only a banker-entrepreneur; he is also a recognized intellectual leader of American business. Moreover, Allison’s financial expertise is a product of his personal biography: In a mere two decades, he built BB&T (Branch Banking & Trust Co.), a comparatively small Southern bank of $4.5 billion in assets, into a $152-billion financial enterprise, making it one of America’s largest and most profitable banks. But unlike many overpaid, underperforming CEOs, Allison focused his leader-manager skills—at modest compensation—on behalf of his employees, customers, and shareholders.
Briefly stated, Allison’s core principles begin with an unapologetic dedication to customer-oriented banking and carefully managed risk-taking as sound and effective means to long-term profitability and high returns on capital. BB&T deploys an uncommon means to sustain the bank’s dedicated corporate culture: continuous, serious, systemic employee education aimed at the formation of leaders, executives, and well-trained employees at every level. A core goal of every employee must be to focus on making every client profitable and successful on a risk-adjusted financial basis—that is, through conservative banking. False financial products were neither fabricated nor widely distributed during the bubble years (such products having been an important cause of the financial crisis). Monthly employee readings in philosophy and economics are mobilized to reinforce the core principles.
At the center of this banking philosophy is the development of the full potential of each employee, and each client, of the bank: This strategy, Allison argues, is the optimum path to shareholder, customer, and employee enrichment. Many firms pretend to such a strategy; Allison earned a national reputation because he actually carried it out, and successfully, in a banking system engaged during the bubble years in a “race to the bottom.”
In a free-market society, it is hard to exaggerate the importance of such a corporate culture. And in business, the individual conscience, dedicated to long-term rational self-interest, is the indispensable condition of a minimally regulated free market. It is striking that Allison’s strategy was vindicated by good returns on capital; it is equally striking that BB&T’s corporate culture was proven right in the financial crisis and Great Recession, as BB&T experienced not a single quarterly loss during the financial earthquake of 2007-2009.
It is necessary to know all this in order to understand the importance of The Financial Crisis and the Free Market Cure. As the head of a major American bank, Allison was witness to the decisions of government, Federal Reserve leaders, and banking CEOs that led to a huge speculative bubble and the collapse of the financial system, including Fannie Mae, Freddie Mac, virtually the entire cartel of big banks and brokers, and major companies. Allison guides us, with a gimlet eye, through taxpayer-subsidized bailouts of these wards of the state, focusing on a reckless, insolvent, privileged financial oligarchy—subsidized by a feckless Fed, a dilatory Treasury, and a politicized FDIC. The coercive power of the federal government, and the moral hazard of excessive regulation, is dissected and debunked.
Some people say that the euro is like a gold standard and that its failure demonstrates the undesirability of a return to gold. This is nonsense. To the contrary, the euro would work better if it operated more like the gold standard and if it was as hard, as inflexible and as non-political as gold.
Every Monday morning the readers of the UK’s Daily Telegraph are treated to a sermon on the benefits of Keynesian stimulus economics, the dangers of belt-tightening and the unnecessary cruelty of ‘austerity’ imposed on Europe by the evil Hun. To this effect, the newspaper gives a whole page in its ‘Business’ section to Roger Bootle and Ambrose Evans-Pritchard, who explain that growth comes from government deficits and from the central bank printing money, and why can’t those stupid Europeans get it? The reader is left with the impression that, if only the European states could each have their little currencies back and merrily devalue and run some proper deficits again, Greece could be the economic powerhouse it was before the Germans took over.
Ambrose Evans-Pritchard (AEP) increasingly faces the risk of running out of hyperbolic war-analogies sooner than the euro collapses. For months he has been numbing his readership with references to the Second World War or the First World War, or to ‘1930s-style policies’ so that not even the most casual reader on his way to the sports pages can be left in any doubt as to how bad this whole thing in Europe is, and how bad it will get, and importantly, who is responsible. From declining car sales in France to high youth-unemployment in Spain, everything is, according to AEP, the fault of Germany, a ‘foolish’ Germany. Apparently these nations had previously well-managed and dynamic economies but have now sadly fallen under the spell of Angela Merkel’s Thatcherite belief in balancing the books and her particularly Teutonic brand of fiscal sadism.