News & Analysis
Nouriel Roubini: U.S. Has Two Economies
The U.S. has two economies, says Nouriel Roubini, professor of economics at New York University's Stern School of Business and chairman of RGE Monitor. "There is a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn," Roubini writes. Roubini notes that while America's official unemployment rate is 10.2 per cent, the figure jumps to a whopping 17.5 per cent when discouraged workers and partially employed workers are included. And, while data from firms suggest that job losses in the past three months were about 600,000, household surveys, which include self-employed workers and small entrepreneurs, suggest a number above two million. "Many of the lost jobs – in construction, finance, and outsourced manufacturing and services – are gone forever, and recent studies suggest that a quarter of U.S. jobs can be fully outsourced over time to other countries," Roubini says. – MoneyNews
Dominant Social Theme: Something must be done.
Free-Market Analysis: The Daily Bell tries to speak to the issue of central banking as much as possible because even after studying the darn strategy individually for two decades or more (and collectively for about a century) we are still regularly shocked at how overwhelmingly powerful (take a deep breath) state-sanctioned, monopoly-fiat-money, fractional-reserve banking really is.
The wonderful (or sad) thing about our current form of central banking is that its largest excrescence first occurred in the early 20th century in a country (America) that was once a bright and shining light of monetary exceptionalism. The free-banking experiment of the 1800s, which included private, fractional-reserve banking must certainly stand as one of the most remarkable free-market monetary experiments of recent times.
Here's a brief history, then, of American money as we understand it. (Given the amount of info on the ‘Net these days, maybe there is information that has escaped our attention and readers are welcome to send in links and info in support of or in contradiction to the following.)
The pre-Fed system certainly had its drawbacks and is derisively known today as Wildcat banking. But in fact, as Murray Rothbard and others have shown us, much of the instability of the system (or at least some of it) had to do with the affirmative obligations of the state-chartered single-branch-only banks to purchase lousy municipal and state bonds as part of their base funding stock. Depositors were always worried about the solvency of these instruments and that is one large reason for the instability of the system.
The central banking setup that came into being in the 20th century is also remarkable. From its very beginning, it seems to us that it was marked by a kind of fraud. Financial historian Ed Griffin (a Bell contributor) and others have written that there was an apparently secret deal between the Bank of England and the American Fed of the time (post World War One). This may have ended up with an agreement that the dollar would be debased so that the pound could return to its pre-war glory as the king of currencies. The American Fed apparently attempted to accomplish this by printing endless amounts of dollars leading to the Roaring Twenties and subsequent Depression.
It is seemingly true that the only way that the Fed was chartered was with a ratio of dollars to gold, but the wise men at the Fed, according to at least some hard-money scholars we speak to, immediately and secretively abrogated the linkage so as to print as many dollars as possible. It was only after the stock market crash that panic set in and Roosevelt, when he came to power, found it incumbent on the presidency to issue "bank holidays." These holidays were not however based on savers trying to remove greenbacks from banks. No, the poor depositors were trying to get their GOLD back. But there was none – or less, anyway, than there should have been!
A case can be made that Roosevelt's gold confiscation scheme ran, partially, along similar lines. Since the wise men at the Fed had apparently illegally abrogated the gold/dollar linkage, the only way for these top men to be truly safe was to wipe out all vestiges of accountability – which they tried to do by confiscating gold.
Why rehearse the previous info (hopefully correct in its general outlines)? Because from our point of view, with all its problems, and there were many, the American money system worked better before the entry of the Fed than afterwards. Sure, there were recessions, depressions, inflations, etc. But when one looks into them, most of them were government created to some degree and in one case, 1907, the suspicion is that debacle was partially engineered by banking interests to develop momentum for what eventually became the Fed.
It is central banking itself that has created not only monetary disasters but SOCIAL disasters. The endless booms and busts of Fed central banking have turned America from an egalitarian miracle into a progressive-socialist mess. First there is a fiat-boom and then a bust that provides the monied interests with the ability to sop up ruined businesses for pennies on the dollar. At the same time as the system puts entrepreneurs out of work, the system is busy dispatching the remaining jobs overseas via the auspices of "international" companies.
The result is an endless bifurcation of society into two increasingly polarized classes. The end result is indeed a South American-style "banana republic" where the monied classes are the bankers, managers, lawyers and accountants that do the bidding of the handful of truly wealthy and everyone else who scrambles on the streets, in the hills, pampas and slums to get by day-to-day. This is indeed where America logically must be headed if the current variant of central banking is not revised, in our humble opinion.
The other pervasive effect that central banking has had on America in particular is that it has turned the country from an agrarian republic into an urban dystopia. Young men and women attracted by the false booms of a Fed-inspired economy are fooled into thinking that the jobs created at the peak of a mania are going to be there forever. Instead they are gone in the next bust. The history of 20th-century republican America (onward), as we wrote once when the Bell was just beginning, is a history of what some Australian's call "dream time" – except it occurs in modernity. Central banking has done more to reshape American society than almost anything we can think of. It has taken a once proud nation and tempted fully a third of it, in our opinion, into jobs that have proved to be mirages. It has made a proud agrarian nation into a serial slum from "sea-to-shining sea."
Central banking is not just responsible for the impoverishment of what was once the American middle class. It is responsible for massive unemployment too as the jobs promised in booms evaporate (often forever) during the busts. Central banking, if left to flourish for a century or so, can virtually turn a society inside out. The third negative consequence of central banking is that it gives the handful of controllers of the money system almost godlike capabilities. As a result, government is funded as never before. The end result is that the worker is squeezed out, the entrepreneur bankrupted while government bureaucrats are endlessly empowered and cultivated. The logical extension of central banking is private sector ruin, public sector advancement, endless authoritarianism (police and military jobs being endlessly attractive), and eventually national collapse.
What is to be done? Get rid of central banking. Don't replace it. Don't modify it. End it. That one thing, that one change, would make a tremendous difference. One can argue (as we have done recently) about fractional reserve private banking and Brownian national banks. But from our perspective the single most effective thing that can be done to America and the West in general to prevent the formation of Caucasian versions of Zimbabwe, is to rid the world of this fiat nightmare of mercantilist central banking that brings misery on the many while enriching (vastly) the (very) few.
Conclusion: Get rid of central banks. Let the marketplace in all its glory and guile decide what money is. (Who knows, perhaps the market would decide against fractional reserve banking altogether!) But at least the market would be back in charge of what is naturally and necessarily a private-market function. Regular readers of the Bell know that we believe what would rush in to fill the vacuum would be a private market gold and silver standard, one that has proved both equitable and efficacious throughout history.
Brownian bonus of the day: Ms. Ellen Brown (pictured left) has herself written to us with an over-arching explanation of certain ambiguities in the text of the modern monetary fable, The Wizard of Oz, as follows: "The explanation given (not by me but by the researchers who first noticed the Populist money reform symbolism in the book) is that the road to Oz, paved with gold, was a false road. The Wizard failed to get Dorothy back home. Gold was the private money of the bankers with their gold-backed banknotes (90% created out of nothing on the fractional reserve system). The secret solution that was on her feet all along, the silver slippers, represented the Populist solution, which was William Jennings Bryan's insistence on a return to government-issued money -- in this case silver-backed, silver being plentiful in the U.S. and representing an expansion of the money supply that the depressed economy then desperately needed." Thanks to Ms. Brown for providing this interesting interpretation.
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Posted by Robert Ruud on 12/10/09 03:08 PM
Kudos to The Daily Bell for such insightful ideas and thought-provoking commentary!
As I muse over the ideas express herein, I must say I delight in the service provided by our not-for-profit credit unions here in the
Sate of Utah. They are financially solvent, well-run, and focused on their customers' (i.e., shareholders') needs. Although, numerous attempts have been made to hobble them legislatively, the people, so far, have stood up to the special interests, here at the State level.
I do all my banking with a local Credit Union, and encourage my family, friends and associates to do likewise. Power to the Individual!
Reply from The Daily Bell
Thank for the feedback on credit unions, which have a long and illustrious history.
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Posted by Acudoc on 12/07/09 02:15 PM
The editors of the Daily Bell, in my humble opinion, should stop using the phrase "in our humble opinion", because your analysis of the many and varied financial and social consequences of the practice of central banking of a fiat, debt-based money is BRILLIANT, and so far beyond what one reads in the standard financial press that it makes those guys look stupid for overlooking the obvious...so, "in our humble opinion" just doesn't cut it.
Reply from The Daily Bell
Ha! Thanks, Acudoc. Truthfully, we believe that modesty is always called for when one examines how big the world, how vast the universe is, and how truly LITTLE we know - about anything! Also we're privileged to write for a brilliant, growing audience and we keep in mind how grateful we are for such an opportunity (especially during this era) every day. IOHO ...
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Posted by Bonnie Donaldson on 12/07/09 01:36 PM
You, the esteemed Daily Bell analysts, used the term "debased" when you wrote of the US dollar in this article. I want to remind you that the word "debase" originally referred to the metals that were used to coin money.
I continue to observe that human nature is what it is, and that no amount of wishful thinking about a mythic and glorious past or a deliriously happy and noble future changes the fact that there will always be a vast array of our fellow men who will desire to acquire something for nothing.
Mankind did not invent fraud and deception and theft, nature did. And for good reason. This is survival and that is the one true good and noble end in nature. Nature invents and uses a combination of fraud and nobility, whatever works to ensure the survival and reproductive capacity of a species, plants and animals.
I would advise you to go outside and rejoice in the present day, which in the eons of animal/human history is one of the best times humans have had yet. The very fact that we can sit around and argue about inane topics, fully confident in our next meal, is a remarkable occurrence. The average person in your wonderful free world of the 1800s would be especially amazed by our "tragic plight." Have a nice day!
Reply from The Daily Bell
You, too, Bonnie.
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Posted by Dogster on 12/07/09 11:59 AM
The problem with central banking is not just the inevitable financial collapse, but also the fact that the banking insiders gain control and usurp the democratic processes. The banking power should be absolutely controlled by the US Congress.
Reply from The Daily Bell
In our opinion, no one should have control of this sort of concentrated power but the PRIVATE marketplace - individuals, not mercantilists.
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Posted by Burnie on 12/07/09 09:02 AM
Like most Americans, when we feel strongly about our beliefs about a problem, we begin to think about fixing or rectifying the problem. Enough already - it seems clear to me that the current Fed form of an independent central banking system is highly flawed, and more importantly, is akin to being immoral, unethical, and manipulative in unseen ways.
But, given the power and control is vested in the way that it is, the power brokers and control fiefdoms, are not easily overthrown.
We can argue our points, but unreasonable people who control the current system are not going to just walk away and allow some new approach - even though it can be demonstrated to work better than the current one - to take away their control and powers.
I am a skeptic in this regard. The fight for individual liberties, freedom from government coercion, the right to property ownership in all of its manifestations, throughout mankinds history has required the utmost sacrifice - the loss of life to accomplish what is inherently, the human experience of all mankind.
What actions can we take that will result in removing central banking as currently constructed ? How does a free people, supposedly, unite to make a flawed system yield to a system that represents reality, is rationale or that can be understood through learning and reason, and is replicable,i.e., it funtions with certainty to the degree that its various aspects and functions are understood according to known economic principles?
When competitive disruptive approaches are introduced by least unknown players and the establishment is left out by the nature of a free market, these monied establishments fear the creation of wealth that supposedly diminishes their standing, and can usurp their own wealth and position. God fobid, the monied elite would need to return to work to continue their life styles.
So, the powerful money controllers are not easily swayed to open the markets to unfettered competition, which they cannot control in some fashion.
On another note, if I were to set my personal principles aside, some of the ideas of proponents of systems that chain or enslaved us, do need to be called for what they are, even if to some, it may be considered vulgar, or a personal attack.
My argument for this position is that if a robber comes into your house to steal your property or take your life in the process, we call them for what they are.
Likewise, a proponent of a system that unbeknownst to us, as we can not know everything about systems that take away our liberties as subtlely as some do, need to be categorized, as the same as robbers who break into to our houses.
They are not any different as to outcomes to the individual - we end up enslaved or imporverished under there misguided understanding of reality, and in many cases, selling and shielding their ideas under the "public good" umbrella.
Reply from The Daily Bell
Good points. Thanks.
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Posted by Gul on 12/07/09 08:58 AM
I know that you are well aware of the situation vis-a-vis the FED.
However I thought you might like to read the article "Bernanke is not the problem" at the following website:
Click to view link
Reply from The Daily Bell
Thanks for the link. We never mentioned our suspicions of the recent optimistic job numbers - this article seems to do a good job of laying it out, among other things.
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Posted by Eric Van Allen on 12/07/09 08:36 AM
Excellent again! Good authors to keep us abreast of.
Question: What would happen, and is it at all probable, that gold could be seen as un-eatable,energy deficient, and just a shiny earth element? I sure can't do anything with the gold I own except protect it.
Reply from The Daily Bell
The history of money market competition has proved out the value of silver and gold over eons. These perceptions are not easily changed, to say the least.
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Posted by Larry on 12/07/09 07:45 AM
Ms. Brown references silver slippers in her 'Wizard of Oz' analogy. The tiniest little problem with this is that the slippers were not silver, they were red.
Reply from The Daily Bell
No, the Hollywood movie changed them to RUBY slippers for some reason, from silver.
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Posted by Gul on 12/07/09 07:11 AM
A succint article that proves my theory that in Socialism, "The RICH get much RICHER; the POOR become much POORER and in ever greater numbers and the MIDDLE CLASS disappears". This to me has always been the mantra and objective of CLASS WARFARE POLITICIANS & BUREAUCRATS. You have explained it in good detail. THANKS again for a great write up.
Reply from The Daily Bell
Thanks for the kind words.
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Posted by Jaci on 12/07/09 02:44 AM
A few Brief comments;
"The World Credit Union"
"Here is what is going to very quickly happen internationally. All of the governments around the world are going to unite. They will create one big giant credit union for collecting the debt for the International Banksters. We have allowed ourselves to get into this very sad situation, but that is the way it is.
And put on NOTICE of the bankruptcy............
Attn: "Public Servant"
On the night of December 23, 1913, the U.S. Congress committed perhaps the greatest act of treason in history. It surrendered the nation's sovereignty and sold the American people into slavery to a cabal of arch-charlatan bankers who proceeded to plunder, bankrupt, and conquer the nation with a money swindle.
The "money" the banks issue is merely bookkeeping entries. It cost them nothing and is not backed by their wealth, efforts, property, or risk. It is not redeemable except in more debt paper. The Federal Reserve Act forced us to pay compound interest on thin air. We now use worthless "notes" backed by our own credit that we cannot own and are made subject to compelled performance for the "privilege."
From 1913 until 1933 the U.S. paid the "interest" with more and more gold. The structured inevitability soon transpired; the Treasury was empty, the debt was greater than ever, and the U.S. declared bankruptcy. In exchange for using notes belonging to bankers who create them out of nothing on our own credit, we are forced to repay in substance (labor, property, land, businesses, resources - life) in ever-increasing amounts. This may be the greatest heist and fraud of all time.
When a government goes bankrupt, it loses its sovereignty. In 1933 the U.S. declared bankruptcy, as expressed in Roosevelt's Executive Orders 6073, 6102, 6111, and 6260, House Joint Resolution 192 of June 5, 1933 confirmed in Perry v. U.S. (1935) 294 U.S. 330-381, 79 LEd 912, as well as 31 United States Code (USC) 5112, 5119 and 12 USC 95a.
The bankrupt U.S. went into receivership, reorganized in favor of its creditors and new owners. 1913 turned over America lock, stock, and barrel to a handful of criminals whose avowed intent from the beginning was to plunder, bankrupt, conquer, and enslave the people of the United States of America and eliminate the nation from the face of the earth. The goal was, and is, to absorb America into a one-world private commercial government, a "New World Order."
With the Erie RR v. Thompkins case of 1938 the Supreme Court confirmed their success; we are now in an international private commercial jurisdiction in colorable admiralty-maritime under the Law Merchant. We have been conned and betrayed out of our sovereignty, rights, property, freedom, common law, Article III courts, and Republic. The Bill of Rights has been statutized into "civil rights" in commerce.
America has been stolen. We have been made slaves: permanent debtors, bankrupt, in legal incapacity, rendered "commercial persons," "residents," and corporate franchisees known as "citizens of the United States" under the so-called "14th Amendment." Said "Amendment" (which was never ratified - see Congressional Record, June 13, 1967; Dyett v. Turner, (1968) 439 P2d 266, 267; State v. Phillips, (1975) affirmed a citizenship"
Did you know that the ABA American Bar Assoc. is a franchise of the Lawyers Guild of Great Britian and the BAR is the British Accredation Reasearch. If you get the chance see Michael Moore's movie Capitalism: A love story
Some interesting concepts ...
Reply from The Daily Bell
Thanks, Jaci, we're familiar with most of these themes. It is also said that the US operates under a perpetual state of emergency and this is a reason for the plethora of executive orders, etc.
