- Corporate-Government-Media Collusion: Loss of Independence is a Killer
- Point of Clarity: Rejecting the ‘All or Nothing’ Canard
- Problems with the ‘Gold Standard’ and a ‘Fixed’ Rate of Exchange
- The Violent Origin of Fiat ‘Legal Tender’
- Designing A More Stable Currency System: Monitored Weight and Purity, Not Corporate Credit Sprees, Not Political Monetary Values
- A Valid Role for the Feds?
- The Crash of 1873 and 11 other Major Banking Collapses: Hard to Blame all these on ‘The Fed’
- A ‘Roaring’ Glimpse of Private Credit
- Call of the Mild: Pointless Chatter about ‘Globalism’ and ‘One Percenters’
Do Americans have the guts to attempt a financial re-set and build a stable currency system? Or do we prefer long-term debt slavery and another Great Depression?
With the national debt reaching absurd heights and personal home/auto/college/credit card debt sucking the joy out of life, it’s long overdue for a fresh look at this ancient topic. If your understanding of financial matters is informed by mainstream news and/or subsidized academics, I’m guessing you may have missed some key points—since both groups love to talk and rant in closed-loop drum circles of irrelevancy.
The core issues of modern finance include the alchemy of fractional money multiplying, the nearly empty banks tottering on collapse, about 2,500% admitted inflationary theft over the last century (actually much more), the fiat mandate to use their “rubber dollars,” and the corporate-government-media collusion that allows all sides to exploit this system.
The ongoing failure to adequately address any of those core topics has led to trillions of hours of squandered labor and the rotten fruits of reckless fiat credit debasement. Until these foundational issues are properly sorted out, cultural progress—or perhaps even survival for many—will be significantly more difficult.
Since user-friendly organization isn’t just for the book publishing industry, I’ve decided to include a table of contents for the section headings of this essay, as follows:
- Corporate-Government-Media Collusion: Loss of Independence is a Killer
- Point of Clarity: Rejecting the ‘All or Nothing’ Canard
- Problems with the ‘Gold Standard’ and a ‘Fixed’ Rate of Exchange
- The Violent Origin of Fiat ‘Legal Tender’
- Designing A More Stable Currency System: Monitored Weight and Purity, Not Corporate Credit Sprees, Not Political Monetary Values
- A Valid Role for the Feds?
- The Crash of 1873 and 11 other Major Banking Collapses: Hard to Blame all these on ‘The Fed’
- A ‘Roaring’ Glimpse of Private Credit
- Call of the Mild: Pointless Chatter about ‘Globalism’ and ‘One Percenters’
Moving on with the body of this essay, with the help of the aforementioned “barbarous relics,” the ten largest banks in the U.S. have accumulated nearly \$10 trillion in assets (as of December 2019), all from the comfort of an air-conditioned office or a business lunch at the Capital Grille. A current listing of the top 100 banks in the world put their combined assets—the titles to millions of homes and businesses, corporate bonds and government IOUs—at many multiples of that U.S. figure.
What virtually no one in any position of institutional authority is willing to admit: nearly all of that money was clipped, skimmed and stolen from the dwindling producers of society. And every bit of that fiat “stimulus” credit is expressly inflationary, corrosive and unnecessary. Failing to face those hard realities, very few are willing to consider the only real options we have left: keep feeding this untamable beast with more debt until the economy implodes and everyone is left working at a Bezos-Gates-Zuckerberg data harvesting fulfillment center, or cancel the debt entirely and put the savings and credit process back in the hands of productive citizens where it always belonged.
An organized debt forgiveness program could also delineate clear boundaries between cancelling fiat credit schemes and (say) giving freeloaders an excuse to trespass “rent free” on an owner’s property. America’s struggles during the 1930s saw a similar debacle from a dithering executive who chose to appease unionized factory squatters instead of protecting property rights—as his own Vice President, John Garner, had privately urged him.
Whether America chooses to implement the deleveraging practice of a Debt Jubilee (which I seriously doubt) or just keeps promoting monetary gimmicks to delay the inevitable implosion (more likely) is largely moot for the purpose of this writing. I’m more interested in the question of what comes next? And I find it useful to start looking for ways to escape from the financial system that has kept millions of people trapped in debt and held hostage to inflationary credit bubbles.
This is not at all to suggest that everyone needs to immediately go “cold turkey” on the banking system. Honest bankers—those dreaded “money changers” some folks mistakenly criticize—can continue to play a vital role in keeping transactions secure, liquid and transparent. ATM vendors and credit card companies do an excellent job of that already, unless you’d rather pay for a new car with a bag of gold coins and settle the bill for a family dinner with a purse of silver shillings. (The most brazen of political windbags uncritically accept bank counterfeiting but bitterly complain about \$2 ATM convenience fees. In other words, financial commentary has long been a magnet for charlatans and quacks.)
Since the experts are largely preoccupied with either exploiting the system or droning on in futility, I’ll do my best at offering the first original idea in financial oversight (that is not totally ridiculous) since at least as long as I can remember. To the dismay of both anti-government purists and pro-government authoritarians, I think there is a positive role that federal and state *governments* can play in keeping the financial scales fair and balanced—if and when sanity ever returns to this land.
Regardless of when and where economic stability next becomes viable, I find it worthwhile to picture a valid target to shoot for—instead of blindly hunting for ogres with plastic spoons. (Left-wing statists shouldn’t get too excited; I’m not suggesting an expanded role for the federal government. And I’m not advocating a return to unregulated “free banking” panics or any fixed-rate metal “standard” either. That chicanery is neither original nor rational—as much as some economics professors may insist otherwise.)
The conclusion I draw from reading a variety of economic viewpoints, working in the “real world” of the private sector (where difficult problems get solved once in a while) and talking to some professional bankers is: lots of folks are saying some interesting things (along with plenty of nonsense) regarding the tail end results of financial manipulation, but most of the public experts seem to be dodging the core issues. Their standard business model of preaching to the converted (i.e., pandering)—always keeping it as safe as possible—seems to preclude common sense solutions that challenge their own prevailing orthodoxies.
For instance, even the best analysts I can find usually avoid the vital topic of rampant, ongoing counterfeiting—not just by the Federal Reserve and the U.S. Treasury, but by private bankers as well. Another huge void is the malevolence of fiat “legal tender” mandates, a vapid term that ignores the violent nature of that practice. As a result, I can’t find anything coherent addressing what to do about those central problems or the staggering debt crisis.
Whining about evil corporate “oligarchs” and “plutocrats” is so dumb I won’t waste much time arguing against that flimsy faux-populist platform. In banking and pretty much everything else, conservatives prefer losing with dignity instead of getting their hands dirty standing up for anything meaningful. I can’t recall anything worthwhile from that camp in at least the last 30 years. Liberal talking points about “public banking” (whatever that means) are about as impressive. In banking and elsewhere, the dominant liberal view reduces to: don’t look for evidence. Trust my unproven theories, immediately, upon everyone. And don’t question my motives or methods. Both are as pure as the “oligarchs” who sponsor my campaign.
That leaves us in a bind. All we have left on financial affairs are some anti-government fussbudgets who put up a bold front kicking the dead corpse of Keynesianism or whatever stuffed suit governs the Federal Reserve, then quickly flame out when it comes to new ideas or practical implementation. Simply urging Washington to Abolish the Fed is not a working solution since it is rejected by at least 95% of Congress and probably similar levels of the general public. Furthermore, it does nothing to address America’s 300+ year burden of private bank counterfeiting—even though Fed dissolution is a good long-term goal. (Yes, fiat banking is a very old menace. All 13 British colonies in North America experienced excessive issuance of Bills of Credit between 1690 and 1764, before the practice was briefly outlawed by the Crown, then reinstated on steroids by us Yanks during the Revolutionary War.)
From a monetary standpoint, we’re left with the giant pile of coin clippings we euphemistically call “credit.” Thanks to the single-issue extremists who dominate education and the know-nothing imperials who occupy mass media, we’re led to believe that society will come crashing to a halt if bankers lose their special privileges to create loans mostly out of thin air. This is no different than saying that historical coin clippers were indispensable for stimulating growth by skimming off the edges of coins and repackaging the wealth for subsequent purchases. That’s partly true, if one narrowly focuses on the people closest to the action. If we broaden our viewpoint, however, we readily see the greater segments of society being ripped off in the process.
Of course, our state-licensed media cartel has nothing enlightening to say on any of these crucial topics. While they have precious little useful information to offer on financial matters, they do provide a long list of experts eager to intone authoritatively about “fiscal policy” vs. “monetary policy” and babble endlessly about “aggregate demand” and “liquidity injections”—hoping we’ll buy their political advice, newsletter or latest book. Somehow, these monetary wizards don’t just miss the pesky nuances of counterfeiting and legal tender mandates, but they almost always confuse bank and government credit inflation with rising consumer prices, and only provide subterfuge for the whole sordid cabal.
It just so happens that corporate media rake in billions in financial industry advertisements—and usually revel in all forms of centralized planning, superficial left/right labels notwithstanding. This year, financial services advertising in the U.S. will bring in an estimated \$18 billion just in digital online promotions, second only behind all combined retail ads (\$33 billion). Retailers also like reckless fiat credit to spur bloated fiat consuming, by the way. As of 2019, combined digital advertising in the U.S. (\$129 billion) surpassed all other TV, radio and newspaper ads (\$109 billion total) among corporate journalists willing to say or not say anything for a fee.
Some may find Legacy media’s constant habit of siding with the biggest bully on the playground to be coincidental. But I don’t. I tend to agree with foreign affairs analyst Caitlin Johnstone’s general assessment on such matters:
It has been my experience that if someone seems to be totally incompetent but every “oopsie” they make just happens to end up benefiting them, it’s manipulation you’re dealing with, not incompetence.
The highly competent but bombastic partisans of AM talk-radio and cable TV news are probably the worst offenders here, but pretty much all of commercial media soils themselves in this regard. An abundance of evidence suggests that accepting bribes gradually dulls the senses and makes a person susceptible to moral compromising and also prone to flights of megalomania. The widespread media support for mass killing, grand larceny and automatic censoring of dissenting voices would be some examples of such pathologies. Another part of that territory includes steadfastly pretending that a bribe isn’t really a bribe.
Knee-jerk conventionalists often protest at this consideration, reflexively blurting out: “We have no other choice!” Which is complete nonsense. There’s always a better way than auto-neurotic surrender to mindless corporate conformity and the intellectual straight-jacket that goes along with that heavy coat of arms. It just takes a little effort.
Put another way, loss of independence is a killer. Unfortunately, many subsidized academics fussing about these topics (incessantly for generations) don’t do much better than the comfort boys and girls of Legacy media. I find it interesting that the same folks who howl about tiny perceived “privileges” for white males somehow overlook the massive privileges of banks to multiply small seeds of their own capital into overgrown hedges of interest-bearing loans. I also find it revealing to hear large segments of official media decry petty “drug dealers” and condemn beneficial energy “fracking” but never use such inflammatory or descriptive language on the vastly more dangerous debt dealers and financial frackers poisoning our culture. That universal double standard is no accident either.
To keep things fresh and provide a few ideas you probably haven’t heard elsewhere (I certainly haven’t), I’ll move on to an important general concept.
A major point of confusion leading to enormous misapplication of “monetary policy” is the false option of total federal control versus state/local government monitoring. Thanks to so much political noise from professional pundits and leashed academics, these options are either blurred together or completely obscured with the foolish choice of Big Government or No Government at all. Regime liberals, conservatives, socialists and libertarians all make this same mistake to various degrees. (With subsidized academia—a \$649 billion industry as of the Fall 2016 to Spring 2017 school year—dominated with 97.5% of revenue going to tax-favored governmental and “non-profit” colleges, any token residue of independence was squelched long ago in the atmosphere of elites jostling for attention.)
For the rest of us who live outside that shimmering retreat, I’ll explain what I mean. Two good examples of the all-or-nothing distortion involve money and energy. With monetary policy, public officials have long maintained that Washington must have complete dominion over the issuance and valuation of currency. Even a staunch “gold standard” man like President James Garfield said so during his inaugural address of 1881:
The chief duty of the National Government in connection with the currency of the country is to coin money and declare its value.
This seemingly innocuous but dangerous assumption was last considered in three trials decided in February 1935, when the U.S. Supreme Court (by a 5-4 vote each time) approved Roosevelt’s repudiation of the gold standard that he had summarily terminated two years prior—abandoning his campaign promises from 1932. Even contemporary critics of those rulings (like Garet Garrett writing in the Saturday Evening Post) felt a need to confirm that “government must have dominion over money” because “it cannot be trusted to lie in private hands.” (Once again, we see why opposition to the New Deal failed so badly. Milquetoast Republicans have only gotten meeker since then.)
What so many conservative and libertarian “gold bugs” fail to grasp is that America’s gold standard (terminated for domestic use by FDR in 1933, then cancelled for international finance by Nixon in 1971) was a ticking time-bomb from the start. Sure, it was better than Indians trading Manhattan for jewelry beads or African chiefs exchanging human captives for guns and brass pans. But that’s not saying much.
If you regularly read any of the economic writers featured at ZeroHedge or LewRockwell—two of the better financial thought repositories in the country—you’ve probably noticed that the phrase “gold standard” tends to make conservatives woozy just like some people swoon to exaltations of “family farmers” and “senior citizens.” In all three cases, overuse of these jingoistic terms has led to very costly misunderstandings. In the case of money, the mistake is in the “standard” part. An ounce of pure gold is not a “standard,” it’s a physical measurement. It cannot be manipulated by politicians without being quickly detected by the general public. In other words, stable money not only has intrinsic value but also inherent transparency. Once you let politicians “declare its value,” we’re talking about a whole new shell game. One that’s always rigged in the house’s favor.
Furthermore, any fair economic “standard” would embrace something that a buyer and seller work out together to offset cost and quality to their mutual satisfaction. The private sector does that all the time in areas of food, clothing, housing, furniture, appliances, driving, shopping and thousands of other large and small ways. The key aspect here is balance. That is, both sides having a real voice and the freedom to make an informed choice.
A government “standard” is unilateral by nature; so is the handiwork of a corporate cartel. No real choice is offered or allowed. In monetary terms, no one voted to discontinue the gold standard in 1933 or 1971. And no one knowingly accepted fraudulent bank notes before that. Those were “edicts” or criminal deceptions issued with scant consideration given to the weaker parties, namely, citizens owning gold and companies conducting business in hard currency. Frustrated bank customers just got to stand in lines outside of a locked financial institution. Bewildered voters and business owners got smarmy speeches and newspaper headlines telling people how lucky they were to have such bold political leadership.
Considering the inherent imbalances to any government “standard,” it should be apparent that such an approach was doomed to fail from the start—as it did during numerous “panics” throughout the 1800s and most dramatically during Lincoln’s Greenback-fuel excursion against half the nation. Contrary to so much hype about the “classical” gold standard, fixed government ratios tying an ounce of gold to \$20.67 in paper currency (for a while) or attaching an ounce of gold to 15 or 16 ounces of silver (during the “bimetallic” period of 1792 to 1873) were both recipes for disaster. Giving the government arbitrary power to assign a fixed rate of exchange for gold and silver, or either of those precious metals with paper dollars, invites further chicanery when inevitable cracks develop in the foundation.
To some degree, the mistakes of the Founding Fathers are understandable because the world supply of gold and silver was relatively stable during the Revolutionary era. Then in the late 1840s and early 1850s, large gold deposits discovered in California and Australia made gold more abundant in relation to silver. So silver became more valuable in a bimetallic system and was “hoarded” by the public, leaving less reserves for “debt instruments” from banks. Then in the 1860s and 1870s, miners at the Comstock Load in Nevada brought tens of thousands of tons of silver to the surface, plunging silver prices and leading to public storage (i.e., private credit) of the more valuable gold. Subsequent discoveries of gold in South Africa and Alaska in the 1880s and 1890s further destabilized the legally “fixed ratio” approach (then in dollars to gold) in a sclerotic federal system.
In the more decentralized energy sector, petroleum markets have consistently adjusted in a significantly more volatile supply and demand landscape for over a century—despite the monetized “shale boom” in the U.S. and OPEC attempts at price fixing in recent generations. Thankfully, America had some semblance of a free press and a (privately) well-educated populace when petroleum became widely available in the late 19th century. Politicians and their corporate sponsors have not quite been able to permanently corner the oil market to fleece the public—although J.D. Rockefeller and his Standard Oil monolith gave it their best shot.
Compared to the great robber baron of Standard Oil, commercial bankers got a two century head start in rigging the financial scales, bailing out kings during periods of war and funding corporations desperate to monopolize some emerging market—always at a steep price. When modern banking—including the lure of promissory bank notes—became commercially viable in the 17th century, there was no free press and no widespread understanding of economics. Ever since, wealthy banking clans have had the means to multiply every dollar of initial capital and subsequent deposits into \$5 or \$10 dollars of fiat credit—or even more among “wildcat” banks of the 19th century that got really hungry then soon went belly up.
The ongoing money multiplier effect (lost in jargon about “fractions” and “reserves”) helps explain why the U.S. has a total of \$75.5 trillion (as of 4th Quarter 2019) in outstanding credit (same as debt), but only \$4.0 trillion circulating in M1 physical cash plus checking accounts (4Q 2019). The M2 money supply (M1 plus savings accounts and money market funds) then stood at \$15.3 trillion, largely inflated by the \$75.5T in easy credit.
Nevertheless, liberal and neocon economists insist that “banks do not create money out of thin air.” So when banks instantly conjured trillions in today’s dollars to finance World Wars I and II (and hundreds of other conflicts before and after that, and the welfare state of the 1930s to present) this wasn’t “money creation.” No, not at all. Those civic-minded institutions actually had war chests of real money tucked away precisely for those contingencies. Thank goodness we have charitable bankers to Make Warfare and Welfare Great for All Times! This faux-liberal and neo-clown ideology may reflect some people’s desire for fiat deficit spending to fund their social engineering adventures. And such experts may possibly be angling for a job in central banking or at a government university, both of which also admire unlimited deficit spending.
The more “conservative” bankers, likewise, enjoy deficit financing from “thin air” or technically their computer terminals. And they learned from experience that when the inevitable credit cycle leads to a contraction (people consuming more and more resources to pay down prior debts instead of buying new items), fire sale bargains would be theirs for the taking. Fiat bankers always made sure to obtain inside access to princes, presidents and corporate boards who all wanted rapid funding for their various speculative projects to rob and pillage.
As an independent press became boisterous in the late 1800s and early 1900s, savvy bankers just bought off the publishers or bludgeoned anyone who had figured out their schemes. The popular Radio Priest, Father Charles Coughlin, was the last one who dared to speak out against banking corruption during the 1930s, and was systematically destroyed by FDR and other powerful entities as a public example. Independent newspaper publishers William Randolph Hearst and Robert McCormick—both immensely popular in their days—didn’t directly go after the banking industry, but fought back against reckless fiat spending and met a similar fate.
But rampant counterfeiting privileges were and are not the only weapons tucked away in the bankers’ gilded briefcases.
Here is another area where it helps to go back to the beginning to understand what’s happing today. The term “legal tender” has been so stripped of its original meaning as to now imply that we’re allowed the privilege to use some specific type of currency. Even in the late 19th century, the ridiculous nature of fiat money was lampooned in the press, as shown in this 1876 illustration by Thomas Nast.
In reality, merchants are forced to use anything declared “legal tender,” no matter how worthless, with no questions asked. If a creditor declines to accept any legal tender, the debt is immediately cancelled. That critical “fiat” mandate allows banks and governments to counterfeit and debase to their hearts’ content, as central banks across the world are currently doing.
As of early April, financial guru Egon von Greyerz noted that global debt was \$14 trillion in 1981, but jumped 19X to \$265 trillion in 2020. Fiat “legal tender” mandates played a major factor in that explosion of easy credit becoming crushing debt. It also begs the question that government officials refuse to answer: If central banks and/or private banks are not counterfeiting credit from “thin air”—where is all this debt coming from?
How did we get something so plainly absurd? Mainstream economic texts (and Wikipedia’s account for legal tender) strangely omit its origin. For that, I was lucky to stumble across Richard Maybury’s book Whatever Happened to Penny Candy a few years ago. In the sixth edition (published in 2010) page 35, he states:
Back in 1270 A.D. a government that ruled much of Asia was led by Kublai Khan. … He wanted silver and gold very badly, so he invented paper money, “paper gold,” as a substitute. If he needed twenty ounces of gold to buy something, he would write “Twenty Ounces of Gold” on a slip of paper and sign his name to it.
The above passage gives a good representation of Mr. Maybury’s writing style in this book, which is intended for younger audiences (as the gumball machine on the front cover also indicates). After subsequently reading other more “scholarly” economic texts, I recently went back and re-read Penny Candy and found a new appreciation for Maybury’s clear, and sometimes unflinching, information presented in such simple prose.
By the way, I’ve made it a point to skip the obligatory references to economic royalty for this essay. Sure, I’ve read a bunch of their stuff, and very little of it impresses me. I’ll elaborate to that end in my next writing in a month or so. For this article, I deliberately chose to bypass the academic jet set and use readily available internet experts as much as possible. One other exceptional book that helped my general understanding of 1920s to 1940s economic history is Robert Murphy’s Politically Incorrect Guide to the Great Depression and the New Deal. A nice feature of Mr. Murphy’s book (which I’ll be quoting as “P.I. Guide” for short) is his inclusion of lengthy excerpts from other good books on those related subjects.
As for legal tender, Mr. Maybury’s choice of target audience probably led him to be generous with Kublai Khan (“a pretty mean guy”). So I’ll elaborate a bit for us hardy adults. The brutal Mongolian emperor Kublai Khan was the grandson of Genghis Khan, a complete madman who mined new depths of savagery against his conquered opponents and no doubt contributed to the climate of fear that later made fiat currency acceptable. In a recent account on China’s significantly milder crackdown on Hong Kong protests, the Economist notes Kublai Khan’s tactics in which his “Vanquished local rulers, if lucky, might be granted a princely death, sewn into a sack and then trampled by horses.”
In Wikipedia’s multi-culti whitewash of Kublai Khan’s history, it skips the brutalities but does obliquely mention “Kublai Khan is considered to be the first fiat money maker.” In a more interesting side note they add:
To ensure its use, Kublai’s government confiscated gold and silver from private citizens and foreign merchants, but traders received government-issued notes in exchange.
Supporters of Franklin Roosevelt may be surprised that a progressive champion of the 20th century used similar economic tactics as one of the cruelest barbarians in world history. But FDR’s confiscation of gold in 1933 showed utter contempt for the American public while it wreaked havoc on the U.S. economy. His mad drive to bring the nation into Europe’s next war less than a decade later arguably showed a similar contempt.
Moving on to the French Revolution, the “legal tender” approach would once more be used to aid mob justice. Maybury notes:
In the 1790s, the French government was doing the same thing Kublai Khan had done. It was printing phony money and backing that money with a legal tender law. If a person refused to accept the paper money in trade for his goods or services, his head was chopped off by the guillotine.
Around that same time, during our own Revolutionary War, America’s democratic leaders were equally persistent but a bit less violent. When the early U.S. government was printing worthless Continental dollars, in Mr. Maybury’s words: “anyone who violated the legal tender laws was charged with treason and thrown in jail.”
After what Lincoln did to the South (using Greenbacks as legal tender), Wilson did during World War I (using Federal Reserve Notes), Roosevelt did during his Depression and World War II—plus generations of mass schooling and state-sponsored media—American conformity is such that the inherent abuse of “legal tender” statutes barely gets noticed.
Designing A More Stable Currency System: Monitored Weight and Purity, Not Corporate Credit Sprees, Not Political Monetary Values
With mainstream press independence now in tatters, it’s rarely acknowledged that government always had (and still has) the option of allowing competing currencies with 100% gold or silver backing, to be monitored for reserve quantities and purity instead of consolidating complete and arbitrary control over the entire process to a quasi-federal agency. Why does that matter? After ceding control of monetary policy in 1913, government (and banking) competence in protecting the value of money went so poorly that anyone who saved a dollar back then, if they were still living today, would now have under 4 cents of equivalent purchasing power. That’s an over 96% loss of value, by the federal government’s own crooked figures. (More accurate data from ShadowStats suggest over 99% loss in U.S. dollar value for 1913 to present, when you plug in traditional BLS inflation measures starting in 1984.)
For a stark comparison to that federal debacle, we can again look to the important topic of energy, which is efficiently provided from leaving the oil and gas business largely private and decentralized. A common myth persists in Hollywood and state media that the energy sector is “unregulated,” which couldn’t be farther from the truth, and may reveal their intent for making energy (like everything else) fully nationalized.
From a consumer level, public energy policy gets most visibly implemented at the gas pump and on the highway—with state and federal fuel taxes for state and federal infrastructure spending being the most obvious results. But a more important “consumer protection” occurs behind the scenes, with virtually no public appreciation. Maybe that’s because it works so well.
In the elaborate process of petroleum being located and extracted from the earth, temporarily stored at the wellsite and then transported as crude, intensively refined into useable fuels, further transported and stored at bulk terminals as a product, then finally sold in the competitive marketplace, its owners must navigate a multitude of laws and rules. These directives cover mineral rights, royalty payments, a slew of taxes, pipeline regulations from FERC, environmental controls from EPA, internal quality controls from bulk buyers, then other regulations at the pump. (Did I mention the lying liars who still call the U.S. energy sector “unregulated”?)
For this essay, I’ll focus on the tail end of the process—arguably the most reasonable and least appreciated aspect of the complex energy gauntlet. That is, ensuring that a “gallon” of gasoline is still 128 fluid ounces of strong-burning petroleum after all these years.
I can safely assume there is not a single gas station in the U.S. that is so crooked that when you try to buy a gallon of fuel you only receive a pint or a cup. If you did, that would be a criminal offense to be swiftly enforced by State Bureaus of Weights and Measures (like this one in Texas, this one in California or any of the 48 other comparable state administrations, with regional offices serving every town, village and city in America).
A similar point can be made about states ensuring the quality of gas, such that the standard 87, 89 or 93 octane fuels you see labeled at the pump actually contain that much useful energy—not gasoline diluted with 96% water. The monitoring of those important standards comes from the same state agencies noted above. (Regarding fuel quality, consistent with Congressional legislation, the federal EPA just barks out expensive and conflicting mandates such as: more ethanol (and corn fertilizer pollution) to appease the Farm Lobby; wait, make that lots more ethanol! More MTBE to cut smog pollution. No, less MTBE to reduce groundwater contamination! More BTEX to replace lead… no wait, the “b” stands for benzene, that’s bad. So, definitely less BTEX! Drop everything and re-design your refineries now or we will shut you down!!! Besides that expert advice, the EPA doesn’t actually help the public ensure the stated octane rating of gasoline is what it’s supposed to be. The private sector does most of the hard work; state agencies keep a steady watch. And thousands of gas stations across the land help provide freedom of mobility to the entire nation.)
That is to say, Americans benefit from transparent government monitoring at the point of sale, not manipulative federal control from oil well to refinery to transportation to gas station. Certainly not from the government outlawing, then monopolizing and secretly administering all “hard” measures of quantity or quality (ala FDR’s gold heist of 1933 and subsequent Fed tinkering). If such a dollar-like devaluation of gasoline was ever to occur, only the most slovenly corporate shill would try to excuse that away as natural “inflation.” Come on you people! You can’t expect a gallon of liquid to still be a full gallon after 100 years! You can’t expect gasoline to actually “burn” like it once did! Yet it is. And it does.
Now I’m sure many will incline to say something like: “that’s easy… a gallon is a physical unit of measure.” But so was a “dollar,” once upon a time. As discussed in Richard Maybury’s Whatever Happened to Penny Candy, for centuries in the Western world, a dollar (derived from the Bohemian thaler coin) was universally understood to be a fixed weight and purity of silver within a given region, not a political “standard” to be arbitrarily altered on a king’s whim. (The U.S. Treasury’s own gold certificates loosely mimicked this concept for mainly \$20 bills and above until 1933 and their silver certificates did likewise for \$1, \$5 and \$10 bills until 1964.) The vital tool of a stable currency helped societies climb out of the depths of the Dark Ages and feudal bondage by establishing a sound economic foundation for trade and investment. Without a stable currency, servitude to tyrannical overlords and remote bureaucracies is now making a resurgence—although ruling elites never connect the dots on this elementary cause/effect relationship.
As far as stability goes, with about 190,000 tons of gold now residing in human hands, that should provide an excellent anchor for any financial storms that our cast of political and corporate leaders steer themselves into from year to year. The alternative of “rubber dollars”—to borrow a phrase from former New York Governor and Democratic critic of the New Deal, Al Smith—has proven to provide only an illusion of temporary stability.
The politicized management of the money supply—throughout the tumultuous 1800s, getting worse in 1913, shooting for the moon in 1933, then completely launching into the abyss in 1971—has consistently failed in its mission to protect the value of our currency. The appeasers and crooks running the federal government, education, mass media and major banks just make effective “regulation” look complicated with their fiat junk money and flurry of technical jargon to mask their intentions. But protecting the value of real money is not that difficult, if we stay focused on what matters, and reject the false all-or-nothing extremism of the chattering classes.
Is there any valid role for the federal government in effective monetary policy? Sure. It’s called “regulating interstate commerce,” as originally intended by the Founders. This concept is also backed by a common sense recognition of what works in the real world versus what may seem plausible in academic philosophy models.
Article I, Section 8 of the Constitution conveys federal power to “regulate Commerce… among the several States” and calls for the “Punishment of counterfeiting.” Although both quoted terms are poorly defined, a Wild West interpretation of anything goes relating to private bank counterfeiting—or even a managed Federal fiat system—would seem absurd.
The same section of the Constitution establishes a federal role:
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
“To coin Money” explicitly signifies hard currency. Since the passage deals with money and nothing else, fixing a standard cannot reasonably be read to mean arbitrary measures of money nor issuing paper fiat currency—the latter of which eludes both weighing and measuring. Furthermore, the Founders were probably well aware of the inflationary disasters experienced by all 13 colonies during the early to mid-1700s (Bills of Credit) and certainly the experiment with worthless paper Continentals during the Revolutionary War.
Article I, Section 9 of the Constitution goes on to state:
No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another;
Here we see a prohibition against federal preference favoring one state over another. Since all 13 colonies had ocean ports, and interstate land travel was then very difficult from a commercial standpoint, shipping from state ports was a major means of commerce.
Lastly, for this Constitutional primer, Article I, Section 10 states:
No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts;
Probably everyone reading this except trained lawyers and economists fully comprehend the significance of the “gold and silver” requirement. More broadly, I don’t see what’s so complicated in any of the above Constitutional language. Fiat paper printing and electronic credit issuance are both harmful and blatantly illegal.
So why doesn’t everyone already know this? Two big reasons come to mind. First, fiat “printing” of money from thin air allows deficit spending for offensive wars and social programs without the hassle of unpopular tax increases or Congressional oversight. This very act of inflation (not to be confused with rising prices) gives early participants valuable dollars before main street citizens figure out what’s going on. To put it mildly, politicians, bureaucrats, bankers, farmers, financial planners and public corporations all really LOVE inflationary spending.
The second contributing factor I see is the more general attitude of elitism infecting many institutions and their members who have grown to expect political favoritism. Within this toxic subculture, people trained in the mercenary arts of rhetoric and debate—augmented by a titled position of nobility (also Unconstitutional, by the way) and indoctrinated into moral relativism (complete legalistic hypocrisy, by the way)—will argue just about anything for the right price and a front row seat to the main event. In a command economy with trillions in subsidies chasing lucrative handouts for powerful special interests, there’s always a willing participant eager to join the club.
Of course, the prevailing fog of madness didn’t settle in overnight. I view it more as a gradual process of compound interest. Or what one Canadian poet called “glittering prizes and endless compromises.”
Based on common practice in early U.S. history, regulating interstate finance would logically mean preventing states from issuing special charter privileges or other credit issuing rights exclusive to their favorite campaign donors, at the expense of people living in the other 49 states. This would mean prohibiting state bans on interstate (or “branch”) banking, an extremely common and foolish state endeavor that led to thousands of U.S. bank failures in the 1930s.
In comparison, Canada did not employ such crony-capitalist bans on branch banking and did not have any bank failures during the Great Depression. It’s funny how open markets work—even in banking—and corporate-state favoritism does not. New Deal scholar, Robert Murphy, points out that (P.I. Guide, pages 125-126):
it was mostly small regional banks that failed during the banking panics of the early 1930s. … Given these realities, one would have expected that most bank offices would be served by large chains, as it were, so that the risk of regional distress could be handled through diversification. But small-town bankers successfully lobbied many state governments for “unit banking laws,” which prohibited branch banking. This made the entire U.S. banking system much more vulnerable to the deflationary stresses after the stock market crash. Thousands of U.S. banks failed during the panics of the 1930s, most in states with unit banking laws.
In contrast, Canada allowed branch banking and experienced zero bank failures during the Great Depression. According to Milton Friedman and Anna Schwartz, in Canada “ten banks with 3,000-odd branches throughout the country did not even experience any runs,” even though Canada experienced the same decline in its quantity of money as the United States did. (bold mine, italics his)
Here we see a rare, but dramatic, example where federal lawmakers could and should have taken action in financial matters. Perhaps the greatest need for federal involvement in any multi-state commercial arrangement is when one or more states decide to set up barriers to restrict or prohibit citizens from another jurisdiction from engaging in business across state lines. This is precisely what “regulating interstate commerce” was all about: adjudicating state conflicts and increasing interstate commerce; not blindly allowing cross-state blockades and issuing millions of restrictive federal mandates on business.
Allowing the federal government monopoly authority to assign monetary exchange rates is a lot like giving them the power to declare energy bartering rates. For instance, some learned scholars may calculate that (at a given moment) the ratio of gasoline’s value to diesel should be 5 to 4. And maybe gasoline to ethanol should be assigned a 3 to 2 ratio. Throw in more official measures to relate those fuels to coal, natural gas, nuclear power and solar energy. And make all of them ostensibly “fixed” for years, or perhaps decades, with an encyclopedia of definitions, qualifiers and caveats for remote experts to wrangle with.
Even if “classical energy standards” appeared to work for a few weeks, as soon as new developments (like U.S. shale) or foreign competition (like Russian and Saudi oil dumping) altered the scales, society would be subject to deformities—and potentially huge, unearned profits to whatever party had access to inside information on the fluctuating value of such commodities. Politicians would have endless opportunities for kick-backs from energy producers seeking advantages against other business, as they do now from the financial sector.
The previous “gold standard” and the current Federal Reserve system don’t do anything to address the problems of fiat “legal tender” and inflationary bank credit. Political and academic exhibitionists—being habitual conflict avoiders—would rather put on airs bickering about anything except those intractable cores issue at hand. Fed critics and supporters both frequently complain about the timing and amount of central bank interest rate increases or decreases, as if adjusting the dials on a broken car stereo will somehow create a beautiful symphony. But that’s all a distraction too.
The main benefit of Fed interest rate adjustments is to keep the fiat money game going by taking the harsh edges off the predictable boom/bust credit cycle. This monetary version of “flattening the curve” keeps the virus alive and mutating within our culture. And it gives the public a false sense of security that government agencies are “doing everything they can,” which protects politicians from mass voter revolt.
A major reason, I suspect, that America is not doing anything valid to combat the growing debt problem is the garbled message being offered by so many entrenched economic experts. Gratuitous Fed bashing unquestionably adds to the confusion.
One of the clues that Fed critics aren’t telling the full story comes from the many inflationary collapses that private banks caused prior to the Federal Reserve Act of 1913. One liberty guru, Michael Rozeff, writing in March on a fiercely anti-Fed website administered by Lew Rockwell, inadvertently left clues to that effect:
Financial markets are experiencing an old-fashioned panic, like those of 1819, 1837, 1857, 1873, 1893, 1907, and 1929.
Former college professor, Rozeff, was making a point about the financial “panic” of 2020 (academics just love that word) and may have accidentally admitted more than he wanted to. His list of major “panics” (more accurately, inflationary bank bubbles) largely matches the standard list of “banking crises” available from a popular online encyclopedia. Mr. Rozeff left out calamitous U.S. banking “panics” of 1792, 1796, 1896, 1901 and 1914, but we get the drift.
Those 12 painful events listed above are just the major, multi-state or nationwide banking collapses occurring over the roughly 140-year span of 1790 to the start of the Great Depression in America. This doesn’t even include the many fraudulent international credit and stock market swindles from the Netherlands’ tulip mania of the 1630s to France’s Mississippi Bubble and Britain’s South Sea Bubble around 1720, and many other ruinous plots of lesser infamy. In all three noted cases, great piles of paper wealth were created on speculative fantasies, then vanished in an instant when the credit bubbles burst.
Back in the United States, based on other anecdotal snippets, I suspect a full accounting of all state and local bank run periods in the U.S. would be much longer than those 12 listed dates. But such information is not readily available at this point. That information could be embarrassing to academic elders who have allowed this graft to persist for America’s entire history, while offering only snake oil and slogans to forestall the next big catastrophe.
For this segment, I’ll focus on the depression that started in 1873. A cartoon published that year of a giant ghoul named “Panic” is shown sweeping away financial garbage from Wall Street, as obtained from the link above.
Prior to the Great Depression of 1929-45, the longest depression in the U.S. ran from October 1873 to March 1879. This painful 65-month contraction was a period of “tens of thousands of farms that had been foreclosed… few banks that had come through unscathed; of many men who were jobless and mobs that roamed the streets” as future U.S. Treasury Secretary Andrew Mellon (1855-1937) would later tell President Hoover, as recounted in Hoover’s memoirs. (P.I. Guide, pages 28-29).
Sloppy historians now call this “The Panic of 1873,” making it sound like an emotional public overreaction caused the problem, which was hardly the case. If we were to assign a more accurate title for this event, it could be known as the Greenback Depression or possibly the Railroad Bubble Depression.
For a little more background, I’ll refer to our very own Public Broadcasting System:
Since the end of the Civil War, railroad construction in the United States had been booming. Between 1866 and 1873, 35,000 miles of new track were laid across the country. Railroads were the nation’s largest non-agricultural employer. Banks and other industries were putting their money in railroads. So when the banking firm of Jay Cooke and Company, a firm heavily invested in railroad construction, closed its doors on September 18, 1873, a major economic panic swept the nation.
Jay Cooke’s firm had been the government’s chief financier of the Union military effort during the Civil War. The firm then became a federal agent in the government financing of railroad construction. … A startling 89 of the country’s 364 railroads crashed into bankruptcy. A total of 18,000 businesses failed in a mere two years. By 1876, unemployment had risen to a frightening 14 percent.
What PBS couldn’t bring itself to admit: Lincoln’s Greenback war stunt encouraged banks to hand out far more loans than they had in deposits, stock speculators tried to get rich quick from the scheme, grants of free land to political allies fueled the madness, the orgy of easy credit came crashing down with a loud thud hurting millions of innocent farmers and non-farm employees for years, then big bankers like J.P. Morgan (1837–1913) swept in to gorge themselves on the carnage. A similar story is probably true of every “panic” noted above.
The standard four-step banking routine (inflate/boom/bust/mop up)—used skillfully in the 1870s and over the next three decades by the House of Morgan—helps explain why in 1913, a U.S. Congressional committee investigating the “panic” of 1907:
unanimously determined that a small cabal of financiers had gained consolidated control of numerous industries through the abuse of the public trust in the United States. … and found that the officers of J.P. Morgan & Co. also sat on the boards of directors of 112 corporations with a market capitalization of \$22.5 billion (the total capitalization of the New York Stock Exchange was then estimated at \$26.5 billion).
To dispel any thought that such corporate-banking collusion ended with the Federal Reserve Act, I’ll note that as of 1921, legendary Republican banker Andrew Mellon served “on the board of more than 150 corporations,” according to pro-banking author Amity Shlaes. Since Wikipedia characteristically butchered the rest of the transition story in the prior link, I’ll give it a shot.
In the banner year of 1913, bankers leveraged their own corruption to persuade politicians to create a Central Banking cabal (The Fed) that would soon help drag the nation into America’s first purely ideological war and handsomely enrich the bankers. The federal government’s failure to prevent illegal state laws against interstate banking and the states’ failures to enforce uniform weights and measures of money backed entirely by hard assets were exploited to radically amend the Constitution and create vast federal powers to confiscate personal incomes.
That’s what an objective person might call a “panicked” overreaction, to put it generously.
After the war fever of the ensuing years finally subsided, competent political leaders allowed the 1920-21 depression to naturally work itself out, with no “stimulus” shenanigans. That left the remainder of the decade largely free for business expansion and job growth, and the resumption of a longstanding practice with credit of another source.
The 1920s were pivotal in American history for another reason rarely mentioned: very few people then were “educated” into the belief that you can’t survive without bank credit. Oh sure, country banks had bamboozled many pioneer farmers—clinging for dear life to their free government homesteads—into believing they needed easy credit to nurse their crops from seed to market, triggering severe agricultural boom/bust cycles since the 1870s. Commercial banks had engaged some major industries (railroads, steel, oil, etc.) hungry for liquid capital to bury the competition, giving us monopolies and labor strife. (Focusing on the labor-management class warfare meme, many academics overlook the underlying harm from the artificial boom/bust credit cycle that created unemployment and business consolidation.) But beyond small-scale farming and some major industries, the general public was too busy working and saving to bother with bank credit for immediate consumption, homes or college (which few Americans then utilized).
Reliance on bank credit would not come into vogue for the general public until Hoover’s spending panic of 1932 when he eagerly signed the Federal Home Loan Bank Act. That concept was further enlarged by FDR in 1934 with his National Housing Act and its sprawling bureaucracy to convince the American public they needed to buy an entire house on long-term bank credit. Since the Hoover and New Deal approaches were pure “free lunch” economics that resisted deflationary price stabilization, those “stimulus” packages failed like everything else they cooked up from their smorgasbord of charts and tables and artificial uplift programs. The entire decade of the 1930s saw nothing but one stimulus spending/hiring/supply cutting/demand boosting/price fixing scheme after another—resulting in prolonged farm collapses, business failures, high unemployment and widespread despair.
Prior to the 1932 and 1934 federal housing laws, nearly everyone saved and paid cash for their homes. Productive businesses in the 1920s had built up their own stores of credit to sell cars, tractors, furniture, refrigerators and other appliances on secured, short-term “installment” credit, not long-term bank credit conjured mostly out of thin air. And the decade was “roaring” with high employment, wage growth, and federal budget surpluses every year.
Using common data as cited in Wikipedia, following World War I the low-tax, low-spending regimes of mainly Harding and Coolidge gave the federal government “11 consecutive surpluses that saw the [massive war] debt reduced by 36% by the end of the 1920s.” (Robert Murphy and others have made a similar point, but Wikipedia provides easier online verification.) Note that pro-stimulus economists steadfastly insist the 1920s experience to be impossible; they say only fiat deficit spending can spur economic growth during or after a recession.
The good times would last until Hoover took office in March 1929 and completely overreacted later that Fall when a bank-fueled boom in the stock market—utilized by very few Americans then—corrected itself. The educational website Sutori gives a glimpse into America’s modest credit situation in the 1920s, although I think they get cause and effect mixed up covering subsequent turmoil. (I should note that by “private credit,” I’m not referring to the stock exchange of dubious accounting, absentee ownership, corporate politicians and passive “investors” who speculate in that casino. I prefer to leave all that for the robots.)
War enthusiasts may think that a lack of bank credit will leave us defenseless. But that’s not the case. Under established practice, Washington has the right to “conscript” anyone into the local military factory or off to the battlefront as needed. For the women, children, college students and seniors left behind, they can live off of rationed food, Hollywood good cheer, and a guaranteed basic income. One might consider such people to be “credit slaves” of the federal banking store, which is not all that different from what we’re experiencing now, in times of relative domestic peace. Without access to easy credit, politicians would have a tougher time selling the public on the true costs of war, which only become apparent after a nation has committed to battle and—under the present system—the final bills come due many years later.
Although we’re far from the happier times of private credit for the masses, individuals can still move in that direction if they choose. This choice might be a little more appealing if appointed “experts” of the financial craft checked in on reality more often.
Since the internet has proven to be an excellent tool for allowing the public to share information, I maintain hope that greater awareness of financial affairs will continue to develop. While complaints about the Fed often have some level of coherence beneath much superficial posturing, there’s a bit more to the story of counterfeit credit inflation, as I’ve tried to address.
Considerably lower down the intellectual food chain, we have the faux-populist reactionaries. Their jingoistic slogans don’t really form an “ideology,” but rather a few random thoughts grafted onto whatever convenient scapegoat is available. The divergent strains of this fevered infestation usually target “Jewish bankster money” or unspecified “corporate” treachery of the hated 1%, which only distracts people from real corporate misdeeds. This sad but energetic lot would include the Occupy Wall Street protesters who got dressed up as corporate zombies and marched through lower Manhattan in 2011 with signs saying “money hungry fascists are dead inside.” For people seeking more of that stuff, stayed tuned for the comments section, where the undead live forever.
Along those lines, the monotonous opponents of “globalism” should help us understand—what on earth are you fussing about? If you’re against global government, I agree. If you’re against international trade, count me out. If you’re resentful towards any person anywhere in the world earning one dollar more than the laziest, dumbest and greediest person in your village… please state that clearly up front, then just go away. Whining about unspecified dangers of globalism just feeds our state of confusion and empowers the evil “One Percenters” that profit enormously from government favor.
What’s so good about “global” or rather international trade? Well, since Robert Murphy answered that succinctly, I’ll just quote him:
If every individual were forced to grow his own food, sew his own clothes, and build his own home, it would certainly “create employment”—people would be working fifteen-hour days just to survive. (P.I. Guide, page 45)
Instead of that atomized individualism, when people are given “the option to specialize in one occupation” while profitably “trading the surplus with others” it allows everyone to work less and live better.
For the protectionist wing of the anti-globalist bloc, why stop at national borders? Why not protect local jobs at least within your given state or province? Why should anyone be legally able to buy gasoline refined in Texas, lettuce grown in California or trucks assembled in Ohio if they live outside of those states? Wouldn’t it be better if every state were fully independent (and isolated) in all economic matters?
How has U.S.-imposed economic isolationism helped Cuba, North Korea or Venezuela? Scratching beneath the veneer of indignation, most talk of “globalism” and “One Percenters” boils down to angry children banging their plastic toys on the floor. Yes, you got Mommy’s attention. Now get your poopy diaper changed and take a nap. Then maybe formulate an argument with some merit.
One note I’ll add on internet relevance: without independent websites balancing the relentless establishment media narratives, we probably would have seen the Deep State take out an elected president (as it did with Nixon) and we likely would already be fighting World War III against Syria, Iran, Russia and/or China as the state media is frothing for.
If ever there was an opportunity to finally loosen the corrupt and parasitic financial industry’s stranglehold on the U.S. economy, now is probably the best chance we’ve had in all of American history. But we would all do well to start with a solid grasp of core topics and not get lost in the weeds of Keynesian neoliberalism rewarding the One Percenters with centralized banksters’ globalist plutocracy!
Good grief, that’s a great way to suck the life out of any thinking individual’s skull or neutralize any opposition movement that may coalesce in the future. Thanks to so much confusion promoted by misguided college professors, other institutional speakers and some internet fundraiser-newsletter-bloggers, these relatively easy banking concepts have been mystified to sound unduly complicated. But they’re not.
At some point each person needs to make a decision. We can only spend so many years attending classroom lectures, listening to celebrity mumblers and filling our minds with angry rants from professional pundits before it either sparks a person to action or lulls a person to sleep.
You’d think that people who spend decades writing financial newsletters and others with lofty titles and advanced degrees might not be so quick to fall for the sham choice of Big Government or No Government. Yet establishment liberals, conservatives, socialists and libertarians all make this same mistake. Constantly.
The false option of Bank Credit or No Credit is just another lie that goes along with all their other goofy fundraising narratives. Although fiat credit inflation makes it more difficult now, people have always had the option of private savings and investment. Businesses also have the option to extend secure, short-term credit to their customers or for their own capital projects as they see fit. Both of those “natural” options tend to be self-limiting and self-regulating, to cite every armchair bureaucrat’s favorite word. But our hyper-legalistic culture of anti-growth mania makes that choice difficult as well.
What we’re each left with is an individual decision to keep drifting into the abyss of manufactured credit servitude or to start rebuilding something more sustainable from the ground up (although we’d be “starting” at both an advanced state of technology and an advanced stage of dysfunction).
To accomplish the latter, I find it helpful to remember: All bank credit is inflationary. All credit inflation involves counterfeiting. And all counterfeiting amounts to organized theft. Nothing good can come from that.
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