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The accounting principle, the Law of Liabilities,
asserts that a firm must carry its liabilities in the balance sheet at its
value upon maturity, or at liquidation value,whichever is higher. This
Law is universally ignored by present accounting standards,which threatens
the economy with massive deflation through the destruction of capital, inview
of the persistent fall of interest rates for the past 25 years, as it keeps
increasing theliquidation value of debt
The Book-Keeper’s Dilemma
One of the plays of George Bernard Shaw branded
“unpleasant” by the playwright himself isentitled The
Doctor’s Dilemma. The protagonist is a physician who comes into
conflict withthe Oath of Hippocrates (fl. 460-377 B.C.) He has developed a
new treatment for a fataldisease, but the number of volunteers for the
test-run exceeds the number of beds in his clinic
Unwittingly, the doctor finds himself in the role of
playing God as he decides who shall liveand who shall die
By the same token Shaw could have written another
“most unpleasant” play entitledThe Book-Keeper’s Dilemma.
The protagonist, a chartered accountant, finds himself inconflict with the
letter and spirit of book-keeping set out by Luca Pacioli (fl. 1450-1509). As
aresult of compromising the high standards of the accounting profession, the
book-keeperbecomes the destroyer of Western Civilization
Finest Product of the Human Brain
Luca Pacioli taught mathematics at all the
well-known universities of Quattrocento Italyincluding that of Perugia, Napoli,
Milan, Florence, Rome, and Venice. In 1494 he publishedhis Summa
Arithmetica, Tractatus 11 of which is a textbook on book-keeping. The
authorshows that the assets and liabilities of a firm do balance out at all
times, provided that weintroduce a new item in the liability column that has
been variously called by subsequentauthors “net worth”,
“goodwill”, and “capital”. This innovation makes it
easy to check theledger for accuracy by finding that, at the close of every
business day, assets minus liabilitiesis equal to zero. If not, there must be
a mistake in the calculation
But what Pacioli discovered was something far more
significant than a method offinding errors in the arithmetic. It was the
invention of what we today call double-entry book2keeping, and what
Göthe called “the finest product of the human brain” (Wilhelm
Meister’sApprenticeship.)Why was this discovery so important in the
history of Western Civilization? Because,for the first time ever, it was now
possible to calculate and monitor shareholder equity withprecision. This is
indispensable in starting and running a joint-stock company. Without it
newshareholders could not get aboard, and old ones could not disembark
safely. There would beno stock markets. The national economy would be a conglomeration
of cottage industries,unable to undertake any large-scale project such as the
construction of a transcontinentalrailroad, or the launching of an
intercontinental shipping line
The invention of the balance sheet did to the art of
management what the invention ofthe compass did to the art of navigation.
Seafarers no longer had to rely on clear skies in orderto keep the right
direction. The compass made it possible to sail under cloudy skies with
equalconfidence. Likewise, managers no longer have to depend on risk-free
opportunities to keeptheir enterprise profitable. The balance sheet tells
them which risks they may take and whichones they must avoid. It is no
exaggeration to say that the present industrial might of WesternCivilization
rests upon the corner-stone of double-entry book-keeping. Oriental (Chinese)
andMiddle-Eastern (Arab) civilizations would have outstripped ours if they
had chanced upon thediscovery of the balance sheet first. By the same token,
the continuing leadership of the Westdepends on keeping accounting standards
high and isolated from political influences
Barbarous Relic or Accounting Tool?
There is cause for concern in this regard. For the
past 75 years the West has been fed thepropaganda line, attributed to John
Maynard Keynes, that the gold standard is a “barbarousrelic”,
ripe to be discarded. The unpleasant truth, one that propagandists have
‘forgotten’ toconsider, is that the gold standard is merely a
proxy for sound accounting and, yes, for soundmoral principles. It is an
early warning system to indicate erosion of capital. It was not thegold
standard per se that politicians and adventurers wanted to overthrow.
They wanted to getrid of certain accounting and moral principles, especially
as they apply to banking, that hadbecome an intolerable fetter upon their
ambition for aggrandizement and perpetuation ofpower. Historically,
accounting and moral principles had been singled out for discard beforethe
gold standard was given the coup de grâce
The attack on accounting standards and on the gold
standard was heralded by theestablishment in 1913 of the Federal Reserve
System (the Fed) in the United States, the chiefengine of monetizing
government debt. Just how the monetization of government bonds hasled to a
hitherto unprecedented, even unthinkable, corruption of accounting standards
― thisis a question that has never been addressed by impartial
scholarship before
Bonds and the Wealth of the Nation
In order to see the connection we must recall that
any durable change of interest rates has adirect and immediate effect on the
value of financial assets. Rising interest rates make thevalue of bonds fall,
and falling rates make it rise. As a result of this inverse relationship
theWealth of the Nation flows and ebbs together with the variation of the
rate of interest
Benefits and penalties are distributed capriciously
and indiscriminately, without regard tomerit
This was hardly disturbing under the gold standard,
as the rate of interest wasremarkably stable and the corresponding changes in
the Wealth of the Nation were negligible
A lasting increase in the rate of interest could
only occur in the wake of a national disastersuch as an earthquake, flood, or
war. In all these cases a higher rate of interest was beneficial
3It had the effect of spreading the loss of wealth
due to the destruction of property morewidely, easing the burden on
individuals. Those segments of society that were lucky enoughto escape
physical destruction had to share in the loss through the increased cost of servicingcapital
due to higher interest rates. Everyone was prompted to work and save harder
in orderthat the damage might be repaired quickly and expeditiously. As the
rate of interest graduallyreturned to its lower level, the Wealth of the
Nation expanded. Once again, everybody sharedequally, as the lower interest
rate benefited all, through the reduction in the cost of servicingcapital
It is not widely recognized that the chief eminence
of the gold standard is not to befound in stabilizing the price structure
(which is neither desirable nor possible). It is to befound in stabilizing
the interest-rate structure. By ruling out capricious and disturbing
swings,the Wealth of the Nation is maximized
The gold standard ruled supreme before World War I.
It was put into jeopardy whengeneral mobilization was ordered in 1914 by the
manner in which belligerent governments setout to finance the war effort.
Governments wanted to perpetuate the myth that the war waspopular and there
was no opposition to the senseless bloodshed and destruction of propertythat
could have been avoided through better diplomacy. The option of financing the
warthrough taxes was ruled out as it might make the war unpopular. The war
was to be financedthrough credits. In more details, war bonds were sold in
unprecedented amounts, subsequentlymonetized by the banking system.
Naturally, these bonds could not possibly be sold without asubstantial
advance in the rate of interest. Accordingly, the Wealth of Nations shrank
evenbefore a single shot was fired or a single bomb dropped
Under the gold standard bondholders are protected
against a permanent rise in the rateof interest (which in the absence of
protection would decimate bond values) by the provisionof a sinking fund. In
case of a fall in the value of the bond the sinking fund manager wouldenter
the bond market and would keep buying the bond until it was once more quoted
at parvalue. Every self-respecting firm issuing bonds would offer
sinking-fund protection
Even though governments did not offer it, it was
understood and, in the case ofScandinavian governments explicitly stated,
that the entire bonded debt of the governmentwould be refinanced at the
higher rate, should a permanent rise in the rate of interest occur
Bondholders who have put their faith in the
government would not be allowed to sufferlosses. The banks, guardians of the
people’s money, could regard government bonds as theirmost trusted
earning asset. They were solid like the rock of Gibraltar. Such faith, at
least inScandinavian government obligations, was justified. The risk of a
collapse in their value wasremoved. Governments, at least those in
Scandinavia, occupied the moral high ground. Themoney they borrowed belonged,
in part, to widows and orphans. They took to heart theadmonition and did not
want to bring upon themselves the Biblical curse pronounced ontormentors of
widows and orphans
Law of Assets
However, there was a problem with war bonds issued
by belligerent governments. They werequickly monetized by the banking system
making the refinancing of bonded debt impossible
This created a dilemma for the accounting
profession. According to an old book-keeping rulegoing back to Luca Pacioli
that we shall refer to here as the Law of Assets, an asset must becarried
in the balance sheet at acquisition value, or at market value, whichever
is lower. In arising interest-rate environment the value of bonds and
fixed-income obligations are falling,and this fall must be faithfully
recorded in the balance sheet of the bondholder
There are excellent reasons for this Law. In the
first place it is designed to preventcredit abuse by the banks and other
lending institutions. In the absence of this Law banks4would overstate their
assets that could be an invitation to credit abuses to the detriment ofshareholders
and depositors. If the abuse went on for a considerable period of time, then
itcould lead to the downfall of the bank. In an extreme case, when all banks
disregarded theLaw of Assets, the banking system could be operating on the
strength of phantom capital, andthe collapse of the national economy might be
the ultimate result. For non-banking firms thedanger of overstating asset
values also exists, and can serve as an invitation to recklessfinancial
adventures. Even if we assume that upright managers would always resist
thetemptation and stay away from dubious adventures, in the absence of the
Law of Assets thebalance sheet would be an unreliable compass to guide the
firm through turbulence, materiallyincreasing the chance of making an error.
Managerial errors could compound and the resultcould again be bankruptcy
Economists of a statist persuasion would argue that
an exception to the Law of Assetscould be safely made in case of government
bonds. The government’s credit, like Caesar’swife, is above suspicion.
The government will never go bankrupt. Its ability to retire debt atmaturity
cannot be doubted. As a guarantee these economists point to the
government’s powerto tax. However, the problem is not with paying the
nominal value of the bond at maturity, butwith the purchasing power of the
proceeds. Currency depreciation is a more subtle and, hence,more treacherous
form of default. Governments, however powerful, cannot create somethingout of
nothing any more than individuals can. They cannot give to Peter unless they
havetaken it from Paul first. Nor is the taxing power of governments
absolute. Financial annalsabound in cases where taxpayers have revolted
against high or unreasonable taxes, sometimesoverthrowing the government in
the process. If the taxing power of governments had beenabsolute, then they
could have financed World War I out of taxes. Bondholders would havesuffered
no loss of purchasing power as a result of debt-monetization, at least on the
victors’side
It is true that governments as a rule do not go
bankrupt, but this could be adisadvantage. Putting a value on bonds higher
than what they would fetch in the market is afool’s paradise.
Governments could use methods, fair or foul, to stave off ill effects of
theirown profligacy. Awakening could be postponed, but it would be made that
much ruder
A strict application of the Law of Assets would have
made most banks and financialinstitutions in the belligerent countries
insolvent. The dilemma facing the accountingprofession was this. If
book-keepers insisted that the Law be enforced, they would be
called“unpatriotic”, and be made a scapegoat held responsible for
the weakening financial system
Demagogues would charge that the accountants were
undermining the war effort. On theother hand, if they allowed banks to carry
government bonds in the asset column atacquisition rather than at the lower
market value, then they would compromise the time-testedstandards of
accounting and expose the firm, and ultimately the national economy, to all
thedangers that follows from this, not to mention the fact that they would
also draw thecredibility of the accounting profession into question
Illiquid or Insolvent?
The story of how the accounting profession solved
the dilemma has never been told. It may bea safe assumption that the dilemma
was solved for it by the belligerent governments inprohibiting the public
disclosure of the banks’ true financial condition. In the meantime a
newaccounting code was created, far more lenient in adjudicating insolvency.
The Law of Assetswas thrown to the winds, and was replaced with a more
relaxed one allowing the banks tocarry government bonds at face value,
regardless of true market value, as if they were a cashitem. A new term was
introduced to describe the financial condition of a bank with a hole inthe
balance sheet punctured by government bonds. Such a bank was henceforth
considered5“illiquid”, but still solvent. Never mind that the
practice of allowing the illiquid bank to keepits door open is a dangerous
course to follow. It has far-reaching consequences, including thethreat to
the very foundations of Western Civilization. The scandals involving Enron
andBear-Sterns may be only the beginning of the unraveling of the financial
system. It is clearthat the recent “sub-prime crisis” is a
delayed effect of the unwarranted relaxation ofaccounting standards back in
1914
While I cannot prove that a secret gag-rule was
imposed on the accounting profession,I am at a loss to find an explanation
why an open debate of the wisdom of changing timehonoredaccounting principles
has never taken place. Apparently there were no defectionsfrom the rank and
file of the accountants denouncing the new regimen as unethical anddangerous.
The underhanded changes in accounting practice have opened the primrose path
toself-destruction
The dominant role of the West in the world was due
to the moral high ground stakedout by the giants of the Renaissance, among
them Luca Pacioli. As this high ground wasgradually given up, and the
commanding post was moved to shifting quicksand, rock-solidprinciples gave
way to opportunistic guidelines. Western Civilization has been losing its
claimto leadership in the world. It comes as no surprise that this leadership
is now facing its mostserious challenge ever
The chickens came home to roost as early as 1921
when panic swept through the U.S
government bond market. Financial annals fail to
deal with this crisis (exception: B. M
Anderson’s Financial and Economic History of
the United States, 1914-1946, posthumouslypublished in 1949, see reference at
the end). Nor was it given the coverage it deserved in thefinancial press.
Information was confined to banking circles. An historic opportunity
wasmissed to mend the ways of the world gone astray in 1914. It was the last
chance to avert theGreat Depression, already in the making
Law of Liabilities
Purely by using a symmetry argument we may formulate
another fundamental principle ofaccounting: the Law of Liabilities. It
asserts that a liability must be carried in the balancesheet at its value
at maturity, or at liquidation value, whichever is higher. Since
liquidationwould have to take place at the current rate of interest, in a
falling interest-rate environmentthe liabilities of all firms are rising.
This spells a great danger to the national economy, onethat has been
completely disregarded by the economists’ profession, as it also has by
theaccountants’ profession
Economists have failed to raise their voice against
the folly of allowing the interestratestructure to fluctuate for reasons of
political expediency, implicit in the application ofboth Keynesian and
Friedmanite nostrums. It is possible that the reason for this failure wasthe
fatal blind spot that economists appear to have in regard to the danger of
overestimatingnational income in a falling interest-rate environment
The proposition that a firm must report liabilities
at a value higher than that due atmaturity whenever the rate of interest
falls is, of course, controversial. Let us review thereasons for this crucial
requirement. If the firm is to be liquidated, then all liabilities becomedue
at once. Sound accounting principles demand that sufficient capital be
maintained at alltimes to make liquidation without losses possible. If the
rate of interest were to fall, then,clearly, earlier liabilities had been
incurred at a rate higher than necessary. For example, if aninvestment had
been financed through a bond issue or fixed-rate loan, then better terms
couldhave been secured by postponing it. A managerial error in timing the
investment had beenmade. This is a world of crime and punishment where even
the slightest error brings with it apenalty in its train. Marking the
liability in the balance sheet to market is penalty for poor6timing. If the investment
had been financed out of internal resources, penalty is still justified
Alternative uses for the resource would have
generated better financial results
Even if we assume that the investment was absolutely
essential at the time it wasmade, and we absolve management of all
responsibility in this regard, the case for an increasein liability still
stands. After all has been said and done, there is a loss that must not be
sweptunder the rug. If the balance sheet is to reflect the true financial
position, then the loss oughtto be realized. Any other course of action would
create a fool’s paradise. To see this clearly,consider losses due to an
accidental fire destroying physical capital uncovered by insurance
The loss must be realized as it is absolutely
necessary that the balance sheet reflect thechanged financial picture caused
by the fire. That’s just what the balance sheet is for. Theproper way
to go about it is a three-step adjustment as follows:(1) Create an entry in
the asset column called “fund to cover fire loss”
(2) Create an equivalent entry in the liability
column
(3) Amortize the liability through a stream of
payments out of future income
It is clear that if the accountant failed to do
this, then he would falsify future incomestatements. As a result phantom
profits would be paid out and losses would be reported asprofits. Not only
would this weaken the financial condition of the firm, but it would
alsorender the balance sheet meaningless, which may compound the error
further
Exactly the same holds if the loss was due not to
accidental fire but to a fall in the rateof interest. The way to realize the
loss is analogous. A new entry in the asset column must becreated under the
heading “fund to cover overpayment in servicing capital, due to a fall
in theinterest rate”, against an equivalent entry in the liability
column, to be amortized through astream of payments out of future income. This
is not an exercise in pedantry. It is the onlyproper way to realize a
loss that has been incurred as a result of the inescapable increase in
thecost of servicing productive capital already deployed, in the wake of a
fall in the rate ofinterest. Ignoring that loss would by no means erase it.
It may well compound it
Historic Failure to Recognize the Law of Liabilities
I anticipate a torrent of criticism asserting that
there is no such a thing as the Law ofLiabilities in accounting theory or
practice. I submit that I have no formal training inaccounting, or in the
theory and history of accounting. Nor do I recall having seen the Law
ofLiabilities in any of the textbooks on book-keeping that I have perused
(although I have seenthe Law of Assets in older textbooks that have long
since been discarded by professors ofaccounting as obsolete). But I shall
argue that either Law follows the spirit if not the letter ofLuca Pacioli.
Affirming one Law while denying the other makes no sense. Every argumentthat
supports one necessarily supports the other. The Law of Liabilities is a
mirror image ofthe Law of Assets, arising out of the perfect logical symmetry
between assets and liabilities
Ignoring either Law is a serious breach of sound
accounting principles, possibly withgrave consequences. For example, if the rate
of interest keeps falling for an extended periodof time, as it has in Japan
for over fifteen years, then the present (in my opinion, deeplyflawed)
accounting rules will allow losses to be reported as profits. Wholesale
capitalconsumption/destruction may be the result, which the country may not
realize until it is toolate. Banks and producing firms would operate on the
strength of phantom capital, and wouldultimately collapse. This could bring
the national economy to its knees, spelling deflation,depression, or worse
(as it seems to be occurring in Japan right now). This depression appearsto
be metastasizing across the Pacific to the United States through the
yen-carry trade,foolishly encouraged by both central banks concerned
7Even if the fact were established that the Law of
Liabilities has never been spelled outin any accounting code going back all
the way to Luca Pacioli, we should still not jump to theconclusion that there
is no justification for it. A convincing argument can be made explainingwhy the
Law of Liabilities has escaped the notice of upright and knowledgeable
accountantsin the past with the consequence that it has never been codified.
Since time immemorial thepowers-that-be have shown a persistent bias favoring
debtors against creditors, asdemonstrated by their desire to suppress the
rate of interest by hook or crook. However, thiseffort has remained
counter-productive before the advent of central bank open marketoperations in
the 1920’s championed by the Fed. Indeed, the usuriously high rates
charged onloans in pre-capitalistic times were not due to an alleged greed of
the usurers. They were dueto the usury laws themselves. Charging and paying
interest had been outlawed, but the resultwas not zero interest on loans as
the authors of the usury laws had foolishly anticipated. Onthe contrary, the
result was rates higher than what the free market would have
charged,representing compensation for risks involved in doing an extra-legal
business transaction. Forthese and other reasons the problem, traditionally,
was not falling but rising rates. In such anenvironment the Law of
Liabilities remains inoperative and is easily overlooked. It is hard
todiscover a law that has been inoperative through all previous history
The situation changed drastically when the Federal
Reserve started its illegal openmarket operations. (The practice was later
legalized through retroactive legislation.)Speculators were happy to jump on
the bandwagon of risk-free profits. They could easilypreempt the Fed by
purchasing the bonds beforehand. After the Fed has bought its
quota,speculators dumped the bonds and pocketed the profits. The net result
was a falling interestrate structure
In fact, the opportunity for risk-free profits from
bond speculation due to theintroduction of open market operations was a major
cause of the Great Depression. Yet to thisday textbooks on economics hail
open market operations as a refined tool in the hands ofmonetary authorities
“to keep the economy on an even keel”. Only one other mistakeeconomists
have made surpasses this one in enormity. Textbooks blame the Great
Depressionon the “contractionist bias” of the gold standard
This is just the opposite of the truth. The Great
Depression was largely caused by thegovernments sabotaging the gold standard in
preparation for its overthrow, as I shall nowshow. The persistent fall of
interest rates in the 1930’s has never been properly explained
What happened was that the only competition for
government bonds, gold, has been knockedout through confiscation and other
measures of intimidation. Freed from competition, thevalue of government
bonds started to rise, making interest rates fall, causing prices to fall,
too
The Great Depression was self-inflicted. Governments
in their zeal removed the goldstandard, the policeman cordoning off the black
hole of zero interest to prevent interest ratesfrom falling in. Speculators
were quick to understand that this also meant the removal of aceiling on bond
prices. For the first time ever, there was an opportunity to bid bond
pricessky-high. Speculators abandoned the high-risk commodity markets in
droves and flocked tothe bond market to reap risk-free profits made available
by the regime of open marketoperations. You cannot understand the Great
Depression without understanding howspeculators reacted to the removal of
competition for government bonds. Only by searchingfor the consequences of
the forcible removal of gold from the system can the unprecedentedfall in
interest rates and the Great Depression be explained
Threat of a New Depression
Superficial thinking may suggest that if the rise of
interest rates is bad, then their fall is goodfor the economy. Not so. A
falling rate is even more damaging than a rising one. I am aware8that my
thesis is highly counter-intuitive. I have been challenged by many other
economistswho deny the validity of my contention. They argue that if the
present value of future incomeis lower when discounted at a higher rate, then
it must be higher when discounted at a lowerrate of interest. We may admit
that this statement is true. However, obviously, the firm has tobe around to
collect the higher income. Many of them won’t be, as they succumb to
capitalsqueeze caused by falling rates. My critics hold that falling rates
are always beneficial tobusiness and it is preposterous to suggest that they
aggravate deflation. These critics confuse afalling structure of
interest rates with a low structure. While the latter is beneficial,
the formeris lethal to producers. When interest rates are falling, the low
rates of today will look like highrates tomorrow. A prolonged fall creates a
permanently high interest-rate environment. Thisparadox explains the
reluctance of the mind to admit that falling rates spell deflation and, inan
acute case, depression
Falling rates mean that businesses have been
financed at rates far too high. This factought to be registered as a loss in
the balance sheet, and be compensated for by an injection ofnew capital. If
businesses choose to ignore the loss, and they merrily go on paying
outphantom profits in the form of dividends and executive compensation, then
they will furtherweaken capital structure. When they finally plunge into
bankruptcy, they wonder what has hitthem. They don’t understand that
they have failed to augment their capital in the face offalling interest
rates. Their downfall is due to insufficient capital. In a falling interest
rateenvironment all producers are affected by the elusive process of capital
destruction. This wastrue in the 1930’s; it is still true today. Incidentally,
this also explains why Americanproducers have been going out of business in
droves since the mid-1980’s, resulting in theexport of the best-paying
industrial jobs to Asian countries such as China and India wherelabor costs
were lower
The U.S. government may be unconcerned about the
fact that the liquidation value ofits debt is escalating by several orders of
magnitude due to falling interest rates. After all, theFed has the printing
presses to create dollars with which any liability can be liquidated,however
large. American producers are not so fortunate. They have to produce more and
sellmore if they don’t want to sink deeper in debt. But selling more
may not be possible in afalling interest-rate environment, except at
fire-sale prices. What this shows is that the causeof deflation is not
falling prices: it is falling interest rates. As they fall, a vicious
circle is setin motion. Bond speculators take advantage of the opportunity
created by the central bank’sopen market operations. They forestall
central bank buying of government bonds. Theresulting fall in interest rates
bankrupt productive enterprise that could not extricate itselffrom the
clutches of debt contracted earlier at higher rates. The debt becomes ever
moreonerous as its liquidation value escalates past the ability to carry it.
The squeeze on capitalcauses wholesale bankruptcies among the producers
What central bankers never consider is that, while
they have the power to putunlimited amounts of irredeemable currency into
circulation, they have no power to make itflow in the “approved”
direction. Money, like water, refuses to flow uphill. In a deflation itwill
not flow to the commodity market to bid up commodity prices as central
bankers havehoped. Rather, it will flow downhill, to the bond market, where
the fun is bidding up bondprices. As the central bank has made bond
speculation risk free, the bond market will act as agigantic vacuum cleaner
sucking up dollars from every nook and cranny of the economy. Asense of
scarcity of money will become pervasive
In feeding ever more irredeemable currency to the
markets the central bank cuts thefigure of a cat chasing his own tail. More
fiat money pushes interest rates lower; fallinginterest rates squeeze
producers more. They cut prices in desperation, and cry out for thecreation
of still more fiat money, completing the vicious circle. The interest rate
structure and9the price level are linked. Subject to leads and lags, they
keep moving together in the samedirection
The Fed through its open market operations generates
a deflationary spiral that mayultimately bankrupt the entire producing
sector. Like the Sorcerer’s Apprentice, the Fed canstart the march to
the black hole of zero interest, but hasn’t got a clue how to stop it
when thepull of the black hole becomes irresistible. At that point the
deflationary spiral gets out ofcontrol
Stop the March to the Black Hole of Zero Interest!
Restoring sound accounting standards is imperative
if we want to avoid the pending disaster
We must stop turning a blind eye to the deleterious
effect of a falling interest rateenvironment on capital deployed in support
of production. Open market operations of the Fed,the chief cause of deflation
as demonstrated by the pull of the black hole of zero interest, mustbe
outlawed
Only the gold standard can effectively cordon off
the black hole of zero interest. Byopening the Mint to gold, the U.S.
government must restore the gold standard
Antal E. Fekete
San Francisco School
of Economics
aefekete@hotmail.com
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