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A recurrent theme in my articles has been that our current
economic system is intended to steal your wealth and that a vast amount of
information being taught as economics is intended to justify this stealing
and to trick you into falling for its program.
As
with any misinformation, one must make a distinction between a deliberate lie
and an honest mistake. As I have studied this, it is clear to me that,
at the very top, it is deliberate. For example, John Maynard Keynes was
a deliberate fraud. He did not believe Keynesian economics. It
was a useful tool toward his goal of attracting the bankers to support him
and his followers. Keynes was a confidence man; our current economic
system is a confidence game, and the intent is to steal the wealth of all the
marks.
As
an astute speculator, you cannot afford to let this happen to you. You
must see reality as it is. I have been arguing that an updated version
of this lie was unleashed on the public in September 2008. It caused
the sell-off in commodities of the 2nd half of 2008 and the
smaller sell-off of the first half of 2010. This is the idea which we
must confront directly, and Wednesday’s Wall Street Journal
(once more) brought it forcefully to our attention in a front page
article: Speaking of a discussion of Federal Reserve policy Jon
Hilsenrath says:
“One topic under debate is the possibility that
today’s already-low inflation may turn into a debilitating bout of
deflation, a broad drop in prices across the economy.”
“Fed
Sees Slower Growth,” by Jon Hilsenrath, Wall Street Journal,
7-14-10,
p. A-1.
This
concept, that a massive, broad drop in prices across the economy can come out
of nowhere, that it cannot be predicted in advance, and that it is a bad
thing for most of the people in the country, is very widespread. You
will read it in almost every newspaper and news magazine in the country (and
the world). It is taken for granted, and today it is not debated.
And
yet it is embarrassingly, incredibly, humiliatingly wrong.
This
is an important concept for you to understand. You seek knowledge of
economics. You start by turning to the institutions generally respected
in the field. And what you are treated to is a confused mish-mash of
gobble-de-gook more to be expected of a medieval witch hunter than a modern,
scientific person.
For
example, let us consider “broad drop[s] in prices across the [American]
economy.” Over the past two centuries, there have been 3 of
them. And there is a 4th case which might be considered such
a drop (depending on exactly where in America one lived). None of these
cases was difficult to predict. They were all caused by a reduction in
the money supply. In 3 of the 4 cases the broad drop in prices was
preceded by a broad rise in prices, itself caused by a suspension of the
gold/silver standard and the massive printing of paper money. These
were the rise in prices associated with WWI, the rise associated with the
Civil War and the rise associated with the War of 1812. During the War
of 1812 New England was opposed to the war, and the New England banks refused
to create money and lend to the Government, but banks in the central and
southern states did create money. Consequently, prices rose in the
central and southern states but not in New England. In 1815, Daniel
Webster, the Senator from New Hampshire at that time, reported that the money
circulating in Washington, D.C. was worth 75¢ (in terms of a one dollar
silver coin) while the money circulating in Boston, MA was worth $1.00.
That is, prices in Washington, D.C. had risen by 33% from 1811. In
other parts of the country, the price level varied directly with the degree
to which the banks supported the war and printed money to lend to the
Government. The case of the War of 1812 makes it clear that the rise in
prices due to the printing of money was in fact a going down of money, not
(as was widely debated at the time) a going up of goods. Hence it was
called a depreciation of the currency, not an inflation of goods. This
terminology was changed after the Civil War so that the bankers could
convince people that goods were going up for reasons that had nothing to do with
the quantity of money. This is why I never speak of an inflation (which
means a going up of goods) except in quotation marks.
After
the war ended, there was a “broad drop in prices” in the central
and southern states but not in New England. This is the 4th
case above. The other 3 broad drops were as follows:
1866-1879: This was caused by the withdrawal of the paper money
(the greenbacks) which had been issued to finance the Civil War. By the
way, while the greenbacks were accepted in most of the country, in California
(which had a lot of pro-gold sentiment from the ‘49ers) there was
massive civil disobedience. People refused to obey the legal tender
law, and it could not be enforced. If you tried to pay in greenbacks,
people would boycott you and drive you out of business. So California
remained on the gold standard through the Civil War, and of course prices in
California did not decline from 1866-1879.
1879-1896: Prices continued their broad decline after 1879 and
did not bottom until 1896. This was caused by the demonetization of
silver (in 1873). Prior to 1861, the U.S. had a bimetallic system where
both gold and silver were money. In 1873, Congress decided to
demonetize silver, and from the time that hard money was resumed (1879) to
1933 America was on the gold standard. The fact that these two
“deflations,” which had different causes, came back to back might
lead us to group them together and consider them as one giant “deflation”
(1866-1896). While this would be incorrect if we think in terms of
cause and effect, it is also true that this was the greatest period in the
economy of America and in the history of any country in the world,
ever. This was the period of great railroad expansion. This was
the period when brilliant inventors (Thomas Edison, Nicola Tesla, etc.)
created new products which were made cheaply enough for the common man to
afford and which enabled him to live far above the level of a medieval
king. For example, a medieval king could never get much above a few
horsepower and was never able to travel faster than 40 MPH (the speed of a
horse). Today we cross the continent at 600 MPH. It was the
period when millions of people immigrated to America (to get its high wages.
There were no anti-immigration laws, and yet Historical Statistics of the
United States, Colonial Times to 1954 (published by the U.S. Commerce
Department) recorded the unemployment rate for 1906 as 0.8%.
1921 and 1929-33: The money supply in the U.S. doubled in
WWI, and prices doubled as well. The Republicans of 1919 decided upon
the same policy as 1866-1879, withdrawing the war-created money from
circulation and restoring prices to their pre-war level. Since these
Republicans were “cigar-filled-room” types and since cigars had
gone from 5¢ to 10¢ during the war, they expressed this by saying
“What the country needs is a good 5¢ cigar.” They won
the election of 1920 and were able to bring (Wholesale) prices down in two
stages, 1921 and 1930-33. By 1933, prices in the U.S. were back to
their level of 1914, which in fact was the same price level that Webster had
noted for Boston in 1815 and which had prevailed over the country in 1793
– 140 years of price stability. By the way, the Republican “deflation”
of 1930-33 brought the same good effects as that of 1866-79. This is
shown by the sharp rise in meat consumption, the change from margarine to
butter and the sharp increase in charitable giving. The myth that a
depression occurred during this period was a lie, pure and simple, created by
the media to seek favors from the bankers. This lie has been very
successful in cheating the people of America (and the people of the world)
for the past 77 years.
Does
this mean that there have been no depressions in American economic
history? No, there have been at least 3. Remember, a depression
is a period when the large majority of the people in a society become
poorer. These are the Civil War, WWI and WWII. And there was
probably a minor depression in the central and southern states during the War
of 1812. (It is almost certain that there was another depression during
the Revolutionary War; however, here I am only considering the period
starting with the adoption of the Constitution.) We have just
seen that the vast majority of the people in America were wealthier during
the early 1930s. But fast forward a decade and look at events. In
the early 1940s, no one could buy either a new house or a new car. They
were not being made. Gasoline was rationed to 3 gallons a week.
Butter, eggs and meat were also rationed. Would anyone in his right
mind call this prosperity? Actually the establishment economists called
this a boom, but it is not possible that they were in their right minds.
If
you simply realize what a war is, a war is destruction. For example, in
WWII, a Nazi U-boat torpedoes an American freighter. Then the U.S. Air
Force levels a German city. Back and forth. The result is massive
destruction of wealth on both sides. Hawks will claim that the victor
can steal enough wealth from the loser to make the war pay off for him, but a
close study of history reveals that this is a romantic fantasy. For
example, the British Empire, the greatest in world history, was created
because Britain recognized that people had rights, and other countries wanted
to be under Britain because they wanted rights too. So they put up only
token resistance, and this was their way of joining the British. (When
Britain gave up her rights and adopted the welfare state between WWI and
WWII, she soon lost her empire.)
The
same thing happened in WWI and the Civil War. WWI is a good example
because the central powers (Germany and Austria) had more rights than the
eastern ally (Russia) but less rights than the western allies (Britain,
France and the U.S.). As a result, they won the eastern front and lost
the western front.
But
what about the central establishment argument, that the 1930s must have been
a depression because of the high unemployment? The answer is that the
high unemployment was caused by the sharp decline in prices, which caused
wages to decline more slowly than prices, thus leading to a rise in real
wages. Thus all of the employed working people (the vast majority) were
better off. Furthermore, from 1930-33, there was a 30% rise in the
value of the money, and this led to (approximately) a 30% rise in
everyone’s savings. Every working man saw a 30% rise in real
savings over this period. On balance, the working class was much better
off, and Wall Street and the banks were much worse off. Of course, it
was easy to see this from the big drop in the stock market and corporate
profits.
And
what is the bottom line for the astute speculator from all this economics and
history? Mr. Hilsenrath continues:
“As Mr. Bernanke noted in a now-famous 2002 speech, the
Fed has the power to fight deflation – or falling wages and prices
– by printing money.”
Ibid.,
p. A-4.
In
words of one syllable, the Wall Street Journal wants
“inflation.” That is why it is urging the Fed to print
money. Indeed, they did precisely this to introduce the 21st
century. At that time, their Op-Ed page was screaming “deflation,
deflation, deflation.” What was the result? The Fed created
a large increase in the money supply, and this led to one of the greatest
commodity price increases in history (as well as the early century housing
bubble). Indeed, prices have not declined in America since 1955.
And right in the middle of all this screaming of “deflation” the
business executives of the Journal raised its news stand price from
$1.50 to $2.00. Of course, if there really was going to be a
“broad drop in prices” this increase would have priced the Journal
out of the market and led to heavy losses for the paper.
THE
BUSINESS EXECUTIVES OF THE JOURNAL DID NOT BELIEVE WHAT THE PAPER WAS
WRITING IN ITS PAGES.
Then,
dear reader, why should you believe it? Printing money does not create
wealth. If it did, then why not legalize counterfeiting? Is there
is single country in world history where this theory has worked? Not a
chance.
You
want to see reality as it is? That is my job. I publish a
fortnightly (every two weeks) newsletter, the One-handed Economist
predicting the financial markets with special emphasis (at this time) on gold
and gold stocks. At the One-handed Economist, we know the past,
and we are pretty good at seeing the future.
In
your face, Jon Hilsenrath. In your face.
Howard Katz
The Gold Speculator
Howard S. Katz is
the editor/publisher of the One-handed Economist, a financial letter which
combines fundamental and technical analysis. He was a bug on gold in the
1970s and became a bug on gold again in late 2002.
Subscribe to the Gold
Speculator (the One Handed Economist)
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are available in a letter entitled The One-handed Economist and published
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