Source – usatoday.com
– As Fed inflates away dollar’s value, government gains more control to manipulate taxpayers and savers:
Former Treasury secretary Larry Summers wants to get rid of the $100 bill. But I think he has it exactly backward. I think we need to restore the $500 and $1000 bills. And the reason is that people like Larry Summers have done a horrible job.
Summers wrote recently in The Washington Postthat the $100 bill needs to go. The reason, he says, is that it’s a favorite of criminals, along with the 500 euro note, which is likely to be discontinued. The New York Times editorialized in agreement, writing: “Getting rid of big bills will make it harder for criminals to do business and make it easier for law enforcement to detect illicit activity. … There is no need for large-denomination currency. Britain’s top bill is the 50-pound note ($72), which has been perfectly sufficient. The United States stopped distributing $500, $1,000, $5,000 and $10,000 bills in 1969. There are now so many ways to pay for things, and eliminating big bills should create few problems.”
Reading this got me to thinking: What is a $100 bill worth now, compared to 1969? According to the U.S. Inflation Calculator online, a $100 bill today has the equivalent purchasing power of $15.49 in 1969 dollars. Likewise, in 1969, a $100 bill had the equivalent purchasing power of $645.55 in today’s dollars.
So even if we brought back the discontinued $500 bill, it wouldn’t have the purchasing power today that a $100 bill had in 1969, when larger denominations were discontinued. And carrying around a $100 bill today is basically like carrying around a $20 in 1969.
And although inflation isn’t running very high at the moment, this trend will only continue. If the next few decades are like the last few, paper money in current denominations will become basically useless.
Of course, as CATO Institute analyst Daniel J. Mitchell writes, to our ruling class this isn’t a bug, but a feature. Governments want to get rid of cash for two reasons. First, it gives them more control over citizens: They justify it in the name of fighting terrorists and organized crime, but what they really care about is making sure that nobody escapes their scrutiny, for purposes of taxes, regulation and political finagling. Second, if you’re stuck putting your money in a bank, they can force you to spend it (and thus “stimulate” the economy) by subjecting you to negative interest rates, in which money that just sits in the bank shrinks away, providing an incentive to spend.
The Federal Reserve and various other financial regulatory bodies were sold politicallyin no small part as protections against inflation. But inflation has run rampant. According to the inflation calculator, today’s $100 bill is worth only as much as $4.18 in 1913, the year the Federal Reserve was established. When you realize that inflation helps debtors and that governments are the world’s biggest debtors, this makes a certain amount of sense — for them.
But at a time when, almost no matter where you look in the world, the parts of it controlled by the experts and technocrats (like Larry Summers) seem to be doing badly, it seems reasonable to ask: Why give them still more control over the economy? What reason is there to think that they’ll use that control fairly, or even competently? Their track record isn’t very impressive.
Cash has a lot of virtues. One of them is that it allows people to engage in voluntary transactions without the knowledge or permission of anyone else. Governments call this suspicious, but the rest of us call it something else: Freedom.
Keynesian Claptrap—— Why The State Is Waging War On Savers And Cash
economist and representative of the Austrian School of Economics, well known for his fierce libertarian approach in criticizing government intervention. This exclusive interview covers central bank monetary policies, Keynesian Economics, the economic ‘recovery’, political correctness, and much more.
American economist and historian Dr. Thomas DiLorenzo, inter alia author of The Real Lincoln
Photo via mises.org
Claudio Grass, Global Gold: Thomas, it is an honor to have this opportunity to talk to you. I am also pleased to announce that you will be delivering the keynote speech at the BFI Inner Circle Wealth Forum in Florida on April the 18th and 19th. Let’s get started! Given the limited impact of loose monetary policy thus far, where do you think we are headed on the central bank front? Do you think it is likely that the Fed moves interest rates into negative territory, like many central banks across the globe have already done? What would the implications of such a step be?
Dr. DiLorenzo: On the central bank front, we are headed where Japan has been over the past twenty years or so: more and more easy money in a quixotic quest to push interest rates into negative territory, a truly crazy idea. The craziness of this stems from the fact that the entire academic economics profession abandoned Keynesianism in the 1970s. Its failure to explain stagflation was considered to be the final nail in the Keynesian coffin. Franco Modigliani’s presidential address to the American Economic Association in the late ’70s was a remarkable white-flag-of-surrender speech by one of the prominent Keynesians. He confessed that Keynesian “stabilization policy” had been a failure.
Nobel laureate Franco Modigliani – his late 1970s address to the American Economic Association seemed to close the lid on Keynesianism’s coffin – but like a zombie, it has returned (and all the nonsense that comes with it, such as the Phillips curve, the notion that consumption produces economic growth and that saving is somehow bad, that the government needs to intervene to “correct market failure” and so forth…the current economic mess is the result).
Photo via quizblogger.de
Then, like a bad horror movie, Keynesianism reared its ugly head fifteen or twenty years later as though it had never been discredited. Thus we now have the crazed policy of negative interest rates based on the thoroughly-discredited idea that only “aggregate demand” matters, and if we can just have the central bank push interest rates low enough, people will spend more and businesses will invest more, and all will be good. After the crash of 2008, caused by these same Fed policies, I recall the old Keynesian propagandist/economist Alice Rivlin on TV advising everyone to go out and spend wildly on anything. “It doesn’t matter what you spend it on,” she said, “just spend it.”
In reality, what this new policy, which is the same as the old policy, does is induce businesses to invest more on durable goods like cars and houses, which is why there are new bubbles in these markets, at least in some regions. The price-per-square-foot of Las Vegas real estate, for example, is now higher than it was just before the crash of 2008. There’s also a student debt bubble and a stock market bubble, in my opinion, thanks to the Fed’s single-minded and very simple policy of print, print, and print some more. Rather than reducing some of the wild and reckless speculation on Wall Street, the government bailouts of the speculators created a “moral hazard problem” that will encourage even more reckless speculation. If the speculative investments pay off, they keep the profits; when they go bust, they can count on another round of “too-big-to-fail” bailouts.
Claudio Grass: The only way it seems feasible to move interest rates substantially into negative territory would be to either ban or at least massively restrict the use of cash. In our view, there is a clear “war on cash” being promoted in the media. Do you have any thoughts on the issue and are we headed towards a cashless society?
Dr. DiLorenzo: Yes, there is a war on cash being promoted by the Fed, in particular, and the government, in general (and its lapdog supporters in the media). The main reason for this is that if people can hold cash, it makes it more difficult for the Fed to centrally plan the economy. Also, Keynesianism has always been at war with savings since its principal tenet is that savings are bad, consumption is good (there you have all of Keynesianism in a nutshell).
This began with the silly theory of the “paradox of thrift” that said that saving is harmful to the economy; therefore, the more we save now, the poorer we will all become, and the less able we will be to save (and consume) in the future. The Keynesian central planning authorities at the Fed and elsewhere would like to see a cashless society because keeping cash can be a form of savings instead of consumption. I think we are headed toward a cashless society, unless the public wakes up and begins to protest this.
The nonsensical “paradox of thrift” – the notion was thoroughly eviscerated by Hayek in 1928, well before Keynes wrote about it. Although associated with Keynes today, the idea had already been promoted by assorted economic cranks that preceded him, such as e.g. Waddill Catchings and William Truant Foster.
Claudio Grass: What do you think the implications of a cashless society are when we combine this with other legislation like the PATRIOT Act? Do you think we are headed towards a totalitarian state in the U.S., where private property rights will no longer be protected?
Dr. DiLorenzo: An important reason why the state would like to see a cashless society is that it would make it easier to seize our wealth electronically. It would be a modern-day version of FDR’s confiscation of privately-held gold in the 1930s. The state will make more and more use of “threats of terrorism” to seize financial assets. It is already talking about expanding the definition of “terrorist threat” to include critics of government like myself.
The American state already confiscates financial assets under the protection of various guises such as the PATRIOT Act. I first realized this years ago when I paid for a new car with a personal check that bounced. The car dealer informed me that the IRS had, without my knowledge, taken 20% of the funds that I had transferred from a mutual fund to my bank account in order to buy the car. The IRS told me that it was doing this to deter terrorism, and that I could count it toward next year’s tax bill.
Unless you have something to hide, why would you need cash, citizen?
Property rights in the U.S. have been under assault for a very long time and the assault is proceeding at an accelerated rate with such monstrosities as “Obamacare,” which forces Americans to buy government-prescribed “health insurance,” and all the Soviet-style regulation and regimentation of financial markets in the wake of the government-created Great Recession of 2008.
Claudio Grass: We believe that history doesn’t repeat itself, but rather rhymes (Mark Twain). Do you think there are historical parallels to be found in U.S. history to the current situation (economic socialism, restrictions on private gun ownership, etc.)?
Dr. DiLorenzo: I don’t know if history rhymes, but there are some things that are true of all governments at all times. One thing is a deep distrust, resentment, or even hatred of Adam Smith’s “invisible hand”: the idea that individuals, in pursuing their self-interest in the free market, coincidentally benefit the rest of society in most instances without any “czar” or central planning authority involved.
Peaceful, voluntary trade leaves little room for politicians to plan everyone’s life and make themselves rich and famous through plunder. Thus, they are eternal enemies of free enterprise in particular, and freedom in general, with very few modern-day exceptions, such as former Congressman Ron Paul. So despite hundreds of years of miserable failures of socialism and government “planning” of every other kind, governments ignore this history because it is in their self-interest to do so.
The planners like their sheep docile…
With regards to gun ownership, all governments have promoted, to some degree, the idea that only the government’s police and military should have guns. This policy has been less successful in America than in any other country, thank God. The main reason for the Second Amendment’s right to bear arms in the U.S. Constitution, according to the “father of the Constitution” James Madison, was so that an armed population could defend itself from a future government that wanted to enslave them.
Claudio Grass: Why do you believe the economic recovery has been so weak? What impact do you think this will have on precious metals and other assets with real value?
Dr. DiLorenzo: The recovery has been so weak because of 1) Fed policy and 2) most other government policies. The bright side to any recession is that businesses are finally forced to liquidate bad investments and do everything they can to become more profitable. The Fed delayed and interfered with this process by continuing the same easy-money policies that caused the recession in the first place. This resulted in significantly more bad investments and the creation of another bubble economy.
Much of the rest of government policy has created tremendous uncertainty, what economist Robert Higgs calls “regime uncertainty.” Businesses still have only a vague idea of what Obamacare will cost them, for example. A high degree of uncertainty makes it difficult, if not impossible, to plan for the future so many businesses simply stay where they are until the government steps back.
Robert Higgs, who coined the term “regime uncertainty” – which is precisely what bedevils the economy nowadays.
Photo via mises.org
This is what happened after FDR’s death. There were no longer constant threats of new taxes, regulations, or confiscations of gold and other assets, and so capital investment finally began to increase after being negative throughout the 1930s. In this atmosphere, which I don’t see as changing very significantly, smart investors will include more gold and precious metals in their portfolios.
Claudio Grass: You often talk about the dangers of political correctness (PC) in your articles. We believe that under the guise of PC, free speech as we know it is being limited and PC is being used to try to implement a sort of “thought control”. Would you share your views on the topic?
Dr. DiLorenzo: Most Americans do not realize that the academic elite at most universities are what are known as “cultural Marxists.” After the worldwide collapse of socialism in the late ‘80s and early ‘90s, the academic Marxists redefined themselves. They largely abandoned the old “class struggle” rhetoric involving the capitalist and worker “classes” and replaced them with an oppressor and an oppressed class.
The Marxist notions of polylogism and class war inexorably result in attempts to control thought itself.
The oppressed includes women, minorities, LGBT, and several other mascot categories. The oppressor class consists of white heterosexual males who are not ideological Marxists like them. Another branch of the Marxist Left decided to continue promoting socialism under the guise of “saving the planet.” I call these people “watermelons” — green on the outside, red on the inside.
The cultural Marxists have adopted the advice of the philosopher Herbert Marcuse, who is really the “godfather” of cultural Marxism. He preached that free speech is really a tool of oppression because it leads to critiques of “utopia,” by which he meant communism. This is where all the vicious crackdowns on campus free speech come from: the cultural Marxists will say that they are doing the morally-correct thing to censor speech by conservatives or libertarians, for such speech may be critical of their ideology.
“Frankfurt School” philosopher Herbert Marcuse, the godfather of cultural Marxism
Photo via cronachelodigiane.net
They are totalitarian-minded, fascist thought control police and dominate almost all university administrations in the U.S. It is creating a real dumbing down of American youth, for much of their university education is now indoctrinated in left-wing platitudes rather than the development of critical thinking. The big exceptions, however, are the students who stick to studying business, economics, engineering, math, etc. and largely ignore the PC circus.
So-called “political correctness” is increasingly stifling free speech
Claudio Grass: Now to the presidential elections in the U.S. Who do you think will be the likely winner of this race? It is believed that if Trump wins the elections that the U.S. will move towards a more isolationist foreign and economic policy. What are your thoughts on Trump?
Dr. DiLorenzo: Right now my money is on Donald Trump being the next president. If that happens, there will be a less “isolationist” foreign policy, for Trump does not want to risk starting World War III, unlike all of the “neoconservatives” who run both of the main political parties. That is why he is so hated and despised by the Republican Party establishment.
He would like to do more business with countries like Russia rather than start a nuclear war with the Russians. They, on the other hand, want to see endless military aggression in the Middle East and elsewhere. This is why they will do everything possible to defeat Trump, including putting all of their Big Money behind Hillary Clinton or whomever the Democrat Party nominee is. If I were Donald Trump I would also double or triple my personal security detail.
Donald Trump: the man the neoconservatives love to hate. Evidently, he must be doing something right.
Photo credit: Mandel Ngan — AFP / Getty Images
As for economic policy, Trump could hardly be worse than Obama or his predecessor. He has said that he hates taxes and does everything in his power to minimize his own tax burden, which is certainly a good instinct. Since he’s a billionaire, he can’t be bought off on any policy, which is really the main reason why the GOP oligarchs hate him with a red-hot passion. But if he wins and becomes a politician, there is always the chance that he will succumb to a more interventionist economic policy so that the media will say nicer things about him. Vanity seems to be one of the man’s hallmarks.
Thomas James DiLorenzo is an American economist and representative of the Austrian School of Economics. He is well known for his fierce libertarian approach in criticizing government intervention, whether domestically or abroad. Along with his current teaching position at Loyola University Maryland, he is a member of the senior faculty at the Ludwig von Mises Institute, a research fellow at the Independent Institute, as well as an active member of several other organizations.
Charts by: Pictet, economicsdiscussion.net
Chart and image captions by PT
About the author: Claudio Grass is a passionate advocate of free-market thinking and libertarian philosophy. Following the teachings of the Austrian School of Economics he is convinced that sound money and human freedom are inextricably linked to each other.