Wherein Gary North Rallies My Deflationist Side…

EST

Just when I thought it was safe to set the Hyperinflation vs. Deflation debate on autopilot, along comes Gary North with a smugly condescending essay posted at lewrockwell.com  that put my name in the headline and unspoken words in my mouth: “Rick Ackerman Defects to the Hyperinflationists Camp After 30 Years.” Not so fast, Gary. I’d still back anyone with a good deflation argument, of which there are many, and I can still take the deflationist side of the debate against you or anyone else without fear of getting pushed around. Nor will I ever be comfortable sitting in the same pew as Liro Gonzala, Jim Willie and a few other inflationistas who go “all-in” every time someone even mildly contradicts them. And just because I was impressed with FOFOA blogspot’s hyperinflation arguments is no reason to infer that I cannot find holes in them. Even he doesn’t claim to have a crystal ball, or that the debate is over.

There will always be room for doubt. Take his counterintuitive assertion that the bankers who hold our mortgages would fare better in a hyperinflation than a deflation.  While deflation would likely reduce them to bag holders in a tidal wave of bankruptcies, the mere whiff of hyperinflation supposedly would set them scrambling for tangible assets before the rest of us even have time to panic. FOFOA convinced me that this is indeed plausible with a step-by-step argument much clearer than any I had come across. But even he would concede that things might not go so smoothly for the Masters of the Universe.  For starters, there’s the assumption that they will be cashed out at 100 cents on the dollar and have time to trade the money for real goods just ahead of the dollar’s collapse. Although there is precedent for this in the banking bailout agreements of the last several years, the actual “cashing out” has proceeded at the whim and pace of the political process. Who’s to say the dollar could not collapse so swiftly that there would be no opportunity, even for financiers who operate just a step or two from the central bank, to take the money and run?

No Shame Here…

Getting back to North, he writes as though I should be ashamed for having harbored deflationist thoughts over the last 30 years. In fact, they have served me well, allowing me, for one, to predict more than a decade ago a housing collapse that virtually no one else but Comstock Partners foresaw and wrote about.  Some years earlier, with every economist in academia expecting a nasty bout of consumer inflation in the wake of an S&L-crisis monetary blowout, I asserted – correctly, as events proved — that they would be flat-out wrong. I continued to insist, in my newsletter and in columns that I wrote for the San Francisco Examiner and other publications, not only that deflation was a far bigger threat, but that Alan Greenspan knew it. This is notwithstanding occasional fright-mask threats from the Fed concerning tightening to come. For instance, in July 1996, when Fed Governor Lyle Gramley said a rate hike was imminent, I headlined a commentary in my Black Box Forecasts newsletter that said, in effect, “You’re bluffing, Mr. Gramley. There’s not going to be any tightening.”

I stayed glued to that track for yet another decade, allowing me to play errorless ball predicting Fed policy over a period of nearly two decades. A think-piece on deflation that I freelanced to Barron’s in the late 1990s anticipated Professor Antal Fekete’s essays years later on the “marginal productivity of debt,” which tells us why each new dollar borrowed now by the U.S. government will produce negative growth.  In the essay, I described the Fed’s tightening camp as “friendly fire” trained on the wrong target.  Concerning my forecast that home prices would eventually fall by at least 70 percent — we’re halfway there. Want to bet against me?  And I continue to predict – like Gonzala Liro, actually, and many other hyperinflationists — that Quantitative Easing will end only after the financial system has collapsed.

Overlooking $800 Trillion

In his essay, chiding deflationists as though they were either stupid or crazy, North fails to acknowledge the spectacular asset deflation that has indeed occurred. For him, apparently, inflation at the grocery store and gas pump evidently outweigh the ongoing, deflationary implosion of an $800 trillion dollar derivatives bubble.  He also asserts — incorrectly, several times –  that I have been predicting price deflation all these years.  In fact, it was asset deflation alone that concerned me — and asset deflation is exactly what we got, hitting with tectonic force even if North still seems unable to detect it.

Not that I’d ever assert that North is wrong wrong wrong, as he and a few others would me.  He’s a smart guy, a first-rate polemicist (not to mention, a fellow film-buff who has written many memorable pieces on that subject), and he probably knows as much about money, the Fed and the banking system as any economist alive. But his judgment is hardly infallible, as anyone who tracked Y2K hysteria may recall. North was arguably the most hysterical guy in America, hunkering down in the boondocks with triply redundant emergency back-ups in the event of the civilizational collapse that he was so certain would occur.  He got similarly stoked about the prospect of bird flu ending life as we know it (although I’d have to concede that the jury may still be out on that one).

In Bernanke He Trusts

Given his penchant for sky-is-falling stories, it seems ironic that North would have become a voice of moderation in discussions about the coming financial collapse.  For in fact, he foresees no collapse at all: “I don’t think we are near an era of central bank monetary stability [sic?], recession, and depression. Central bankers can still safely inflate, and they will.”  With this statement, he puts himself boldly at odds with hyperinflationists and deflationists alike – all of us ruinists, as far as I’m concerned. I feel strongly that he will be wrong, but I’m not going to pretend that we can, or should, close the door on his line of argument.

At the end of his essay North acknowledges two deflationists left standing:  Bob Prechter and Mish Shedlock.  I leave it to them to fight the good fight, since, at the moment, I’ve got far more-pressing concerns in my life than “winning” arguments with the likes of Lira and Jim Willie. In the meantime, I don’t consider myself to have switched sides, but to have allowed myself to imbibe the excellent arguments made by FOFOA with an open mind.  For now (although not, perforce, in this essay), I view myself as perhaps 55% hyperinflationist and 45% deflationist. However, the illuminating discussion of hyperinflation vs. deflation in the Rick’s Picks forum has made it clear to me that neither side holds all the cards.  Because of the cosmic sums of debt needing to be liquidated, and the fact that the dollar is the world’s sole reserve currency, it can be said that there is no precedent in history for the disaster that looms – not Weimar, not Argentina, not Zimbabwe.  Under the circumstances, the advice of anyone who claims to know for certain how things will play out should be scorned.  The safest prediction one could make is that each of us, and everyone, will prove to have been wrong in some significant way.

*****

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Comments on this entry are closed.

Smack MacDougal May 12, 2011, 12:57 am

And now I’ve discovered that Gary North is a cultist nutter who wants to bring an evangelical version of Sharia law to America, called Reconstructionism.

It would appear that Rousas J. Rushdoony, his now-dead father-in-law, started a cult, to which Gary North applied and eventually became one of the cult’s inner sanctum leaders, rising high enough to marry Rushdoony’s daughter, Sharon.

Why anyone would pay for financial advice from a cultist leads to head scratching.

Who could have confidence that for $179.4o a year Gary North is going to give you the names of stocks and bonds or other securities that are going to move 10 or 20 points up or down?

How absurd. If Gary North knew so much, then why does not he trade for himself and earn his own fortune?

It seems that what Gary North does is mere guesswork, while those who pay for his purported tips do nothing more than paying for his guessing. If they follow through and buy on speculation, they assume all risk. Gary North laughs all the way to the bank.

The dossier on Gary North reads like one giant fail:

• a bizarro religious cultist
• a nerdy Ph.D. in history
• a guy with no credentials in economics
• a guy who never worked on Wall Street
• a sky-is-falling chicken little who was wrong about Y2K
• a guy who fails to understand the New Testament
• a guy who does not get that Jesus Christ came to free men from the Old Testament
• a guy who wants Americans to live under kooky Old Testament Hebraic law like the Muslims who demand Sharia law

sources:

http://www.nytimes.com/2011/04/30/us/30beliefs.html

http://en.wikipedia.org/wiki/Gary_North_(Christian_Reconstructionist)

http://en.wikipedia.org/wiki/Christian_Reconstructionism

http://www.garynorth.com/public/10.cfm

&&&&&&

Okay, Smack, but how do you really feel about the guy? Concerning his investment acumen, I seem to recall reading somewhere that Gary made a pile of dough in an oilfield lottery. RA

Smack MacDougal May 11, 2011, 10:51 pm

Gary North is a huckster who peddles twice-right, broken clock financial investment advice from his two-bit web site.

Gary North claims to have great insight but bases his claims on the fallacy-ridden faux economics of Ludwig Mises and Murray Rothbard, two guys talking shop lifetime academicians who never put capital at risk for profit in any business venture.

And that Gary North calls people names and insults them calls into question his faux piousness and weak walk with Christ.

That anyone would take advice from a deceiver like Gary North proves the sucker born every minute adage.

Chris T. May 4, 2011, 1:55 am

Again, belatedly alas:
F.Beard writes in response to Rick’s question:

“1) The US Treasury creates new fiat that is only legal tender for government debts – taxes and fees.
2) The US Treasury spends that fiat into the economy to pay government workers, government contractors, …
3) Those who need to pay taxes buy … from those who have received it.”

Here is your logical flaw, in response to Rick and my earlier posts.

The ONLY reason legal tender laws exist is to force peopel to use a “money” they otherwise would not use AT ALL.
Is I pointed out much further above, if allowed the choice, rational actors always reject the inferior money.

Therefore, HOW is point 2 of your argument supposed to work?
The workers would reject such compensation (remember I provided evidence above that they HAD TO BE forced to accept it in that form), as would the contractors, and anyone else who is a TRUE creditor of the government.
They would NOT render a service for inferior pay, hence no government workers, no private contractors, no materials provided, and so on.
Leaves the recipients of government handouts:
they are not true creditors anyway, and MOST people for MOST of their live receive NOTHING from the government, they only have it TAKEN by force.

I have never received anything net (that which I may have received was a partial return on the taken amount), and anyone who believes that the S.S. or Medicare Ponzi-scheme will work for them 20 years out, I got the bridge.

Meaning: Some may volunteer to take a very little-value inferior money as a handout, that being more than nothing, but no real creditors will.

NOW raising Rick, and others’ point: how WILL the government even get its printed up stuff out there (as per your number 2))?

They won’t, because the FREE choice will reject it.
And with no 2), there can be no 3).

It is very simple: legal tender laws exist precisely because no one would take the stuff without having to, and therein lies your logical flaw.
Government itself would be FOOLISH to refuse to take its tax-owed in real money (which you would have), and to insist on getting back its own.
It would receive more by not taking its own, so even government would reject its own paper.
See California’s refusal to accept its own even more devalued scrip vs. FRN’s, they knew why they did that.

Therefore someone who VOLUNTEERED to pay in real money would not be rebuffed, and therefore would have no problem paying his obligation with the money he does accept for other transactions.

esglesiagirona May 2, 2011, 7:24 pm

RE: Inflation vs. Deflation debate. I believe that both sides of the debate are right, it’s just a matter of which comes first. The following attributed to Thomas Jefferson gives a pretty in your face clue as to the order.
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

Thomas Jefferson, (Attributed)

mike May 2, 2011, 1:43 am

“When the missionaries came to Africa, they had the Bible and we had the land. They said ‘let us close our eyes and pray’. When we opened them, we had the Bible, and they had the land.”
Again,
“When the central banksters came to America, they had paper money and we had the land. They said ‘let us close our eyes and pray’. When we opened them, we have paper lies, and they have our land.”

Rick May 1, 2011, 5:22 pm

You’ve asked the question above, “Where is the debt?” The correct question — the one that matters when we talk about capital investment — is “Where are the savings that make investment possible?”

F. Beard May 1, 2011, 12:19 pm

; and, trying to suggest that a “reset” system will enjoy the same benefits of prosperity that we have enjoyed up until now is simply incredible. RA

Sure. Some real damage has been done to the economy and we have work to do but much of the damage is only virtual – unjust debt.

And if that unjust debt is not dealt with soon then the virtual damage will turn into real damage as skills are lost, the workforce is demoralized, infrastructure decays, factories rust, society decays, etc.

I’ll tell you what is incredible to me – that those who recognize the evil of the debt-money scheme commonly know as “fractional reserve lending” and who realize that money is mostly just accounting entries think that no restitution is possible.

The FR bankers enslaved the population with debt-money creation in a government enforced monopoly money supply which is essentially legal counterfeiting. Conversely, the population can be freed with new debt-free money.

One more round for me and then no more comments today.

F. Beard May 1, 2011, 11:52 am

“The Hebrews were commanded to forgive debts to fellow countrymen every 7 seven years (Deuteronomy 15). ” FB

“When I see statements like this, I ask myself…. what would Marvin Harris say?” ebear

Sorry. Never heard of him.

“Well, the economy in their day was agrarian. The Hebrews weren’t faced with the problem of financing massive industrial or public works with 30+ year amortization periods. “ ebear

All investment is funded out of existing capital (savings) and current revenues and thus all investment can be pay-as-one-goes. Thus debt is not necessary. However, a means of consolidating capital for economies of scale is necessary. Common stock is a debt-free means of doing that.

“The effect of the 7 year rule would not be to extinguish debts per se, but to limit maturities to 7 years. This probably relates to the rate of return on crops, such that no landholder would be forced off his/her land in the event of drought or pestilence. The 7 years of feast, 7 years of famine rubric appears to reflect this. “ ebear

Oh, forgive me. I only advocate a one-time bailout combined with fundamental reform. My point about the Hebrews was that usury itself was unsustainable and that SOMETHING needs to be done about the existing debt. I recommend an equal bailout to the entire US population since savers were cheated too by the government enforced usury and counterfeiting cartel.

“Usury itself is unsustainable since the debt compounds faster than the real economy can.” FB

“This is only true where 1) the rate of compounding exceeds organic growth, “ ebear

Unless I am mistaken, according to Karl Denninger, that is always true if the lending is done privately. I admit I am hazy on the reason for this. I suppose it is because lenders insist on real profits not just nominal ones.

“and 2) debt cannot be extinguished through bankruptcy.” ebear

In aggregate (as you imply), some debt is doomed to default since loans provide the principle to an economy but not the interest. New debt-free money in the system could prevent that. However, since currently all new money = new debt, then the problem of non-existent interest remains.

“Debt in itself is not the problem, “ ebear

I would not abolish usury just remove all government privilege for it.

“as long as some reality based standard exists for managing it.” ebear

Economics is not an exact science. What is “reality” when so much of economics depends on human psychology? If I recall, economics used to be called the “moral science” and indeed morality is an inescapable need for a healthy economy.

“The argument then becomes: who sets the standard?” ebear

That’s easy. The government should manage the government’s money supply and the private sector would mange its money supplies. Each could apply their own standards. The government’s money would be debt-free fiat and the private sector could create its own money supplies, some debt-based, some not.

“In biblical times the real rate of return was easy to measure.” ebear

No. Who can measure intangibles like worker motivation, innovation, the health of a society? What is real wealth? Btw, Hebrew society was relatively healthy so long as they followed the Lord sufficiently.

“As societies become more complex, so does the question of effective measure and control, which introduces the possibility of control being usurped to private vs. public advantage. That’s the central issue here – not whether debt in and of itself is unsustainable. “ ebear

Let us agree to disagree on private debt. It is a private matter in any case. I advocate for a bailout of the population from the current unjust system and fundamental liberty in private money creation. People would remain free to borrow and lend as well as use debt-free monies such as common stock. As for US government debt, that is an abomination since the US has a sovereign right to issue government money debt-free. However, that government money should only be legal tender for government debts, taxes and fees, not private ones.

F. Beard May 1, 2011, 10:32 am

[Rick, please delete my previous comment since I messed up on the italics. Thanks.]

“Any investment (debt) that results in a loss has to be absorbed somewhere by someone. ” ebear

Who says an investment requires debt? An investment only requires capital.

Consider common stock, a private money form. Let’s say I own a factory free and clear but have insufficient conventional money. I incorporate and issue common stock to pay my workers and suppliers. Furthermore, the corporation agrees to accept that common stock back for the factory’s goods and services. Where is the debt? The holders of the common stock are certainly entitled to buy goods and services with it from the corporation and own a share of the corporation’s assets but that is the extent of the debt.

“This is basic math, not to mention physics. All attempts to deny this reality are mere ruses for passing the loss onto someone else. “ ebear

Since your premise is faulty, your conclusion fails.

“Here’s a thought experiment: Instead of extinguishing all debts, let’s take it a step further and liquidate all investment, ” ebear

No. Rather than liquidate all debt let’s pay it off instead. The US Treasury would create and distribute some debt-free fiat to the entire US population, including savers. Borrowers could pay down their debts and savers would receive restitution for years of suppressed interest rates. Extreme wealth disparity would be reduced. Inflation risk? Then abolish the Fed and put banks out of the counterfeiting business via a 100% reserve requirement pending fundamental reform.

“then redistribute the proceeds equally amongst the entire adult population.” ebear

True. Every adult would receive an equal restitution check.

“Everyone gets the same bag true of money and we start over again from scratch. ” ebear

No. True everyone would receive an equal bag of money but the wealthy would still have their previous wealth. However, they would not be so wealthy in relative terms. But since very much of the wealth in this country is a result of so-called “credit” from the government enforced counterfeiting cartel that is roughly just.

“Now come back in ten years and tell me how that worked out.” ebear

We need fundamental reform in money creation too. That would include:

1) repeal of legal tender laws for private debts.
2) repeal of the capital gains tax.
3) abolition of the Fed.
4) abolition of Federal deposit insurance.
5) repeal of any other legal or tax impediments to genuine private currencies.

ebear May 2, 2011, 9:00 am

“Any investment (debt) that results in a loss has to be absorbed somewhere by someone. ” ebear

Who says an investment requires debt? An investment only requires capital.
****
Sorry if I wasn’t clear in that statement. It should have read “any investment or debt…..” In the case of capital investment (shares) the loss is mine. In the case of debt, I also take a loss to the extent that remaining assets fail to cover principal. In the case of insured debt (FDIC, CDS etc) the insurer pays out. That can be a private loss, or in the FDIC case, public, but regardless of who takes the hit, someone always does. That’s what I was trying to say.

F. Beard April 30, 2011, 7:36 pm

. Forgiveness of debt will merely impoverish creditors; RA

Creditors you say?! Banks don’t extend credit in their own goods and services; they extend credit in OTHER peoples’ goods and services. They are thus counterfeiters of credit.

My last comment for the day lest I wear out your patience. 🙂

ebear May 1, 2011, 12:39 am

. Forgiveness of debt will merely impoverish creditors; RA

Creditors you say?! Banks don’t extend credit in their own goods and services; they extend credit in OTHER peoples’ goods and services. They are thus counterfeiters of credit.

****
Any investment (debt) that results in a loss has to be absorbed somewhere by someone. This is basic math, not to mention physics. All attempts to deny this reality are mere ruses for passing the loss onto someone else.

Here’s a thought experiment: Instead of extinguishing all debts, let’s take it a step further and liquidate all investment, then redistribute the proceeds equally amongst the entire adult population. Everyone gets the same bag of money and we start over again from scratch. Now come back in ten years and tell me how that worked out.

ebear

F. Beard April 30, 2011, 7:32 pm

Might I prevail on you to show me the money trail, … RA

1) The US Treasury creates new fiat that is only legal tender for government debts – taxes and fees.
2) The US Treasury spends that fiat into the economy to pay government workers, government contractors, the military, SS recipients, etc., and to payoff existing debt as it come due.
3) Those who need to pay taxes buy that fiat on the open market from those who have received it.
4) Tax payers pay their taxes with that fiat thus closing the loop.

As for private debts those could be paid with the government’s fiat or with a purely private money supply as agreed upon in advance by both parties.

You might argue that government fiat is not debt-free since tax debts are paid with it and if so I concede your point EXCEPT to say that debt to government is a given but why should we also owe private individuals? We shouldn’t.

F. Beard April 30, 2011, 7:18 pm

I don’t think there is any getting around the assumption that our unpayable debts are going to crash the standard of living. RA

The Hebrews were commanded to forgive debts to fellow countrymen every 7 seven years (Deuteronomy 15). Usury itself is unsustainable since the debt compounds faster than the real economy can. And that is apart from the issue of so-called “credit” extension in a government enforced monopoly money supply for private debts which amounts to legal counterfeiting.

As for the standard of living, the sooner we start practicing genuine capitalism instead of banker fascism, the better. However, a general bailout of the entire population with new debt-free fiat would be a good way to reset the system.

Rick Ackerman April 30, 2011, 7:26 pm

You are wearing out my patience, Mr. Beard. Forgiveness of debt will merely impoverish creditors; your exhortation that we all practice “genuine capitalism” is a non-starter; and, trying to suggest that a “reset” system will enjoy the same benefits of prosperity that we have enjoyed up until now is simply incredible.

ebear April 30, 2011, 11:47 pm

“The Hebrews were commanded to forgive debts to fellow countrymen every 7 seven years (Deuteronomy 15). ”

When I see statements like this, I ask myself…. what would Marvin Harris say? Well, the economy in their day was agrarian. The Hebrews weren’t faced with the problem of financing massive industrial or public works with 30+ year amortization periods. The effect of the 7 year rule would not be to extinguish debts per se, but to limit maturities to 7 years. This probably relates to the rate of return on crops, such that no landholder would be forced off his/her land in the event of drought or pestilence. The 7 years of feast, 7 years of famine rubric appears to reflect this.

“Usury itself is unsustainable since the debt compounds faster than the real economy can.”

This is only true where 1) the rate of compounding exceeds organic growth, and 2) debt cannot be extinguished through bankruptcy. Debt in itself is not the problem, as long as some reality based standard exists for managing it. The argument then becomes: who sets the standard? In biblical times the real rate of return was easy to measure. As societies become more complex, so does the question of effective measure and control, which introduces the possibility of control being usurped to private vs. public advantage. That’s the central issue here – not whether debt in and of itself is unsustainable.

ebear

F. Beard April 30, 2011, 6:44 pm

Those debts are absolutely real in that they represent future benefits that will have to be foregone. RA

Not necessarily. Of course any debt to the FED is absolutely bogus since new money was created to buy it. That leaves the question of government bonds in non-FED hands. One could argue that those bond buyers bought stolen goods and that the debt is invalid but let’s not go there. So why not simply print debt-free money and payoff that government debt as it comes due?
Inflation risk? Not necessarily since reserve or capital requirements on the banks could be adjusted to compensate for the new high-powered money.

Our standard of living and the attainability of “the American Dream” will be diminished by precisely the sum of what you are calling “invented” debts. RA

It will be reduced if we pay them off in the conventional manner of rolling over the debt or raising taxes to do so. And those debts were invented. It is absolutely absurd and unjust that a sovereign government should ever borrow money since it has a sovereign right to issue it itself but only for government debts – taxes and fees – not private ones.

Be that as it may, the existing non-FED debt should be paid off with new, debt-free fiat.

And then there is the question of private debt to the government enforced counterfeiting cartel but that is another topic.

Rick Ackerman April 30, 2011, 7:02 pm

I don’t think there is any getting around the assumption that the liquidation of huge debts that can never be repaid will eventually crash the standard of living. Perhaps I can be persuaded otherwise if you’ll kindly explain, for starters, who will pay for Baby Boomers’ hip replacements; for their assisted living and nursing care; for government and private-sector workers’ pensions; for their cruises in the Aegean and Caribbean; and, for good measure, Social Security.

You have made your point about “debt-free money” perhaps a dozen times in this forum, but I have never even remotely understood it. To me, it sounds like a perpetual motion machine. Might I prevail on you to show me the money trail, perhaps starting with household income at the macro level?

F. Beard April 30, 2011, 3:52 pm

In that system I describe, NO ONE not foolish would accept, let alone use, that fiat paper of the government, and thus it would not circulate. ChrisT

1) Do we have government?
2) Must we pay taxes to it?
3) Are taxes paid in the government’s money whatever that money is made of? Even fiat?
4) Would people therefore accept fiat in order to pay their taxes?
5) Therefore would fiat not circulate from those who received it to those who needed it to pay taxes?

The problem is not that government money is fiat (it must be for ethical reasons) but that we are all forced to use it for private debts not just its proper use, government debts – taxes and fees.

The idea of separate government and private money supplies is Biblical – Matthew 22:16-22 (“Render to Caesar …”). Our monetary problems stem from ignoring that injunction.

F. Beard April 30, 2011, 3:35 pm

But if government will only recognize it’s own fiat, it deals itself the very advantage, the very monopoly you argue against. JimK

That is unavoidable so long as we have government. Should that advantage then be extended to private interests as well such as gold owners and miners? No, it should not. Government must either recognize all private monies equally or none it all. Since “all” is impossible that leaves “none” as our only choice.

Furthermore, just what problem is “golden fiat” supposed to fix? The stealth inflation tax? By limiting the money creation rate to the mining rate of gold? But that’s absurd (I’ve read Murray N. Rothbard’s arguments so let’s not go there).

Here’s a better way based on liberty, not gold mining technology, – genuine alternative private currencies with free market exchange rates to the government’s fiat. Suppose we had such currencies. What would happen if the government overspent its fiat? If you were a government worker or contractor or in the military or receiving Social Security, etc. you would suffer loss of purchasing power. But private sector currencies would be unaffected. Moreover, some taxes, such as the excise tax, would be EASIER to pay since the government’s fiat would be cheaper.

So PMs as government money are not only fascist but completely unnecessary too.

Then are PMs as private money forms acceptable? Of course. But without government recognition of them as money then I have doubts they could survive in the free market as money – but that’s a different topic.

howg April 30, 2011, 6:04 am

I swore I would not let myself get involved with all this “noise”, and Rick, I’m sure I’m the last guy you’d expect to comment in your defence ;), but “smugly condescending essay” has surely got to be the understatement of the year!
His smearing of Ellen Brown was likewise based on half-truths / lies, and if nothing else, showed his complete misunderstanding of social credit.

So what does this guy North really have to say?
It’s the same old mantra – over & over & over again.

Remember – these guys are not stupid!
And I have no idea who is serving as useful idiot and who as conscious deceiver,
but their (Austrians) arguments are all based on very poorly defined terms that are simply untrue.
As such, their conclusions are all wrong (but sometimes end up being right quite by accident – not so difficult to predict economic upheaval from any pov):

1) We do not have fiat currency.
We have notes of debt issued by non-government entities.
If you want to call that “credit” or “fiat money” then go ahead.
I can call myself Sean Connery, but that doesn’t make it true ;).

2) Fiat money is based on nothing.
A complete lie.
It is based on a unit of credit representing a unit of labour / productivity. Today, it is issued as debt.

There is no (valid) economic theory/model since Adam & Eve that says we should go into debt just to work & trade.
This is tribute money paid to the owners of this “credit”, (feudal lords), and it is ever compounding, and can never, ever be repaid.
This is the basic truth of our money supply – we owe it all, 100% + interest.
And the lenders never had the money they lend in the 1st place either.
Fiat money has nothing to do with it whatsoever, (regardless of whether one is for or against social credit).

3) BIG government:
We do not have BIG government or any government at all, and what we do call government is certainly not socialist or communist.
This is utterly insane – another big lie upon which every argument is based.
Government is part of the enforcement apparatus of our feudal masters, and serves as a great diversion too.
But to call it “our” government is simply untrue – craziest thing I’ve ever heard!

Or how would you say it Rick… “kooky” ??

Our elections are no different than those “approval” votes in Soviet Russia (never a communist country either, btw).
USSR never bothered to have 2 or 3 candidates – rather stupid on their part, but they were “old school” type feudalists.

3) Get government out of our lives and out of markets that should/would/could be otherwise “free”.
I won’t even comment on this – it’s too ridiculous.
Please see: Orwellian Doublethink: The Language of Deception by Michael Hudson.
http://www.globalresearch.ca/index.php?context=va&aid=12418

“This” is what we get when we have NO government.
“This” is what we get when oligarchies take over… EVERYTHING!
No need to speculate on what a country with little or no government would look like – that is exactly what we have right now!

I could go on & on… these guys distort reality through doublespeak at every opportunity.

As to the inflation-deflation debate, there is nothing useful I could add to the many insightful comments.
However, regarding what could possibly work in the future, I suggest we throw current paradigms out the window – for good.
Aside from currency issues, (or is that issuing of currency ?), I believe we have never properly dealt with the repercussions of the industrial revolution,
which renders current economic models obsolete – anachronistic by any measure.

Folks – we are all debating a bunch of lies using Orwellian terminology –
I fear it is a total waste of time and will lead to nothing constructive.

The one opinion I will offer (the above mentioned lies are not opinions), is that it is very dangerous to believe in TPTB doing anything logical.
Banks notwithstanding, just look at what they’ve done / are doing with air, food, water, land, chemo-medicine/farming, not to mention human beings…
All sacrificed for short-term gain and/or power… and who knows what else ??

Don’t think they won’t do the same to banking systems.
They are completely expendable, as are we, as is our very planet.

Another factor to bear in mind is that globalists have won the current battle, in the west anyways (includes Japan, NZ, etc.).
What we call “American”, or American interests is really a misnomer.
So analyzing all of this, and anything else for that matter, should take this factor into account.
These guys are not nationalists, they are globalists, and national interests play little or no part in it.

We are dealing with insane, malevolent psychopaths here…
very dangerous using logic in predicting what they’ll do next.

And these are the guys who Gary North et. al. worship – beware !!

Rick Ackerman April 30, 2011, 6:41 pm

The late Dr. Kurt Richebächer, a champion of the Austrian School, was one of my intellectual heroes, but if you delve deeply into his newsletters over the years, pondering every word as I did, you would see that he was deeply conflicted over the prospect of deflation. It seemed like torture for him — and by extension, for any Austrian — to merely choke out the word “deflation.” In his final years, before he died in 2007, he hemmed and hawed on the question of whether the mountainous credit inflation we’d witnessed would produce hyperinflation, or deflation. His flip-flopping was implicit rather than explicit, since he never directly addressed the seeming paradox of deflation resulting from a global credit blowout.

I interviewed Dr. Richebächer in 1999 for the San Francisco Sunday Examiner. Never one to shy away from controversy, his provocative ideas elicited nearly a thousand responses. I have the interview stored on a digital drive and will republish it when I find it. It would be considerably more difficult, however, to document his vacillations on hyperinflation vs. deflation, since this came through only vaguely, and over a period of years, in the monthly newsletter he wrote for Agora Publishing.

gary leibowitz April 29, 2011, 11:00 pm

To inflate will require getting past round two of government and municipalities austerity programs. Not a likely scenario.

At first it will appear to be stagflation. A happy ending for lenders if that came true.

Unfortunately the saturation of world debt can not be absorbed in an environment where political will to do so is gone. These times are not like the 70’s. Debt was practically none existent at that time. Credit was a term reserved for the business community and vey wealthy. Look how far we came.

The stock market took off in 1982, exactly at the time easy credit was introduced to the masses. The ability to expand this economy today will require 20 times more leveraging than at the start of this expansion. We simply can’t expand at that rate. We are hitting that brick wall.

This bout of externally induced inflation along with the help of a vey weak dollar is only smoke and mirrors, it can not be sustained. In fact it will help accelerate the debt implosion.

When was the last time inflation took hold when global debt was this high? Have we ever experienced such debt before?

Rick Ackerman April 30, 2011, 6:12 pm

Just so, Gary. For anyone who wants to delve more deeply into this line of argument, I’d recommend Googling “marginal productivity of debt” per Antal Fekete.

mario cavolo May 1, 2011, 10:14 am

Hi Gary! With that last question, it hits a key points and I hope you’re right! I’ve been thinking all along that while I don’t believe as much in others in the “collapse” scenarios, they can’t take this much higher either in terms of asset prices. Wouldn’t it be a reasonable scenario for the global economy if for the next few years:

1. Ag and resource commodity prices were peaked right around current levels and stayed in the range.
2. U.S. equities stayed in the 12-15,000 range.
3. Oil stayed in the $90-$110 range
4. The USD will sink to new lows in the 60’s as the
RMB and other Asian/BRIC currencies rise.

Sounds boring? Maybe boring, but isn’t it a reasonable scenario, not to mention stable? For the main reasons you mentioned, 1. the debt is already way too high, and 2. the lower/middle classes across the globe are going to come more and more unglued if Ag commodities/oil prices rise by another 20-30%. I think the greedy elite leaders know it, know that instability will destroy their own wealth too. They’re not that stupid are they? Maybe it can be suggested I give them too much credit as the puppet masters who much more cunningly orchestrate and manage these events/announcements, but I don’t believe so. In the past week, for example, corn and wheat plunged, right behind cotton. And that happened when?… just after GS said pull out of commodities less than two weeks ago. But how much of a short position did they put on before the announcement, and frankly, who would ever investigate to know when they’re all in bed together at the top?

Cheers, Mario

Alchemisteve April 29, 2011, 10:26 pm

What I like about Rick is not as much about what he says as the way he says it. No “F-bomb” like Lira has dropped, no ad hominem attacks like several others. (OK, maybe an occasional oblique counter-punch, but when it comes to verbal kung fu, one cannot be all ju dou.) And he usually makes me look up one new word for my vocabulary. In short, he is a great gentleman, and I look forward to each new column. The bottom line is simple: we had better be prepared for all possible outcomes!

MILITANT April 29, 2011, 10:21 pm

I love following the commentary as much as the articles. My question for the community is 1, is investing in silver bullion as good as investing in gold bullion? 2nd, what of my miner stocks? Should I continue to spread my investment between miners and bullion? Thank you and enjoy your weekend.

Chris T. April 29, 2011, 11:28 pm

Hope some others answer that too, that will be interestiug.
Haven’t done this myself in a while, but look at the Gold/Silver ratio chart of various terms, and see where the trends are.
ratio is just below 33 now, which is already below the long term band post 1982, but that means nothing as far as a trend goes.

Did Rick ever do a H-P analysis of the ration?

Rick Ackerman April 30, 2011, 6:08 pm

Good idea, Chris. If you or someone else will tell me how to pull Gold/Silver spread-ratio charts off Tradestation, long-term to hourly, I can probably produce a useful forecast.

Chris T. May 4, 2011, 1:20 am

Rick, totally belated on my part, prob. not seen anymore.
But, I know what tradstation is, that’s about it, so hopefully someone else can help out with how to produce charts like that.
🙁

A Hodgdon April 29, 2011, 9:29 pm

Rick –
Please leave lttle lord Fauntleroy alone. Some 30 + years ago I came to the very obvious conclusion that those who dwell in condescention are among the smallest, most insecure, little people to walk the planet. They act in this manner because they do not know any other way of bringing attention to themselves. These were the spoiled little boys who existed outside the inner circles who desperately wanted recognition, and yet came out with the exact wrong comment at the precise time the room had gone quiet. Pray for these little people of the world, for they can become very dangerous.

Chris T. April 29, 2011, 10:17 pm

how true, but we can all do it.
I prob. have to say a little mea culpa for some replies above, and there is a hint of tua culpa in yours too
🙂

Benjamin April 29, 2011, 9:18 pm

Rather a shame (yet oh so hilarious) that Gary North can be such a [posterior exit-hole] when he wants to be one. Painted the picture that Rick is some kind of washed-up, intellectually-challenged bum, that had, in his aimless wanderings, finally gone over the cliff and straight into the dumps of chumps (as North predicted, of course). Then he ended that venom on the note of Rick Ackerman, the cannibalistic vegetarian (what?!).

You can’t make this stuff up, folks! lol

Rick Ackerman April 30, 2011, 5:48 pm

North is tough to figure, although there’s a Yiddish pejorative that comes to mind, “alta ***k**”, that would seem to fit.

Oliver April 29, 2011, 8:39 pm

Rick, the reactions of aforementioned writers to your arguments – especially the low style they showed – has, in my opinion, hurt them a lot.
As far as I´m concerned, I read them now with a lot more skepticism and mistrust than before.
Absolutely no one knows what panicking politicians and corrupt bankers will do, or are capable of doing. History only teaches us that they are usually capable of doing anything, even stuff beyond anyone´s wildest imaginations.
We don´t need people betting their asses on this or that – we need people who give intelligent guidance parameters that we can recognize while the show goes on, so we can react swiftly when things develop recognizably along some discussed parameters and phenomena. So that at least WE know of the few open doors left, when the theater burns down.
You definitely won this “battle” in terms of character.
Thumbs up.

Rick Ackerman April 30, 2011, 5:36 pm

I appreciate your kind words, Oliver.

Jack Stack May 1, 2011, 5:36 am

Damn well said, sir.

Hillcountry April 29, 2011, 7:36 pm

Hi Rick,

A very provocative read lately. I appreciate your candor and style. Having been on the “gold trail” with Another, FOA, Randall Strauss, Mike Kosares and many others since 1999 I have some thoughts on the matter of Free Gold or Reference Point Gold. All along the way I used deflationist theory and K-wave ideas to provide a counter-balance to the predictions regarding a new system as interpreted and very-well presented by FOFOA recently since his blog began. I think the real “nut” one has to crack is the manner in which Free Gold comes about. I have contended for years that Another’s original postings at Kitco were subtly morphed by Friend of Another as the Euro project advanced. But I’d just like to make some general comments about the problem I’ve had in getting my head around how this will play out without speculating on motives and arcane trivialities of the early days when FOA (aka Trail Guide and Sir Douglas) led us by the hand over at the USAGold Forum.

Some avid Free Golders maintain that it will come about through free-market forces. Others that it will take a bid of $50,000 or whatever from the Bank for International Settlements. A few seem to think both. In the background is always the notion that there has been a long-standing back-room deal whereby gold trades at a very high-level to certain oil states (think Saudi Arabia) as a perk for keeping their oil prices low in dollar terms over decades. The paper trading on the LBMA and elsewhere is intimately involved in making sure that future gold production gets into the right hands for existing and future oil production. This oil-gold deal was ostensibly to ensure that the dollar-price of oil didn’t inflate as the dollar itself did. The Saudi’s were enabled to take gold off the market in substantial quantities without gunning the price by dealing in these off-market transactions facilitated by “benevolent” central bankers who were just doing the world a favor by catering to the needs and wants of their populations. But then big money in Asia got on to the deal and messed things up at about the same time that technology didn’t provide the amount of gold from the ground that was planned. All well and good but we have no way of verififying it. Many of the obscure shenanigans regarding gold swaps and leveraged paper-gold and “deep-storage” reclassifications of the US stockpile can be finessed into supporting this theory if one has the mind to do so.

There was always a note of vengeance involved in the message that the dollar-system would get its comeuppance at the hands of those who planned since the 60’s perhaps to get out from underneath its hegemony. It was and is a very alluring story with the BIS playing philosopher-king to the rabble at the point of the end of the dollar’s “timeline”. My problem has always been with the idea that it leads to a better world – a “meritocracy” as FOFOA says. I try to go at this without using numbers and statistical analysis. I just try to visualize a society where most people have lost most of what they thought they had, not only here but across the globe, since I’m assuming that crushing Americans’ savings and the ripple effects on their productive capacity will have untold ramifications on the rest of the world. I can understand the theory that the gold which has been shifted about between central banks may compensate for a complete loss of their US paper in all forms. But that new “price” denominated in whatever “new” paper doesn’t refer to the after-effect on average people. Nowhere have I seen described an idea that governments would issue some of their stockpiles to their populations, only that they’ve actually been doing us a favor by managing its price so we could accumulate some prior to Free Gold happening. But how many people is that really? Less than five percent I’d suspect. What does it really look like afterwards? When ninety-five percent have no gold, no savings, no pensions, etc? Start all over again in a new and fresh meritocracy? With what? So the hyper-inflation blows through like a financial neutron bomb and everything is still standing but the people have no resources. And this happens in a blink – say six months as FOFOA speculates. And we’ll see currency with lots of zeroes in six months? Can’t really grasp that part of it at all. But suppose we do and the fever rages and “all paper burns” as Another put it and then a new currency with less zeroes. And gold is worth a great deal in this new currency – thirty to fifty times more in purchasing power than today.

Sorry for getting long about this but I thought you’d maybe appreciate the simplicity of the thought process. So, after Free Gold (AFG) how are people going to function? We all have no debts anymore because “all paper burned”? But no assets either? Other than a ‘got what ya got’ physical environment? What happens to all the folks in independent and assisted-living facilities. Forget the banks, what about the hospitals and community services and small businesses? I’ve not seen this delineated in any substantial way on any site that lauds Free Gold theory. It’s like the demon “dollar international monetary system” just must be slain and will be by benevolent saviors in the back-rooms somewhere. I’m not defending the $IMS, just trying to fathom how what comes after it is in any way preferrable given the track-record of those who supposedly are facilitating its denouement. That we need to transition to a more equitable and sustainable system cannot be denied but is this the way? Guess I’ll stop there and put it up for comments. Thanks for all your fantastic work over these many years, you’ve been a daily read for a long time around here. Adios amigo.

Rick Ackerman April 30, 2011, 5:34 pm

Thanks for contributing so much to the discussion, Hillcountry — and for your kind words. As your post implies, we cannot foresee what a Second Great Depression will look like because the economic, political and sociological details that will take us there tend to overwhelm the imagination as as they diverge along myriad pathways. That said, Bob Prechter’s bleak vision of the collapse of the American middle class is the most vivid and compelling that I know of.

Chris T. April 29, 2011, 6:53 pm

F. Beard:
“That’s a straw man argument. I argue that the government should only accept its own fiat for taxes.”

It is IRRELEVANT.
You might have a point-in-principle that if gov’mt choses to issue fiat (or any one else for that matter), such as bank notes of the 19th cent) then the ones issuing THAT fiat/scrip should have to accept it, but it is meaningless.

But, it is you who fails miserably to comprehend, not I.
My point on irrelevancy is:
In that system I describe, NO ONE not foolish would accept, let alone use, that fiat paper of the government, and thus it would not circulate.
So, even if you have to pay in real money, you can do so, because you have real money (certainly overpaying of course), and the paper is just a theoretical construct.
That does assume CHOICE, as I mentioned, something you do not (appear to) comprehend.

People do not have to lower themselves to taking any government handouts. They can voluntarily make them selves subservient to that entity by either working for it or taking its pseudo-largesse. That is their choice, they do not have to.
If those people have to pay their taxes in real money, while only receiving worthless script, why should anyone feel sorry for them?

So, choice in two ways:
a) if a debt owed BY the government is involved (because you chose to serve it), the choice of the debt-holder to determine the form of payment.
b) the choice not to work for, or take from the government rendering the government forced-scrip useless.

THIS is no straw man arguement, but borne out by historical fact:

Just over one hundred years ago, in THE major step towards the evisceration of the gold-standard then extant, the German and French government started forcing their employees to accept fiat instead of gold.
(why they didn’t refuse to accept is complex, but of course the whole system had been set up for long to turn free citizens into subjects, or rather, they were never anything other than subjects to begin with.
In the US, we were free citizens once…**)

WHY:
Why the force — because even those people,
knew better than to trust those they worked for.
Now, those governments CREATED artificial demand for their scrip by forcing their employees to take it.
No different than companies paying in scrip that could only be used in company-stores, also a historical fact.

Both those instances used forced-acceptance, and the abrogation of choice.

This is not hard to understand.
** please spare us all the tired PC stuff about: not all were free, women, blacks, yadda-yadda, that is not what is at issue here.

DAVID April 29, 2011, 6:42 pm

This is irrelevant to the debate, but the picture of people in the ’30’s struck a chord with me. It’s the picture of people on the other side of the world (where I lived for 5 years) riding a trolley bus. Right now. Notice how trim and well-dressed (respectably so) the people are. Picture in your mind the wildly bizarre, overweight, wired, kaleidoscopic American public on a grafitti-covered public conveyance today. I’m homesick.

Chris T. April 29, 2011, 7:01 pm

yup, the decent America, of a very homogeneous composition, that we had as late as the late 1950’s.

THEY have been on a mission to ruin it for decades, with all their power, and as you mention, they have pretty much succeeded.
Leave it to Beaver was by far LESS of a myth than all the arguments made for its being a creation.
Modern PC will have us believe, that all of society’s ills we see today, were just as numerous then as now, only hidden, or that all of todays so-called advances are due to the removal of “discrimination, etc”.
So, just as many couples supposedly hated each other as today, only they couldn’t divorce.
Just as many parents sexually abused their children, it just didn’t get reported
Just as many women would have gone working as do today, but couldn’t because they were kept out,
and so on.

Robert April 29, 2011, 7:20 pm

“yup, the decent America, of a very homogeneous composition, that we had as late as the late 1950’s.”

Ah yes, that common notion that individuality and deviation from the statistical mean was somehow worthy of public villification and castigation… That personal differences are abnormalities, and a child, exposing any shred of individual expression, should summarily have it beaten out of them.

The days when men were not supposed to ask “why”; they were only supposed to grab a rifle, and start killing other people whenever a “more powerful” person told them that was the right thing to do.

Yeah, those were the days. 🙁

Chris T. April 29, 2011, 7:48 pm

“and a child, exposing any shred of individual expression, should summarily have it beaten out of them.”

A terrible thing indeed.
It is much better to always let them do what they want, after all, who are WE to say that they don’t understand what they do? Such arrogance.

I feel so much better now that those kids (and mommy and daddy) can sit next to me in a restaurant, slurp their sodas loudly, and generally eat like the source of a strip of bacon. They’re just precocious.

And getting up for your granny in the subway? Such presumptuousness, I paid just as much as she did for my ticket…

And our streetscapes are so much more attractive now that your fifth spare-tire can peek out between the hem of yoru T-shirt and the sweatpant;s elastic waistband.

Robert April 29, 2011, 8:53 pm

Chris T:

“I feel so much better now that those kids (and mommy and daddy) can sit next to me in a restaurant, slurp their sodas loudly, and generally eat like the source of a strip of bacon. They’re just precocious.”

– The power of choice (whether or not to expose yourself to such blasse’ behavior) is YOURS. This is exactly why OTHER restaurants exist…

“And getting up for your granny in the subway? Such presumptuousness, I paid just as much as she did for my ticket…”

Chivalry? really? I still witness the gentlemanly act of yielding one’s seat to women, or the elderly, but I will grant you that I see it less often these days. Possibly a failure of parenting, but also possibly a failure of empathy in general (a trait which is taught, and not genetically endowed)

“And our streetscapes are so much more attractive now that your fifth spare-tire can peek out between the hem of yoru T-shirt and the sweatpant;s elastic waistband.”

– I don’t understand your point. Is it that visual appeal is an important factor to a person’s true worth to society?

I understand your longing for the “image of bliss” that bygone era’s represented, but I for one prefer the harshness of the real world, and all it’s imperfections.

Chris T. April 29, 2011, 10:10 pm

Robert April 29, 2011 at 8:53 pm

“…exactly why OTHER restaurants exist…”

Because the general decay referenced is somewho not present in that mythical other restaurant?
After, the kids mentioned grow up to be adults, and things stay the same, that is what makes it general.

” – I don’t understand your point. Is it that visual appeal is an important factor to a person’s true worth to society?”
See the initial post by David.
True worth?
Slovenliness is what is being addressed here, and, unless you believe in the hyper-relativistic notion that “its not my fault” or “I chose to”, yes it IS their fault, and one IS allowed to be critical of it.
You do NOT become a 500 lb PTBarnum circus attraction without your own input.

“but I for one prefer the harshness of the real world, ad all it’s imperfections.”

Which brings us back to the point of the reply:
You claim it is all just an image, and that the reality then was just as it is today.
That is what I dispute.
Would you prefer todays harsh realities over yesteryears lesser harshness?
That would be irrational, though not unthinkable.
But it really comes down to a belief in:
image then vs reality now as opposed to reality then vs. reality now.

Please note that nowhere did I claim yesteryear was a paradise or without flaws.
I was commenting on the MSM spread idea that the good of yesteryear never existed in any form, that all of that is just a myth, but that that notion is false.

Because, if people realized that there also was a good component, then they would be less willing to accept the change around them seen today.

Robert April 29, 2011, 10:28 pm

“Would you prefer todays harsh realities over yesteryears lesser harshness?”

– I would simply prefer a reality where things are as they are, and not as they seem. Not sure if that is either irrational OR unthinkable.

“Please note that nowhere did I claim yesteryear was a paradise or without flaws.
I was commenting on the MSM spread idea that the good of yesteryear never existed in any form, that all of that is just a myth, but that that notion is false.
Because, if people realized that there also was a good component, then they would be less willing to accept the change around them seen today.”

– We can certainly agree on that point. I was not alive during the “dark ages” of the 1930’s, or during the “boom years” of the 1950’s, but through my study of history I have noticed that: even though all the history books, photographs, and popular media articles from the 1930’s suggest that everyone in America suffered through that decade, census and IRS statistics show that the 1930’s created more new millionaires per capita in America than any decade before, or since.

So, while I can agree (in basis) with your observations that society in general is not as polite, civil, or “refined” as it once was, I can not jump the gap to assuming that the past was any better than the present ( I have no frame of reference beyond my own recollections which begin in the early 1970’s)

However, I respect the validity of your opinion , and the intended message of your observation, just so long as you can concede that the well groomed, gentlemanly young man who cedes his seat to an elderly lady on a subway, might, in fact, be a deranged serial killer…

Chris T. April 29, 2011, 11:41 pm

I certainly would concede it, and would find it more believable in the context of today vs. then.

I wonder, did Jeffrey Dahmer ever offer his seat?
🙂

BTW, interesting your point about the image of the 30s vs. the facts you mention.
Its the opposite of what I claimed above:
Here the MSM spread the notion of general decline during the 30s, when the facts are not supportive in many ways.

If you see my longer comment from the last Ricks Post (if you care to), where I mention Howard Katz’ work, you will see that spelled out better. Not original to me, won’t claim that, but persuasive which is why I mention it.

I was unaware of the increase in millionaiers at that time, but it fits well with Dr Katz work:
millionaires then were certainly of the elite. They spread an image to use it to justify the measures implemented to enrich themselves (which you have seen evidence for in the data).

ebear April 30, 2011, 2:04 pm

“And getting up for your granny in the subway? Such presumptuousness, I paid just as much as she did for my ticket…”

Actually, she probably paid less. Most transit systems have a concession fare for people over 65. The issue isn’t how much she paid though, but what happens when the bus or train you’re riding on makes a hard stop.

ebear

Rick Ackerman April 30, 2011, 4:26 pm

I used the picture because I saw exactly those things in it, David. Regardless of how we come to ruin, the remnants of consumerism at its apogee will still be with us. But will anyone dare ride to the soup kitchen on a $6000 trail bike?

Robert April 29, 2011, 6:12 pm

Rick-

I’m going way out here….

This “flations” argument is un-winnable by either side, because no one can predict the actions of other people with absolute certainty, and yet this “flationary” conflict will ONLY resolve itself through the actions of other people (most notably policy makers).

Willie and Lira aren’t trying to help other people, and they aren’t trying to fix the problems that ail us. They want, more than anything, to be RIGHT. Ditto North, Prechter, and even Bernanke.

You offer a service that HELPS people, by making them think.

It clicked in my brain as I was writing my blog entry about the ridiculous debate I endured on Easter Sunday that Armageddon will not be a battle for our bodies, or our lives, or even for our souls.

Armageddon will be the battle of reason versus rule.

Willie wants to rule this debate. Ditto Lira, Prechter, and North. They have made up their minds, and they want to sway others to their way of thinking. It’s called argument from a position of perceived superiority, and it loses one points in an organized debate.

I applaud you, FOFOA, Casey Research, and many others for standing (with us) on the side of Reason. Even James Turk, who certainly fall on the inflationary side of the tug of war, is still respectful in the presentation of his viewpoints- Admirable.

Frankly- I would raise a big middle finger to all of them and say the “flations” argument is irrelevant- the fundamental questions are “What preparatory steps can we take that will prepare us for EITHER scenario…?”

For either scenario to fully play out it will take policy actions to kick it off. Until we can see inside the brains of those who cling to rule instead of reason, we will never understand what they are going to do next. Ergo, we are all speculators.

Every religious book out there (as well as the little voice inside our heads) says good will triumph over evil, so the question each of us has to face is simply:

“Between Reason and Rule, which represents good, and which represents evil? Which represents freedom, and which represents oppression?

Fascism, socialism, communism, class warfare, “haves” versus have-nots” ….blah blah blah. It’s all noise.

We are all entitled to pursue the benefits and advantages that opportunity affords us, so long as we do not trespass or get in the way of anyone else in their own pursuit. This is the essence of sovereignty and liberty.

We are all born with nothing but our souls- we all die with nothing but our souls plus our cumulative experiences. How sad for those whose experiences will involve only how much they chose to meddle in the affairs of other people’s liberty?

Will Ben Bernanke go to the grave actually believing that debasing the value of other people’s accumulated savings was what he was born to do?

If we (all of us) don’t climb and conquer the hurdle of academic REASON as our greatest asset, then the Keynesian experiment won’t be the only thing over soon- The whole experiment of whether humanity represents an intelligence that belongs in this Universe will also suffer.

I really hope the Mayans are right and we do face some critical judgment next year, because frankly, I’m getting tired of waiting….

I’m ready for the gavel to strike to bench, so I can finally understand the fate of my being.

Now, if you’ll excuse me, it just occured that I’ve formulated the basis of a philosophy here that I must expand upon within my own little web-space. Copy-paste is a miraculous invention.

Rick Ackerman April 30, 2011, 4:16 pm

I agree that arguing prepares us for nothing, Robert. For my part, I plan to expand the content of Rick’s Picks so that there is practical information to balance the “sky-is-falling” bias of my commentary. A recent essay on food storage contributed by my wife was a first step in this direction, but my goal is to provide more such information on a regular basis via a web-zine associated with the newsletter.

F. Beard April 29, 2011, 5:51 pm

But if government will only recognize it’s own fiat, it deals itself the very advantage, the very monopoly you argue against. Makes no sense. JimK

Of course it makes sense. Only the government should be allowed to issue the government’s money. For anyone else to do so is counterfeiting. Gary North thinks PM owners should be able to counterfeit government money. He is thus a fascist.

This is my last comment for the day lest Rick get’s weary.

adios

Steve April 29, 2011, 5:50 pm

Because it is difficult for me to establish a base in regard to this discussion of hyper-inflation I went to wikipedia for the following:

“. . .Definitions used vary from one provided by the International Accounting Standards Board, which describes it as “a cumulative inflation rate over three years approaching 100% (26% per annum compounded for three years in a row)”, to Cagan’s (1956) “inflation exceeding 50% a month.”. . .”

The terms I see used in counter argument are ‘inflation’, ‘deflation’, ‘hyper-inflation’, and ‘crash’. As I see it, to mix the terms inflation and deflation into a discussion about hyper-inflation and a crash defeats the purposes of the discussion especially when one works to discover exactly what Bernanke and crew are fighting to avoid, or working to create. Looking only at 1/2 the equation in regard to assets, without wages defeats the discussion.

What is the standard in regard to inflation that is occuring. In other words how is the accounting proceeding to produce the numbers to establish inflation in real terms today? Was housing factored into the equation worry of the Fed/Bernanke? Was Chinese imported deflation factored in, and how did this affect real wages which have been and remain stagnet in real terms, even declining for the 90% while increasing for the 10% (Is this the shovel talk Cam?)

The alleged wealth in the Dow Jones is just paper assumptions that every stock will be paid at the highest value which is only accounting, not real in hand wealth. These Dow Jones numbers are just phatom until someone sells and an accounting takes place. My stock bought at 1.00, and now 15.00 on the Dow Jones is an assumption, and nothing was created in real terms in the 14.00, it is only an assumption that if one is able to sell that stock it has a value if the broker gives you the federal reserve notes. Thin volume on the market creates wealth out of thin air. A 50 Dollar Eagle is a “value”, the 1539 frn an assumed accounting until the 1539 is brought to possession by exchange. I am attaching these pendants to make the point that nothing is real unless it is in hand. The bank deposit belongs to the bank in bailment depositum under agreement/ contract. The deposit is no longer owned by the depositor. The Bank owns your deposit pursuant to the terms of contract, which is to return as per agreement, maybe overnight, maybe 72 hours, maybe 30 day CD, or maybe a hidden contract limit on cash withdrawal at
$500 a day. Ultimately frn are owned by the Fed. Res. and the holder in fee only has a use of the note/property of the Federal Reserve. (trust me the I.R.S. will levy federal reserve notes out of a store/bank without a court order, but; the I.R.S. will not touch property any more without a court order of attachment/seizure, Schultz v. U.S./I.R.S., why? the frn are the property of the Fed) What your stock broker/agency has in stocks; is their property/ ownership under an agreement by contract with the trader(you), until the broker liquidate pusuant to the trading contract. There is no wealth in the Dow Jones, or with a stock broker until the stock is sold and the money is in hand personally. Even in the bank the frn is the property of the bank under contract bailment depositum. Because a small group of traders has driven up a very large block of stocks does not mean there are actual dollars, only an accounting of a possibility.

What is inflation and how is the accounting done today, versus how the accounting was done in 1929-1934? If one is playing a democracy game where the rules are changed to benefit one side, not allowing the other side, you and me, to understand the rules; no one is going to win in the end. The current congressional/executive Bernanke world is a world of changing rules in accounting, changing rules on reporting, and mystical magical mysterious Fed Speak.

I strayed so that I could make this point is some sort of reality based in an immutable definition. I cannot have a discussion about hyper-inflation when somone injects theory on inflation based in variable accounting rules and Fed Speak to justify the requirement(s) to fulfill, or avoid the point of discussion, which is hyper-inflation. I cannot have a discussion about hyper-inflation when the alleged “Wealth” within the stock market is fictious presumptions of value based upon total sale of all stocks at the highest price aquired on the DJIA in the moment. Where is the money created for a 1000 shares held, when only 1 share has increased from 1 to 15, and not one share has been reduced to possession of the broker, let alone the presumed trader? The 14 are an accounting assumption. Inflation, and deflation are not-so-simple actions/reactions in a micro sense and in a macro infringement upon standard of living at an acceptable rate 2% per annum. The discussion of hyper-inflation must be bounded by an immutable authority. I went to Wikipedia to establish hyper-inflation as . . . “a cumulative inflation rate over three years approaching 100% (26% per annum compounded for three years in a row)”, to Cagan’s (1956) “inflation exceeding 50% a month.”

Because Bernanke’s fear is wage inflation, with no concern for necessity inflation in things, except a worry that increased food/fuel is going to cause wage pressure, we have a basis to consider whether or not hyper-inflation can occur across the board in a macro sense, instead of say, just in housing, or food and fuel. Wage inflation is occuring, but; only in a micro sense for the few 10% at the top. In the macro, wage deflation is occuring, but; not wage collapse. In addition to that we have class divergences in that 10% feel no pain, 50% can deal with the pain, and 40% are in pain (all numbers out of the air based on the 90/10 split).

Using the current definitions of hyper-inflation; are we seeing 26% per year wage pressure, compounded over three years – No. Are we seeing 50% wage pressure in a single month – No. Is it possible to find 50% wage pressure in a single month, Yes. Is it possible to find 26% wage pressure per year for 3 years compounded, yes. That we now agree that it is possible to reach hyper-inflation by an immutable definition, which is where the discussion should be. What are the probabilities that wages, across the board 100 % for every worker, will increase at this defined rate to establish hyper-inflation, chasing in like kind asset appreciation, in a manner that cannot be manipulated by theory democracy?

I am interested in opinions because I didn’t read FOFOA far enough due to an enormous error in comparing specie to fiat to establish a variable theory, not a constant. What I read of FOFOA established a perception presented in a narrow view that did not explain how 50% asset increases were matched by 50% wage increase in a single month, or how assets would increase at 26% per year for three years running all the while wages chased after with 26% compound increases on an annual basis for three years for 100% of workers in lock step, or just behind the price increases. 10% considerations to drive up asset costs alone just defeat objective study of hyper-inflation as defined by Wikipedia. There are options besides wages increases, like a debit card loaded with 45k. Again, the debt card senario is disingenuine because it amounts to wage increases in the hands of the 100% (the debt 45k would be taxed as income by the I.R.S.)

I will agree with the hyper-inflationary scheme when someone explains the 50% price/wage increase in a single month, or 26% price/wage increases compounded over 3 years across the board for 100% of the people. Disconnect in stagflation does not cut it, or saying that super-heated asset prices somehow qualifies as anything other than the loss of standard of living for 90% of the people.

In an absolute micro sense there has been excellent discussion in regard to inflation of necessities driving the standard of living down because of stagnet wages. I believe this to be stagnation creating a loss of standard of living (I hope someone will discuss the anger brought on by this loss of standard). But, on the macro stage today, there isn’t increased prices on a daily basis caused by increased wages on a daily basis creating hyper-inflation that can only be discussed on the full plane of understanding considering all things necessary, not 1 single thing driven by 10% of the population. Housing approached hyper-inflation, but; was nothing more than an inflationary bubble that was not taken into accounting by Bernanke because it does not fit his manipulated democracy model from his Ph.D. thesis. Stagflation, which is what happens when 10% of society liquidates their frn for tangibles, driving up prices, while the other 90% cannot because of deflating wages is not hyper-inflation as defined in the macro sense that things/tangbiles must increase across the board, and wages must increase across the board for a 3 year term of 26% compounded annually, or both wages and tangibles must increase 50% in a single month.

There is an immutable standard for North, for FOFOA, Jim Willie, and the others if they will use that standard, instead of the variables taught in Ph.D. economics. What are the probable outcomes based in an immutable definition of hyper-inflation which must be considered macro 3 years 26% compounded, and micro 50% one month in both wages and assets? The discussion is not about prices increases driving down the standard of living, but; of wages and prices going into a short term 50% per month hyper, or longer term 26% per year compounded for 3 years run together.

Under FOFOA is see the possibility of asset prices skyrocketing 50% in a single month, but; I do not see wage pressure of 50% a month happening because someone will put a cap on that wage pressure, either business, or the government. The above is not hyper-inflation, only the loss of standard of living by the 90%. The possibility of 26% wage pressure chasing 26% asset inflation per year for 3 years is possible, but; really – how likely is compounding wage pressure of 26% per year under the fed and congress? It is possible to see 50% per month wage increases chasing 50% asset price increase per month-sure. But, how probable?

I saw 10% wage pressure in the late 70’s and 80’s running for several years. Does anyone remember what was done ? Yet even that compounding wage pressure of 10% over several years was not hyper-inflation. Hyper-inflation is macro short term 50% per month, or long term 26% per month compounding. Inflating asset prices driving down the standard of living because of no wage pressure is not hyper-inflation. The 10% driving up asset prices 100% in a month, driving down the standard of living is just not hyper-inflation as defined.

I’m going to end by stating that I listened to Bernake’s words saying that there is no long term inflation expected. He may be right, because wages are stagnet, and we have already been screwed by the increased gas and foods prices, which don’t matter to him. Bernanke does not expect oil to compound increase over the next 3 years, which means the federal reserve note is not expected, nor will it be allowed to decline for the next 3 years at a 26% rate, compounded annually, for the next three years. The fed took down the standard of living for the 90%, the 10% don’t care, and as long as the price of oil does not compound over the next 3 years- what happens? Could it be stagnation for the masses no matter what the 10% does ?

DAVID April 29, 2011, 5:34 pm

Oh–a further comment: Deflation is like inflation–supply/demand. Deflation and inflation are closely related; hyperinflation is a totally different animal from either. So you can have asset deflation, alongside commodity inflation, right up to the point that hyperinflation hits and blows them both away. At least, that’s my reasoning. Flaky, or not?

Rick Ackerman April 30, 2011, 4:10 pm

I wouldn’t argue with anything you’ve said, David.

DAVID April 29, 2011, 5:29 pm

Rick,
I’ll send you the same response I sent Gary yesterday after reading his essay (after reading your essay that prompted it). I had been thinking about inflation/hyperinflation the day before I read your capitulation essay, and had concluded that inflation was a monetary, supply/demand phenomenon, while hyperinflation is a psychological phenomenon. The two are as different as they can be. Inflation occurs when people still believe the lie (in the case of fiat currency) that the currency has real value; it’s the cost of living that’s going up. This is what TPTB want us to believe. Hyperinflation occurs when a critical mass of the populace realizes the truth–that the cost of living is really not increasing; what’s happening is the devaluation of the currency to ultimate worthlessness. I don’t know what the critical mass is. What caused me to follow this line of reasoning was hearing all the complaints about the high price of gas. I was thinking we should be glad for $4 a gallon gas, given how many dollars are out there. If it weren’t for the fact that most dollars are overseas, gas would probably be $10 a gallon. These dollars WILL be repatriated–it’s just a question of when the mad scramble for the exits on the part of foreign central banks happens. We’re close now. This may or may not be the event that causes the critical mass of American people to realize the truth. Stay tuned.

mario cavolo April 29, 2011, 5:28 pm

Rick,

I admit that I don’t find it mentally easy to read through these kinds of detailed arguments back and forth on this set of subjects. That said, I greatly appreciate that you pick your intelligent arguments, argue them very well, yet are willing to recognize when bending is also the intelligent thing to do. It doesn’t mean anyone is right or wrong at all, hell, none of us really KNOW exactly how such complex and convoluted circumstances and variables are going to play out. I feel much the same way about my writings on China. I do feel confident and clear about what I say, what I see, what I argue and I appreciate that it makes people think. But its not good, its not positive, its not contribution to others, if we get so full of ourselves.

Bravo always to you for this site and everything it represents.

Cheers, Mario

F. Beard April 29, 2011, 5:17 pm

… wouldn’t you say that labeling some-one calling for a return to the gold standard a “fascist” is ridiculously over the top and only serves to blur the distinction between Mussolini and Von Mises? JimK

No I don’t. Mises meets the definition of fascist too since he favored a government enforced gold standard.

It is really ridiculous on its face to conflate liberty with a shiny metal. Is is akin to conflating God with a golden statue.

Use PMs or anything else for private debts but to require the government to recognize anything but its own fiat as money is fascist. Government IS force. Its money needs and should have no other backing than its taxation authority. To require that taxes be paid in a PM or any other private money form is to misuse the power of the state for private interests. That is fascism.

Mark Uzick April 29, 2011, 5:50 pm

Private money can potentially consist of anything of value and so can the state’s money, but fiat money is not practical money for taxes or anything else, unless unacceptable (what you would call fascist, as I outlined above) conditions are imposed. If gold money, or any other real money, is minted or printed by the state, it is by no means private money.

JimK April 29, 2011, 6:04 pm

FB, you misquoted me – here it is again:

“Any money that is accepted for taxes has a huge advantage over any that is not. That is why government must recognize no money but its own fiat.” – F.B.

But if government will only recognize it’s own fiat, it deals itself the very advantage, the very monopoly you argue against.

dyrangocat April 29, 2011, 5:06 pm

hmm – I read Gary’s article with associated materials and your response. The major emphasis of the Inflationistas is that the class struggle will ever drive us to hyperinflation due to the debtors class forcing the savers class to “hand it over” (as in assests) via government as the bludgeon.

I have always found the the Class Warfare default argument to be weak in that it ….. can be worked both ways. Let me give it a shot here! This is somewhat tongue and cheek and somewhat serious!

The hyperinflationists theory is that bloodshed would occur from the conflict between opposing interests (debtors vs savers) if policies are adopted leading to deflationary course by governments and that all the ‘powers that be’ would want to avoid that kind of pain at all costs.

But the dangers of hyperinflation lead to even bigger problems. (Note that Gary conceded that debtor regimes ultimately fail apart under the weight of too many token commitments.) The “fall apart” we are speaking of is civil war and anarchy (like Somalia and Yugoslavia). Historically, bad effects, as well of —- hyperinflation. Will the “Masters the Universe” permit their assets to be destroyed by hyperinflation only to have the government seize the crumbs left to throw at a bunch of welfarists (rich and otherwise)? Will they do this knowing full well that the natural course of the political class will lead to anarchy when the debtor economy fails to deliever in the end? Will the Big Money Interests allow the mob to dictate or will they pull their money from the ‘rent-a-protestor’ movement if it means sacrifice to the Big $$$? Will they be happy with the gold assets they have accumulated knowing that they need guards around them to protect them from the have nots? Do they really want to be the “wealthy” in an environment like that which occurred after the Roman Empire crumbled?

NO! People naturally want order!

If given a choice of Hyperinflation and all its ills versus the destruction of “weaker savers” (the middle class), further destitution of the poor, and the devaluing of everyone elses money, they will ultimately support a Hyper-DEFLATIONARY agenda! That way they can cash in on the devalued assets since even in the new world order they would still be rich (although relatively poorer than before). They would do this EVEN if it means getting a tyrant to do a little ‘population control’ of the have-nots!

How do you like that answer to class warfare?

F. Beard April 29, 2011, 5:06 pm

Citizens should be free to trade using any form of money the wish. JimK

True

The currency in which taxes are paid is another issue – I can’t imagine the state of Texas accepting chickens or massage vouchers or ammo as payment of sales tax returns, JimK

Which is why a government should recognize only its own fiat as money and nothing else. Texas could legally, I suppose, issue, spend and collect in taxes its own fiat tax tokens.

but I do think that people should be able to choose their system of barter. JimK

Not just barter. We should be allowed to have genuine private money supplies that were only acceptable for private debts. These could, of course, include PMs or any other form of money.

Similarly, the Constitution limits the states from issuing any currency other than gold or silver, JimK

That needs to be amended. It’s pretty ugly actually to conflate liberty with PMs.

and while being forced to use gold as money would no doubt make miners rich, JimK

Not only that but it would perpetuate the current debt-based money system since PMs, being non-performing assets, require usury to generate a return.

let’s not forget that they only dig up an additional 2% per year – far, far less than the printing press purveyors JimK

So the money creation rate is to be tied to the mining rate of a shiny metal? Do you somehow expect that to be optimal for economic growth? Do you also consider that it might not be just either?

– seems like the lesser evil to me, JimK

An unnecessary evil. The stealth inflation tax could be abolished by repealing the capital gains tax and legal tender laws for private debts.

as the general public will prosper nonetheless, if allowed to use sound money. JimK

Certainly the public should be allowed to use anything for private debts. But FORCING us to use gold or silver for taxes is fascism. And whether PMs are “sound money” is very debatable. True liberty is sounder than any shiny metal.

I don’t see this as a ‘fascist agenda in sheep’s clothing’ – what would make it so would be continuation of the legal tender provision – JimK

Any money that is accepted for taxes has a huge advantage over any that is not. That is why government must recognize no money but its own fiat. To do otherwise is to show favoritism to private interests which is fascism.

JimK April 29, 2011, 5:35 pm

“Any money that is accepted for taxes has a huge advantage over any that is not. That is why government must recognize no money but its own fiat.” – F.B.

But if government will only recognize it’s own fiat, it deals itself the very advantage, the very monopoly you argue against. Makes no sense. PM money is an essentially inelastic quantity – I consider 2% to be negligible. Meanwhile, any fiat system invites corruption. PMs can’t be faked – when the first person is unable to redeem his gold certificate for the genuine metal, the game is up – this is the collar that keeps the system honest – no such limit in a ‘government’s own fiat’ system – the temptation will always be there to make impossible promises and then borrow – unless it is a dictatorship.

Mark Uzick April 29, 2011, 5:36 pm

How bizarre! Fiat money has no fixed convertibility and, hence, no measurable value. It must be propped up artificially with price controls and legal tender laws or, as in the present case, military intimidation of oil producers to accept dollars, creating a pseudo standard of value in terms of oil. What could be more fascist than fiat?

JimK April 29, 2011, 5:56 pm

The responsive elasticity of money supply in a PM system is regulated by other barter, temporarily debasing gold, as appropriate, by using other money or barter instead. If too much aggregates to a wealthy class, the poor continue to trade through barter or whatever coin they wish to create – maybe it’s copper. The resistance to barter is intended to prevent such autonomy.

Chris T. April 29, 2011, 5:04 pm

F. Beard,

“Gary North is a fascist posing as a libertarian …
a government enforced PM standard which

How about the liberty of people to pay their taxes without having to buy gold or silver to do so?”

In your not-to-be changed attitude towards the PMs and hard money, you sadly are still misguided. You are trapped in your belief.

I do not intend to defend North here, but you totally micategorize his statement that you quote, are your argument against it is flawed.

Startign from the bottom:

a)
Unless you believe that no government should even exist (a differenct argument, does not need addressing here), in a free contractual society, everyone, including the government has the right to determine WHAT to accept as payment for a debt.

That would apply to any actor, aind include the government having the right to determine what to, and what not to, accept in payment.
Else, if in the government-private party exchange, the debtor were able to select the means of payment, — which you clearly DEMAND above, what is to stop that from also being implemented in a private-private payment?

[again, this completely leaves asside the legitimacy of the government per-se, or the legitimacy of its debt-collection, that being mainly a forced contribution].

In your system, I would chose to pay my taxes in dog-sh**.

b)
People do not have to BUY gold or silver to pay taxes, because they ALREADY have it.
It is MONEY, coined, which they are forced to surrender to satisfy the tax.

In the system advocated by the Austrians, such as Norht, anyone would be a FOOL to chose to receive payments for a debt owed himself by others that is NOT also a PM.
Sure, you can take srip, notes, or goods in payment, or even a service, but you could, AND WOULD unless stupid, demand payment in the most liquid and HARD form, which is again, the coined money.
But, you are unable to think of the PMs as anything other than commodities hoarded by the few, which it would not be.

Even the miners, the ONLY ones able to “produce” the stuff, do not benefit as much as you seem to believe:
a) there is a limit on the producible amount imposed by nature,
b) any excess profit (as you believe seems to exist), would disappear if they over-produce AND had that material over-coined.
It is a very simple, ADAM SMITH argument of S & D
[I hope you believe at least in THAT well-settled notion]:

The free flow between COINED and UNCOINED precious metals, by way of coining or melting, is a natural arbitrage between the two forms, when/if the demand (or supply) for one form is greatly exceeded by the other.

c) Government is not “forcing” anything in this system, it’s sole function is to ensure that contracts are maintained, meaning that if X supposedly contains y-amount of gold (silver), it actually does so.
In other words, the sole function of a government mint is/would be to prevent debasement.
IF government can’t be trused in that (for which there is ample evidence) there still is unencumbered private minting.
So long as there are not legal-tender laws, the debased government money WILL be driven out by the better private money.
As I have mentioned before, Gresham’s law ONLY applies in forced-money systems.
Even the government itself would be STUPID to mandate the use of its own debased coin, because they would get more PM in the non-debased, private coinage which is driving out the debased coin (both having the same nominal claims on the face.)
To make even clearer:
Imagine that we actually got away from “made-up unit” face amounts, and started defining things in terms of physical quantities (which is actually what the currency act did, only it used a surrogate for ease of comprehension.):

In other words, if you don’t triangulate between
Double Eagle=$20=30.49gr fine gold
and simply have the actual physical on the coin (in grams or grains, or tr.oz, etc),
then who would take a
30gr-stamped coin actually containing only 20gr fine
in preference to one
30gr-stamped coin actually cointaining 30gr fine?

Where Gary North is wrong is on the true mechanism of the hard money system needed, for which see my point above about his blind-spot with respect to gold’s clearing system, real-bills.

I am sure you will not agree, and you much prefer the McKinley’s (or worse WJBryans) to the Clevelands.
Me, I think Grover Cleveland was the last good president we had.

F. Beard April 29, 2011, 5:43 pm

In your system, I would chose to pay my taxes in dog-sh**. Chris T.

That’s a straw man argument. I argue that the government should only accept its own fiat for taxes.

I won’t bother with the rest of your comment since you failed so miserably to understand what I’m saying.

I suggest you re-read what I said and try again.

I’ll check back tomorrow.

Roger Erickson April 29, 2011, 4:53 pm

> cosmic sums of debt needing to be liquidated

Most of those “debts” you allude to are invented debts, to hyperventilating banksters inventing them as fast as they can talk.
The real fight is converting imagined debt in fully fiat $ to real aggregate demand and production. That fight boils down to a battle to have our delegates in Congress AGREE on our behalf to socialize fiat debt by VOLUNTARILY converting it to real aggregate demand/production terms.

Depending on how foolish this electorate is, that voluntary suicide may proceed just enough to hang a lot of politicians, but the only possible outcome is a vampire squid sucking the life out of the US population. When the gag reflex kicks in, there will either be a correction in real terms, or the USA as we know it won’t be here.

You have to bet against the banksters, since nothing in history has kept progress at bay for long, even cultural suicide. Winning group output is always achieved with more group coordination delivered better/faster/cheaper distributed group decision making. Long term, the banksters have no better chance than the the old USSR’s CCP did. Ultimately, command economies can only command their own demise. That’s why the route of economic collapse to me is always deflation – since it will be deflation of ability to coordinate. A fiat currency is only coincidental to collapse in coordination. Hyper-inflation is irrelevant to the REAL part of a fully fiat economy – since it’s only numbers, not real money. Hyper-inflation is a fear only to the rentier class who want desperately to assign lasting value to fiat. Ain’t gonna happen.

Given that fact, maybe some of the banksters themselves will awake from their cocaine-daze long enough to have second thoughts.

Rick Ackerman April 30, 2011, 4:02 pm

Those debts are absolutely real in that they represent future benefits that will have to be foregone. Our standard of living and the attainability of “the American Dream” will be diminished by precisely the sum of what you are calling “invented” debts.

Jacques Redou April 29, 2011, 4:04 pm

Newton’s Laws break down in a Black Hole.

Economic Laws break down in the Black Holes of New York and Washington, DC.

Castro and Stalin proved that a people can be impoverished for decades by the destruction of free markets.

ANY economic laws can be broken within the borders of one country. As long as the population does not resist.

Economic Law says gold rises in inflationary times.
If Obama outlaws the trading of gold, shuts down the
gold dealers, gold will no longer rise for the average American. Of course, the bankers will be allowed to trade in it.

So, for US Americans, just as for the Cubans, just as for Stalin’s Russians – the ‘market’ will be whatever
the Apparatchiks decide it will be.

Inflation, deflation will not matter within the borders of the United States, because we will end up with a Command Economy – everyone Not Connected will
be poor and poorer.

This will continue until the population decides to Resist or the Apparatchiks change their mind.

Call a bank in Switzerland or Hong Kong. See if they
will open an account for you.

redwilldanaher April 29, 2011, 5:56 pm

Great post Jacques and the same for your essay Rick. Jacques, I’ve stayed out of the fray, fascinating as it is, precisely because I believe this:

“Under the circumstances, the advice of anyone who claims to know for certain how things will play out should be scorned. The safest prediction one could make is that each of us, and everyone, will prove to have been wrong in some significant way.”

AND THIS:

“So, for US Americans, just as for the Cubans, just as for Stalin’s Russians – the ‘market’ will be whatever
the Apparatchiks decide it will be.” – Provided we stay foolishly distracted and thus hostage to their end goals.

F. Beard April 29, 2011, 3:21 pm

Gary North is a fascist posing as a libertarian so I have ceased to read him. Why? Because he proposes a government enforced PM standard which is effectively a government subsidy for PM owners and miners.

Here’s a quote:

“The government does have the right to establish the form of money that citizens must use to pay their taxes. The government should limit itself to a statement regarding the weight and fineness of the tax coins. If private enterprise produces coins that meet these standards, the government must accept such coins as valid for the payment of taxes. The government lawfully controls the form of taxation; but it should not have any power to monopolize the production of coins. Governments have always asserted this authority, and they have always done so to the detriment of liberty.” Gary North from http://www.lewrockwell.com/north/north895.html

“Detriment of liberty”?! How about the liberty of people to pay their taxes without having to buy gold or silver to do so?

Beware libertarians! There are wolves in sheep’s clothing among you.

Don’t feel bad Rick. Who is Gary North that you should heed him?

JimK April 29, 2011, 3:50 pm

Citizens should be free to trade using any form of money the wish. The currency in which taxes are paid is another issue – I can’t imagine the state of Texas accepting chickens or massage vouchers or ammo as payment of sales tax returns, but I do think that people should be able to choose their system of barter. Similarly, the Constitution limits the states from issuing any currency other than gold or silver, and while being forced to use gold as money would no doubt make miners rich, let’s not forget that they only dig up an additional 2% per year – far, far less than the printing press purveyors – seems like the lesser evil to me, as the general public will prosper nonetheless, if allowed to use sound money. I don’t see this as a ‘fascist agenda in sheep’s clothing’ – what would make it so would be continuation of the legal tender provision – if I can barter at the farmer’s market – and without a Fed Inspector fining me because my turnips are not FDA inspected, that would not be a fascist model.

So, I say we the people use the money of our own choosing, but the States are limited to gold and silver, to keep them out of mischief. How then to equitably raise taxes, that is the question.

Mark Uzick April 29, 2011, 3:53 pm

I understand and agree with your desire for a free market in money and a free market in government services, voluntarily paid for – not paid for by taxes imposed by a monopoly state. Stateless government is a worthy ideal, but given that, awaiting sufficient enlightenment of the people, we will be fortunate enough to to have a constitutional republic returned to us, wouldn’t you say that labeling some-one calling for a return to the gold standard a “fascist” is ridiculously over the top and only serves to blur the distinction between Mussolini and Von Mises?

Robert April 29, 2011, 8:34 pm

Great (nay, FANTASTIC!) points about taxes above.

North wrote: “The government does have the right to establish the form of money that citizens must use to pay their taxes. ”

– Fair enough- so long as the government is FAIR.

Anyone remember the “purchasing vouchers” that California was handing out and declaring as “legal for use and circulation for local purchases” ; but the state then turned these vouchers away when people tried to remit their taxes in said “currency”…?

Hypocrites suck, and when you are a politician as WELL as a hypocrite, then you really suck…

Gary North is an old-school collectivist- plain and simple.

John April 29, 2011, 3:11 pm

I wouldn’t worry about the poor banks in a deflation where many people default on their mortgages. Most mortgages are owned by Freddie, Fannie, and FHA. These entities are now owned by the government as a result of the post 2008 bailouts. Is it possible that it is an aim of the government to own an increasing proportion of the houses we live in, as well as the jobs we take, and the health care we receive?

Stefan April 29, 2011, 2:53 pm

Hi Rick,
I read the FOFOA article and came away with a new perspective. I am training myself to think in terms of Debtors and Savers and the counter intuitive mindset of who is in these camps. (yeah that’s right, not who you think – on the larger financial scale that is) I am not forgetting or trashing Inflationists or Deflationists, but simply including the new paradigm of Debtors and Savers into my thinking.
Each has a motivation and each fits into the Inflationary or Deflationary camp. Understanding who they are and what their motivation is adds clarification to the classic Inf vs Def debate.
I agree there are excellent arguments on both sides, but why, for the love of God, do so many feel they must stay entrenched in one side or the other? Illumination and new ways of looking at a something are the leadership traits of an open mind.
Free your mind folks!
[btw – Why is it so difficult to accept that the dollar is no longer a store of value and is just a trading platform? And when the Bond market collapse’s, the Fed won’t buy up every bit of it? That’s somehow not believable? And the first one to spend that new money gets the most bang for the buck? Which brings us full circle, Why is it so difficult to accept that the dollar is no longer a store of value and is just a trading platform?]

Andy April 29, 2011, 2:46 pm

Rick, when you are in a hole stop digging.

Mark Uzick April 29, 2011, 4:30 pm

Why is admitting that the economic future is uncertain, a future that depends on the future actions of many players who don’t even know what their own actions will be, a case of digging one’s self deeper into a hole?

It seems that while Rick has climbed out of his hole, you’ve only entrenched yourself deeper into what ever hole you’re trapped in.

To make a religion out of deflation/inflation/HI-ism, is to feign omniscience.

Andy April 30, 2011, 2:19 pm

@ Mark Uzich
You have a remarkable ability to infer so much that is so wrong from one sentence.

Rick Ackerman April 30, 2011, 3:52 pm

I second Mark. Your glib putdown is unsupported by anything I’ve said.

brian April 29, 2011, 2:28 pm

I’m a strong supporter of the austrian school of thought but I applaud your level-headed handling of the “smugly condescending essay” by Gary North.

Mark Uzick April 29, 2011, 2:22 pm

I want to re-post a reply to Rick from the last commentary that was made just before this new commentary and so will doubtless be otherwise ignored:
…………………………………………………………………………..
Rick Ackerman: “The Tea Party could push things toward deflation, as you say. Concerning the bankers, deflation would in theory allow them to manage the disaster, allowing them, for example, to take possession of physical property in liquidation.”

The people who lose their homes by defaulting on no-recourse loans will escape bankruptcy, but how do you expect the lenders, who are liable for retiring these loans, to escape bankruptcy and even profit by taking possession of real estate worth only a fraction of the loan value?

In my view, with the advent of deflation, the banks would be out of business and their remaining assets would be liquidated to pay off a fraction of what they owe; maybe, to hide the massive losses, the Fed would end up owning a lot of real estate.

Rick Ackerman: “In a hyperinflation, however, they could “manage” a financial collapse perhaps only in the way FOFOA suggests: cashing out of paper at 100 cents on the dollar and deploying it in hard assets.”

Is either deflation or hyperinflation inevitable? How about “normal” inflation or merely high inflation? Might not some reforms be made, but not to the extent that would cause the needed healthy cleansing of a good deflation?

“Normal” inflation might not be sufficient to bail the bankers out of their insolvency; I wonder exactly how much inflation will be needed to save them. Any ideas?

Rick Ackerman April 30, 2011, 3:51 pm

The banks will own the homes in default, and it seems logical those who live in them now will become tenants, their mortgages transformed into lease agreements. Rents will be adjusted by politics rather than by valuations, and so Joe Sixpack may finally get a fair shake. But if an Obama-type should be President at that time, taxation-by-rent could become steeply progressive.

Concerning “normal” inflation, that is what Gary North is arguing. I doubt this is possible, however, given that the amount of debt needing to be discharged runs into the hundreds of trillions of dollars.

JimK April 29, 2011, 1:57 pm

It is both, as it was during the Great Depression to a lesser degree. Gold became more precious relative to the dollar, and necessities became more precious than nice houses. Whether we see prices fall in Dollar terms is beside the point – we have the inverted pyramid, and The People are finding it harder and harder to make ends meet – we are living as though we are poorer, and any focus on the number of dollars we must pay for eggs is a distraction – the point is that all we can afford is eggs and beans – the necessities of life.

So, we have price deflation in real money terms for the luxuries of life (real wages falling), while simultaneously having Dollar price inflation for the necessities of life. This is and always has been the enslaver of men. It is a transfer of wealth from the bottom to the top – the top being specifically the banking elite.

In order to hold this wealth transfer in continuous effect, the people at the bottom must be denied the use of real money without a ‘capital gains’ tax in order to enforce the continuing reduction in their real wages.

I am mystified by the derivatives bubble – if there is a quadrillion ‘owed’ it is also ‘owed to’ so, I don’t see how it causes the money to disappear, per se. But what I do see is the Banks that are too big to fail being bailed out – and that is where the black hole lies. And the question this leaves me with is – If they weren’t a gang of incompetent coke snorting party boys who were born on third base but think they hit a home run – if instead they had made brilliant wagers on a level playing field, not based on rigging the game, what conversation would we be having right now?

And here’s an ‘un-level playing field’ issue that came up in my conversation with my broker early on. I wanted to know more than the bid and the ask on something – what’s the bid behind it, what’s the next ask above it – and the volumes. She told me that she didn’t have “level two” quotes, which show the next bid. I said, what are you talking about – somebody has all the levels – so they are supposedly not acting on all that information? It’s preposterous. Surely this is the basis of the high frequency trading – it could only work if the computer is watching all the bids and asks in the stack.

SD1 April 29, 2011, 2:30 pm

Level II is almost irrelevant, anyway, because the SEC does nothing to curtail all the bids and asks that are placed and then “magically” disappear in a nano-second. It is illegal to place a bid without the intention of buying or place an ask without the intention of selling, but you wouldn’t know it based on all the SEC-backed, hocus pocus chicanery that takes place on Level II day in and day out. There are more bids and asks “placed and pulled” than there ever are real transactions, and by a wide margin.

Gabez April 29, 2011, 12:57 pm

Well said, Rick. Balanced and nimble attitude, right in line for the times ahead.

Tom UK April 29, 2011, 12:47 pm

Rick, having read your commentaries for over two years, your recent columns have led me to conclude that you need a damn good holiday. I don’t recall ever having agreed with North before but his calling your arguments convoluted is, sadly, a fair accusation on recent evidence.

“When the facts change, I change my mind,” Keynes said. But the facts haven’t changed and, in the opinion of this follower, you do yourself an injustice with the yes/no/ maybe approach of the last few weeks.

I want the old Rick back – the incisive, acerbic, cutting, sardonic clear thinker whose website I made my home page long ago. I await his return.

Rick Ackerman April 29, 2011, 5:03 pm

Right you are, Tom. I really do need a rest. Unfortunately, and as I am sure you can understand, I don’t have much choice about responding when Gary North challenges me in a headline at Lew Rockwell. I hope this is the last of it — and that you found no convolutions in today’s commentary. But, if Max Keiser should summon me for the debate he mentioned a while back, you can be sure I won’t be sitting with the hyperinflationists.

Robert April 29, 2011, 5:20 pm

The only smart place to sit would be in-between the members of both camps.

FranSix April 29, 2011, 6:44 am

Its just easier to call the decline in the dollar, which has been on-going for years now, a currency crisis. Not like its anything new. Just never talked about in any factual, meaningful way. For instance, nobody would dream of apply fofoan critera to China, which most undoubtedly deserves an inflation watch.

Nobody ever discusses the Japanese Yen as the most powerful currency in the world. And I’ve only seen one example of how the pound fared during the depression, and no examples of how much inflation has eroded the value of the pound.

And perhaps all of the coming financial crises will be forms of currency crises. But you know, the rise of other currencies in the world are also currency crises requiring intervention.

Certainly the rise of gold in all currencies several fold is a major red flag in terms of whichever currency you use.

JohnJay April 29, 2011, 6:16 am

As long as Bernanke can get away with buying up all the Treasury debt so that there is no spike in interest rates, he can pull it off.
If we ever go back to a 5% one year T bill and the other maturities priced appropriately, he is sunk.
Or rather the United States is.
Ben is wired into the power structure as a “Made Man” so to speak.
Depending on your station in life, you may or may not be affected by the inflation we have in energy and commodities.
Food is still cheap for WalMart shoppers.
Rents are stable to down here in Southern California.
The average American really has no savings to worry about in case serious money printing makes the Dollar even more worthless, and the average American is not booking a flight to Paris, or buying a new BMW, so currency fluctuations are over his head.
The only inflation the Fed has been fighting for thirty years is wage inflation, every other inflation does not concern them or TPTB.
They have done a very good job in that respect, real wages have been stagnant or declining for decades, and millions of illegal aliens kept wages down during the late, great housing boom.
The inflation/deflation debate is only a concern if you have a lifetimes worth of hard earned wealth to protect.
The super rich and the proles are immune to such concerns.
As long as government handouts keep those two extremes on easy street, you and I will just have to suffer the consequences.

Chris T. April 29, 2011, 5:06 am

Oh boy!

Rick, I try to read here as often as possible, because I think it is a place worth spending time on, your comments, but also the discussions that follow.
BUT, I also see a lot of value in Gary North’s comments, so a tit-for-tat is really just uncomfortable, and detracts.

You did show admirable restraint, and in this instance, Gary North used exactly the tone the Donald did just yesterday morning in NH– too brash, not to my liking.

I am glad you mentioned Dr. Fekete’s contributions, as I have realized you keep up with his writings to some extent, and just as in his latest, Gary North also did not show his best side vs. Dr. Fekete.

But, North’s dress-down of Antal Fekete is due to the blind-spot of the “classic Austrian school” [hope you like that one!] with respect to the real bill’s doctrine in a free gold standard which has made North and the whole Mises Institute something of an enemy to Dr. Fekete, which is really too bad.

Unfortunately, even the level headed people generally found in the Austrian community have their flaws, and one of them is a quasi-beliefe in Mises’ infallibility (brooking no criticism of the holy one).
So of course Fekete would incite them, though I don’t think you ever committed that heresy 🙂

Cam Fitzgerald April 29, 2011, 3:26 am

Great post Rick. I really appreciate that you have kept such an open mind despite all the unfair attacks and I concur with Mark that your humility is really admirable.

I just want to apologize for having left an angry rant on your site the other day. The topic of inflation itself is not really an emotional one but my reaction to the condescending tone of the inflation camp just got the better of me.

That aside, we have an election in Canada come Monday. The ruling Conservatives (you might call them Republicans) are in a fight for their lives as a Socialist hard-left party called the New Democratic Party (NDP) is nipping at their heels.

Nobody knows the outcome of the vote quite yet. Any business person in this country will be backing a Conservative win though. There is the suggestion that the NDP may attempt to form a coalition government and seize power to rule if the Conservatives only achieve a minority government.

This would be a disaster. The NDP has proposed a budget that offers the country tens of billions of new spending on social programs, welfare and pension entitlements plus massive increases to the health care program over the next few years. We can kiss our good luck goodbye if they achieve a solid performance.

They are furthermore talking of setting up a “Cap and Trade” system to tax the hell out of so-called dirty companies and intend to put the boots to the Tar-sands and those who invest there. Major taxes could be on the way. Major losses too.

This is just a “heads up” to watch the Canadian elections Monday night and get prepared for potentially bad news if you have oil investments there. If the Conservative government does not bring a majority there will be trouble with a capital T as the NDP is very much anti-business and anti-investment.

It could be a disaster really.

Robert April 29, 2011, 8:22 pm

Hmmm…. increase spending of fiat issues currency

Decrease production (and increase taxes) on those who produce wealth …

Yeah, that oughta work.

Big Don April 29, 2011, 2:27 am

Don’t forget, Gary North is a guy who heavily promoted Y2K as the end of the civilized world…

Robert April 29, 2011, 5:19 pm

Hehehehehehe….

Yeah, Great call on that one, Gary.

Alex Bond April 29, 2011, 1:57 am

Rick, I think you’re backtracking. The other day it seemed like you had consumed the hyperinflation kool-aid by the 55 gallon barrel, and now you’re merely “impressed” with FOFOA’s arguments.

I still cannot understand why FOFOA’s weak, contrived, wordy explanations convinced you (see my postings from the last topic), but hey, to each his own.

Rick Ackerman April 29, 2011, 2:38 am

Perhaps your earlier post re-invigorated me, Alex. I might have written it myself, although I do think FOFOA’s arguments are way better than you give him credit for.

Alex Bond April 29, 2011, 3:32 am

I simply don’t see how arguments based on the premise that the Fed would simply print $168 trillion to give away to the financial “elite” can be considered reasonable. We both know that if the Fed did want to buy bank paper at 100% of face, it would do so only selectively (for close friends such as Goldman) and in quantities that could be explained to the public.

Since the Fed has already expanded its balance sheet by $1.6T without seeing pitchforks at its front door, it could reasonably assume that another trillion or three could be pushed through. But at some point, it would have to throw some crumbs to the people, monetizing and forgiving some mortgages to keep the game afloat. Subsequently, it would quickly find itself monetizing all new borrowing from the Treasury and covering all bond refunding. By that point, the credit game would be over and the dollar would be destroyed.

With the taxpayers feeling the pain from significant consumer price inflation and from a shattered economy, there would be no political will to bail out the rest of Wall Street’s bad bets; there would be effectively nothing left to save.

Maybe I should push to convert you and FOFOA (and maybe even that trouble-maker North ) to the simple doctrine of bifurcation…

Keep up the good work, though. I really appreciate your commentary.

Rich April 29, 2011, 3:53 am

Re “there would be no political will to bail out the rest of Wall Street’s bad bets;”
There never was any majority political will to bail out bad banks.
This may be the stuff of default and revolution…

Carol April 29, 2011, 4:27 pm

“I still cannot understand why FOFOA’s weak, contrived, wordy explanations convinced you (see my postings from the last topic), but hey, to each his own.”

I agree with Alex. I read and then re-read the article trying to “get convinced” and I could not. His article is well though out for sure and long BUT I was not convinced at all.

For example, how much $ have the “elites” lost during the 2008 crash? I would say not only NOTHING but they have made tens of millions of dollars and picked up humongous assets on the cheap! SO why not continue with that method of crashing the asset markets and picking them back up for pennies on the dollar?

Why would they want to have all that competition (dollar supply) chasing the assets they have their eyes on (which would happen in a HI)? Answer they wont.

Naw I will stick with the deflationary depression hypothesis (with much inflation BETWEEN the asset crashes).

Also as a contrarian I like being on the less crowded side of the boat.

&&&&&&

“Weak, contrived and wordy”? I don’t think so. One can disagree with FOFOA point-by-point, but his arguments are not so weak that that can be dismissed out-of-hand.

For what it’s worth, at this point I feel as though I can knock down any argument made by any hyperinflationist OR deflationist, save these two: 1) the dollar eventually will fall to zero; and, 2) gold will at least hold its purchasing power.

RA

Jason Scharp April 29, 2011, 4:36 pm

Alex,
I agree with your assessment that at some point the Fed would need to throw the masses a bone by forgiving some mortgage debt, etc. This can be done in the context of FOFOA’s argument by having the Fed buy the bonds of the mortgages from the banks at face value and then forgiving the mortgage due. It all translates the same hyperinflationary way, yet helps to keep the pitchforks at bay.

mark April 29, 2011, 1:08 am

rick, your humility is indeed admirable.

F. Beard May 2, 2011, 4:43 pm

I agree! Though Rick sometimes is on the verge of losing patience with me, he strikes me as a very admirable, likable, guy.

As for North, his condescension toward Ellen Brown, Mish Shedlock and Rick are deplorable. Furthermore, North lives in a glass house himself being in favor of a government enforced gold standard which is sheer hypocrisy for a so-called “libertarian”.

Money is a mind-boggling concept and no mere human understands it completely. Thus humility is especially called for when dealing with it.



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