Texas Adopts New Social Studies Curriculum

I love being from Texas. The state has no income tax and it seems Texas politicians are always doing something to keep me entertained. Take their latest handy work, for instance. The Texas Education Board approved a new social studies curriculum that makes the following changes:

  • No longer requires students to learn about Thomas Jefferson. Instead, they now need to learn about John Calvin and Thomas Aquinas.
  • No longer requires students to learn that the US Government prohibits favoring one religion over another. Instead, the students are to learn the religious inspiration behind many of the American founders (except, I suppose, Jefferson).
  • Learn about Israeli leader Golda Meir.
  • And how the erosion of the US Dollar has occurred ever since we abandoned the gold standard.

Fortunately, Darwin’s Theory of Evolution is not part of Social Studies. I can only thank my lucky stars for that one. Texas politics is driven by religion, at least, it always was in my lifetime. Republicans (who dominate the state’s politics) always seems to try to prove how close to Godliness they are by using the power of the state to attempt to create God’s Kingdom on Earth. Strangely, of the religious friends I have, none of them really seem to favor these politician moves. Texas may be religious, but it also has a strong tradition of saying, “To each, his own.” Continue reading Texas Adopts New Social Studies Curriculum

The Nationalization of the Banking Industry

I’ve often said that world governments work in close cooperation with the world’s banking industry. It’s a natural partnership; one creates the money for the other to spend. Of course, our government was founded to be something different. It says right in Article I, Section 8 of the US Constitution that the Congress shall have the power, “To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.”

Despite the fact that Section 8 of the Constitution uses the word “coin” in lieu of print, it is not a blanket prohibition against the issuing of paper money as many of my Libertarian friends believe. The same section of the US Constitution specifies that Congress does have the power “To borrow Money on the credit of the United States”. During the War of 1812, the US Treasury was issuing paper interest bearing notes in order to finance the war and to circulate in lieu of bank notes which were greatly reduced in circulation due to the expiration of the charter of the Bank of the United States in 1811. In a letter by Thomas Jefferson to celebrated French author Say,  dated March 2, 1815 Jefferson wrote:

The government is now issuing treasury notes for circulation, bottomed on solid funds and bearing interest. The banking confederacy (and the merchants bound to them by their debts) will endeavor to crush the credit of these notes; but the country is eager for them a something they can trust to, and so soon as a convenient quantity of them can get into circulation the bank notes die.

So it’s not that the US government was not able to issue notes of paper that would circulate, but that it could not “print” money. That is to say, it could not issue fiat money that was legal tender. The treasury notes that the government issued were a paper money, but the notes were promises to pay gold and silver at a future date. More importantly, no one was under any obligation to take them. Compare that to our present day paper money which must, by law, be accepted for “all debts public and private.” 

The Constitutionality of the government issuing fiat money as legal tender has often been questioned as I discussed in my book. The Supreme Court of the United States declared the United States government had no authority to declare fiat paper money as legal tender in 1871, but President Grant appointed two justices to the Supreme Court who favored fiat money and that decision was soon overturned with Knox v Lee. The problem is that, as Thomas Jefferson himself wrote as Vice President in 1798 that the US Government lacks the Constitutional power “of making paper money or anything else a legal tender,” and yet that is what it has done and continues to do. 

Our modern arrangement does not have the US Government itself issuing the fiat money, but instead it is issued by the Federal Reserve, a private bank. As I mentioned at the state of this post, this arrangement, of the government giving legal tender powers to a private bank that then controls the issuance of money is an old one. It was first tried in England with the Bank of England acting as the monetary extension of the policies that were enacted by Parliament. The reason the government uses its powers to endow a separate body with one of the most fundamental and abusive powers of the state is simple: it garners the support of the monied interests by allowing them the power to control the issuance of the currency. As long as the government is then allowed to monetize its debt by having a central bank uses some of its money creation power to buy government bonds, then both parties are happy; the government has de facto use of a printing press and the private bankers give the legal tender the aura of respectability in return for using the printing press for their own private purposes in the meanwhile. 

But what should happen if the bankers go broke? It might seem a paradoxical question given that they have the power of the printing press, but what would happen if they made so many bad loans that to use the printing press to inflate away the loses would pose too large a threat to the system? I don’t ask this situation lightly, because it’s the situation we’re in today. As the New York Times January 16th story states, the Rescue of U.S. banks hints at nationalization.  With mounting loses, the government has had to step in an absorb bank loses as well as give banks additional funding by way of acquiring equity stakes in these banks. But we are now at the point where the government is basically the largest shareholder of banks such as Citigroup, and, by also being in the position to decide who has to bear what loses and how much of these loses to absorb, the government is now in the position to decide whether a bank shall remain in business and how much profit it will be allowed. This is, of course, in addition to its powers as the single largest shareholder of these banks. 

In essence, the puppet of banking has slipped off the hand of government in this puppet show and any casual observer can tell that its really the entire banking industry has collapsed down to the government’s printing press. Furthermore, the government is now engaging in the seemingly capricious decisions of what gets the benefit of the printing press and who doesn’t. If the banking system, why not the auto industry? If the auto industry, why not, as Hustler Publisher Larry Flynt asks, the porn industry. After all, pornography has fallen on hard times too. 

This situation is dangerous for the government, because it presents the spectacle of modern finance to the public in a way that makes it easy for the common man to understand how the powers of government are being used in a very arbitrary way for the benefit of certain groups. They will also quickly come to under stand that if they are not amongst the groups who are benefitting, then they are amongst the groups that are being made to pay for it. Although, in this case, the payment will be made by way of inflation. The printing press will run and bailout the banking and the auto industry, but the rest of us can do nothing but watch as our money loses value.  This will expose the simple truth of Frederic Bastiat who wrote that “Government is the great fiction by which everyone endeavors to live at the expense of everyone else.”

An American Christmas Carol; Part III; A Ghost of America’s Future

So where will all of this lead? Should we believe the Chairman of the Federal Reserve when he says that his policy of lowering interest rates should ease us through this crisis? Or, perhaps we should believe our new President who’s promising to make the economy his top priority and, through a combination of stimulus and bailouts, guide America back to the path of prosperity? And even if they are right in the short-term, and we do make it out of this recession — what is the ultimate path that our nation is on? Where is it heading?

The thing is, no one really needs to ask. You already know. It’s uncommon that I meet someone who doesn’t seem to know that:

  • Our country is broke and only the kindness of strangers keeps it from being bankrupt
  • We are losing our competitive edge to overseas competition
  • That we are an empire in decline

And so you don’t have to ask me where our country is going to end up. It’s obvious to any who dare ask the question and ponder the answer with any amount of objectivity. We are going to witness a collapse of our currency and, possibly with it, the corrupt body that serves as our government. We may not revolt and overthrow the government; perhaps we will only revolt against the taxes it levies as it tries to keep itself afloat for just a little while longer. But right now, the whole apparatus of the US Government is made to spend other people’s money in large quantities: the lobbyists are there to ask for it; the politicians usually got there to begin with on the backs of campaign promises to spend money; the Federal Reserve is there to create it; and the Congress is there to spend it.

Once the magic fountain of being able to print unlimited quantities of the world’s reserve currency has ended, we are left with a very different picture. If the government is to spend money, it must borrow, raise or print it. Given that we will have all but exhausted the printing and borrowing option, we will be left with a situation where money spent must come from current revenue. In other words, every dollar spent by the government must first come from someone else.

In that scenario, I doubt that politicians will get elected on platforms of how much money they’re going to spent to try and improve the economy. People will inherently understand the absurdity of that statement; money spent by the government to benefit the economy must first be removed from the economy. Thus, I think it highly possible that the government will be forced to suddenly discover frugality not soon after the voters pay more attention to their representatives actions and start holding them accountable. The entire scenario would reflect a far different kind of government functioning than we see today, and a better one.

Henry Hazlitt wrote a novel entitled Time Will Run Back that featured characters in a fully Socialist society “rediscovering the wheel” of capitalism and implementing it to improve their society, and I would love to think that this would happen. Perhaps after completing The Road to Serfdom as outlined by Hayek, we will once again heed the words of Jefferson who wrote:

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.

It would indeed be a shame that Jefferson had the answers to all of these questions back when our nation was founded, but that we chose not to listen.

At any rate, our near term future is very dark for those of us who are not prepared for it. For the majority of America’s citizens this will serve as a rude awakening. They will discover that borrowing for the purposes of consuming is second only to war in terms of its economic destruction. I am sure that by that time we will have had our fill of both war and borrowing to consume, but this newfound austerity will be a forced one. Like many empires before us, we will stop attempting to conquer because we can no longer afford to support an army capable of the attempt. Like many peoples before, we will discover that we were not really entitled to the wealth of the world as we had deluded ourselves into believing.

The specifics of the future are impossible to predict, but I am sure that It will prove a very harsh awakening.

On Patriotism

My good friend Taylor recently posted this comment:

Not sure I would use predictions from Mahmoud Ahmadinejad to bolster my opinions. Actually that last graph was pretty unpatriotic. Why not put your efforts more into the “here is what I think we can do to see that this country remains/becomes great” instead of “I will enjoy watching you burn.” There are enough nay-sayers on the net already, I think people would rather read and contemplate ideas of salvation (for the economy and country) rather then have reiterated the doom and gloom they already are getting from the media (not to mention from their investment statements).

I see a trend on your blogs to gloat at the circumstances we are in. You do offer alternatives but few seem viable (i.e. returning to the gold standard). I guess what I am trying to convey here is that I want to read your opinion on what can actually be done to better the situations you comment on.

– How can we practically reduce entitlement program spending?
– How can we practically buy out our debt?
– How can we practically curb inflation, raise home value, bolster jobs and growth?

Anybody can tell me the situation is bad…put your efforts into educating us instead? If there is something to be learned from you I want to know it.

It’s not that I respect the words of Mahmoud Ahmadinejad that caused me to quote him. After all, how accurate can someone be when the claim that there are no homosexuals in their entire country? But when he is one of a chorus of voices saying that this is the end of the American Empire, it’s worth noting. 

In regards to your charges of my lack of patriotism, that would depend entirely on how you define it. If you define patriotism as the willingness to make sacrifices for your country, then I am clearly not a patriot. As far as I’m concerned, I think I’m getting a raw deal on the taxes I pay and I’ll be damned if I sacrifice anything more. But if you define patriotism more broadly to be acting in support of the ideals of liberty on which this nation was founded, then I feel I am being very patriotic. 

Our founding fathers, whom we consider paragons of patriotism, were clearly not patriotic to the causes of the British, the ruling government of the time. As Jefferson wrote

“The spirit of resistance to government is so valuable on certain occasions, that I wish it to be always kept alive. It will often be exercised when wrong, but better so than not to be exercised at all. I like a little rebellion now and then. It is like a storm in the atmosphere.” 

I feel Jefferson would be proud of the people speaking out against our government today. I feel he would call us patriots. This, of course, just reinforces the saying that “One man’s patriot is another man’s terrorist.” 

In regards to what can practically be done to improve our current situation, my answer is this: nothing. The American political system has rotted to its core. The realities of fiat money have combined with powerful corporations to ensure that what is in the best interests of the people will be hardly given any consideration at all. If that we’re enough, mass media and polling have enabled politicians to shift the political dialogue away from anything meaningful and towards such chestnuts as abortion, gay marriage, and the “War on Terror.” I watch in abject horror as every year our politicians seem to get dumber and more empty. Just when I though George Bush was as low as we could go, McCain dug up Sarah Palin. 

That’s not to say that there weren’t meaningful candidates running this year. One person was running for President who say this crisis coming a long time ago, and he was running as a Republican. But the Republican establishment was not ready for someone like Ron Paul. They distanced themselves from him and even went so far as to form a collation to deny him the delegates from the State of Louisiana

Since you work in the corporate world, here’s a corporate analogy for you. Pretend you were brought in as a consultant to clean up a failing company. The problems with the company were obvious, but when you proposed the obvious solutions, you were told none of them could be undertaken because management wouldn’t allow it. Would you not then call for the ousting of management?

You are asking for new insight into this problem. It seems to me almost as if you were asking for a magic bullet. “Please don’t talk to me about the gold standard and the dangers of fiat money.” you seem to say, “I just want to know what policies we can adopt that will fix this situation (and allow us to go on just as we have been).” Were there is no magic bullet. Nothing will fix what is so clearly broken. You can add all the fertilizer you want. the tree of our nation’s governance died long ago. 

The solutions to this problem are as simply as they are unpalatable. Take all powers to control money away from the government entirely and outlaw fractional reserve banking. The resulting monetary system will be run by private institutions who are closely audited by their depositors, and precious metals (or whatever the free market decides) will be the unit of accounting of commerce. Suddenly the government will have to raise in tax revenue all that it spends. When such a day comes, you will notice a sudden and drastic curtailing of government spending, including entitlement programs. Meaningless wars will suddenly shift from convenient exercises to gain public support to the truly horrible actions that should only be taken as a dire last resort that they really are. 

None of these ideas are new. Jefferson wrote about them in the late 1700s, as did Murray Rothbard in Man, Economy, and State in the late 1900s. If you’re looking for a sample of Dr. Rothbard’s work, check out his essay on “Taking Money Back.” Times may change, but our situation is not new. But then again I think you knew this. I suspect you’re now saying to yourself how impractical all of these hard money ideas are in our current environment. “There must be some other way to fix the system,” you might ask. 

Let me assure you, there is not. Attempts at fixing our current system is as meaningless as rearranging deck chairs on the Titanic. The system is broken, but few seem to realize it. Until the system is allowed to collapse, we are powerless to improve the situation. You yourself once ridiculed me for being a Libertarian as “wasting my vote.” So you now claim to think that there is some meaningful action that I can take? 

The system must be shown to be what it is: a failure; a sham; a tragic disaster. It is only from its ashes that we can meaningfully move forward. Only once people clearly understand the folly of the life that they have been leading can we make the hard decisions to take back our liberties from the all powerful nanny state we have built to take care of us all. That is why I am contently and excitedly watching the decay and collapse of the system. I believe I am going to outlive our current system, and it is what lies on the other side of it that excites me.