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-- Posted Monday, 3 November 2008 | Digg This Article | Source: GoldSeek.com
by Howard S. Katz 11-3-08 Yesterday upon the stair. I met a “recession” that wasn’t there. It wasn’t there again today. Oh how I wish it would go away. A group of interested parties have been asking how I can be so confident that the country is headed for a massive rise in prices when all about the media have lost their heads and are predicting a contraction?. Doesn’t it disturb me that Paul Volcker predicted a “full-scale recession” in the Wall Street Journal on 10-10-08? And what about Al Abelson’s claim, “Chicken Little was right” (Barron’s 10-6-08)? Indeed, to throw fuel on the fire the Wall Street Journal recently added its editorial opinion, “”we’re heading into a recession” (10-30-08), and 3rd quarter real GDP was slightly down. You want me to tell it like it is? Well around a half century ago a group of New York bankers set out to corrupt the teaching of economics in America. F.D.R. had recently given them the privilege to create money out of nothing, and this was a privilege which was potentially very profitable to them. They wanted to use this privilege to maximum effect, and in order to do this it was necessary to win the support of the government of the day (for policies to “stimulate the economy” where the economy was the banks and their associated vested interests). So they started to promote the careers of those economists who would argue that creating money was a socially useful occupation, that it was the “road to plenty.” Such “economists” had been called crackpots by most respected members of the profession.. But the bankers used their money to bribe the leading universities and get these crackpots installed as professors of economics. The teaching of economics was corrupted at that time and continues corrupt to this day. The lunatics are running the asylum. These bankers control the “new school economists” by giving them generous “consulting” fees – but only to those who continually urge the Federal Reserve to increase the money supply. To do this it is usually expedient to scream “recession.” According to their theory strange contractions, whether called deflations, recessions, depressions or whatever, mysteriously come over a free market economy without any rhyme or reason, sort of like a visitation of witches. Leave aside the teaching of Adam Smith that free market economies were extremely stable. These people have never read Adam Smith, let alone addressed his arguments. Besides, they are not talking to a convention of economists. They are trying to induce the media to scare the dickens out of the general public. Now you people have not made a profession of economics. So you are not expected to be able to address these arguments on your own. That is my job. But think about it. What if the local university was handing out phony degrees in auto mechanics and a good portion of the mechanics in town were crackpots? How would you, who are not a mechanic, tell the difference between the real mechanics and the crackpots? The answer is simple. The good mechanic fixes your car. The crackpot mechanic has excuses. The same is true for economics except for the fact that the economist does not actually do things; he just makes predictions. The predictions of the good economist come true. The predictions of the crackpot economist fall flat. Thus when Jim Dines, Harry Browne, Dan Rosenthal, myself and a few other real economists predicted, circa 1970, that the price of gold (then $35/oz.) was going way up, you had a chance to see that we were right. When the establishment of that day (represented by, Henry Reuss, Chairman of the House Banking Committee) said that gold was going to $6-$8/oz., you had a chance to see that they were wrong. What a record the establishment (meaning the crackpots trained by the bankers) has racked up over the past half century. The same year I entered Harvard (1955), John Kenneth Galbraith flew down to Washington and testified before a congressional committee that the stock market was on the verge of a 1929-style crash. No only was there no crash, but the stock market turned and rose for the next 11 years and has never been back to its 1955 level since. Or we can consider 1982 when the darling of the establishment of that day, Henry Kaufman, was warning of higher interest rates and the possibility of a world depression. Instead, interest rates fell for 27 years, and the DJI multiplied by a factor of 18. Then there was Long Term Capital Management. Two of their principals won (what is called) the Nobel Prize in Economics in 1997. Then in 1998 they lost $4 billion and went belly-up. In early 2000, just as stocks were about to enter the worst bear market in a quarter century, the New York Times and Wall Street Journal teamed up to promote the book, Dow 36,000, predicting that the DJI would reach 36,000 by 2002-04. By 2002, the DJI was down from 11,700 to 7,200. And finally, in 2001 the WSJ was predicting (as today) the horrors of “deflation,” just as commodity prices started their biggest explosion since the 1970s. So the next time you are thinking of taking your economic car to these crackpots, give some consideration to the above, or you are likely to find your economic car returned in a lot of little pieces. Now I mentioned that my job is economics. So let me share with you a few of the things I have learned: - All of the crackpots talk as though declining prices were the worst thing imaginable. Is there any evidence for this? Well from 1866 to 1896 the U.S. had a 30 year period of declining prices. An average item that cost $1.00 in 1866 wound up costing 30¢ in 1896. It must have been a bad time, right? Indeed, the ancestors of our present day crackpots report that the period was full of depressions. One of these “depressions,” 1873-79, was almost as severe as that of the 1930s. And yet this was the most rapid period of economic growth, not merely of the United States, but of any country in the world in recorded history. During this period the real wages of the average American worker almost doubled. (By comparison, in the 30-year period 1972-2002 the real wages of the average American worker fell by 18 %.)
- A depression is a period when the whole country gets poorer. Yet if we study the periods labeled “depressions” by the economic establishment, we find overwhelming evidence that the great majority of the people were getting wealthier. For example, meat consumption per capita rose from 129 lbs/year in 1930 to 144 lbs/year in 1934. If the average person was poorer, how come he could afford to eat more meat? Similarly, butter consumption rose from 17.6 lbs/year in 1930 to 18.6 lbs/year in 1934. Margarine consumption fell from 2.6 lbs/year to 2.1 lbs/year between those same dates. If people were getting poorer, then why did they shift from margarine to butter? Also religious and welfare activities rose from 1.5% (of total personal consumption expenditures) in 1929 to 2% in 1933. Indeed, Americans gave more to charity in the “depression” than any time for which figures are available. All of this data is available from a book of statistics published by the U.S. Commerce Department, Historical Statistics of the United States, Colonial Times to 1970, available in most major libraries. The book also gives data on butter consumption from 1869. The highest year for butter consumption in American history was 1896, the year of the Silver Campaign “depression.” In that year, the average American consumed 22 lbs. of butter, more than he has ever consumed of butter plus margarine since. And if you still have any impulse to believe anything the establishment tells you, then there was no increase in suicides after the 1929 stock market crash. The suicide rate for both the U.S. and New York State for November and December 1929 was completely normal. (In short, the story about Wall Streeters jumping out of windows after the 1929 crash was a complete lie)
- By the above definition, there were 2 depressions in the 20th century. The first occurred during WWI; the second occurred during WWII. The WWII depression was very obvious. No new houses were built, and the same was true for cars. So no one could live in a new house or drive a new car. Many items (meat, butter, fat, cheese) were rationed. You were limited to 3 gallons of gas per week. But strangely enough no establishment economist calls such periods depressions. THEY CALL THEM BOOMS.
- The periods mistakenly called “depressions” by the establishment are actually money/credit contractions. (It is theoretically possible for money and credit to move in different directions, but it never happens.) There were only two of these contractions in the U.S. during the 20th century, 1921 and 1929-32. In both of them, there was a substantial contraction of the money supply. (The Republicans were withdrawing from circulation the money created during WWI in order to return to “a good 5¢ cigar.”) As noted, the period 1866-96 was a period of repeated “depressions,” and each of these corresponded to a shrinking of the money supply (in part the withdrawal of money created during the Civil War, in part the demonetization of silver). So if these establishment crackpots are afraid of a money/credit contraction -- what they incorrectly call a depression -- then their solution is simple. DON’T SHRINK THE MONEY SUPPLY.
- The establishment’s favorite indicator, GDP, does not measure the economy. It measures activity, not wealth. In other words, it measures waste. It was invented by a Russian immigrant who worked his way into the New Deal. No one has ever proven that it measures wealth. Indeed, as a rough rule of thumb I use money growth to predict real GDP. When money growth is low or when it drops significantly from a high level, then we get a “recession.” Since money growth was close to 0 for the past 3 years, I expected real GDP to be close to 0, as it has proven to be. But since the bailout bill of Oct. 3, 2008 both Federal Reserve Credit and the monetary base have exploded to the upside. So I say to you, Mr. Volcker, “There ain’t gonna be no recession.” (This phrase, from Pierre Rinfret, goes back to the early 1970s and reflects a time when the Government thought that “recessions” had some good qualities and was actively trying to bring one about.)
- Some observers have fallen for the establishment argument that this money now being created will not go into circulation because people will decide to hoard it. They will not spend it. This was Keynes’ argument, and establishment crackpots are periodically sounding the alarm based on their prognosis that people will not spend the money which the government is printing up. THIS HAS NEVER HAPPENED IN ECONOMIC HISTORY. After all, when the government gives someone money, he can only spend it, save it, or invest it. To invest the money is to give it to someone else, who faces the same choices. To save the money is to give it to a bank or debtor, who immediately turns around and spends the money. So whatever people do with the money, it gets spent. Putting money into a hole in the ground is not something that anybody does today. (Although in recent years Americans have pretty much stopped saving due to the Greenspan-Bernanke negative real interest rates, and this is a much greater threat to the real U.S. economy than all the “chaos” and “crises” manufactured by the media.)
So do not be deceived. There is a system in place to lie to you in order to take your wealth. There are academic economists who lie to the media. And there are stupid media people who pass these lies along to you. Then there is your bowling buddy who believes all the lies and scares you out of your wits. Since you hear the same lies coming at you from 25 different directions, you have the sense that everybody thinks this. As soon as that thought pops into your head, that is a danger signal. Whenever someone is trying to deceive you, as soon as he can get you to think “everybody believes this,” he is half way home. Well, it is my job to tell you that all this has happened before: again and again and again. The media scream “deflation…recession…depression,” and this is cover for the Fed to print money like there was no tomorrow. All the predictions prove wrong, but the stupid public keeps forgetting about the last 24 mistakes and believes. After all, the crackpot economists have very impressive titles – all bought and paid for by the bankers. Now let’s put 2 and 2 together. If the Government is engaged in the greatest round of printing money in its history, this is going to cause a rise in prices. And what is the traditional hedge against a rise in prices? I will give you a hint. It is a 4 letter word spelled G…O…L…D. This is the new economics. 2 + 2 equals the 4 letter word GOLD. As for me? I’m looking for a few, good men. If I can save them from losing their wealth (and even profit from the coming rise in prices), then they will have more influence in the world of the future. By increasing the influence of the good people, we make a better world. And we will certainly need all the help in this direction that we can get. So if you are one of these few, good men, then I would like to invite you to visit my web site, www.thegoldbug.net and read my blog (no charge). The subject is politics and social issues from an economist’s view. This week’s blog is on Christian Government. If you are more interested in the hard, do-re-mi questions, such as when will the markets turn (or have they already turned) and what stocks to buy, I invite you to subscribe to my financial letter, the One-handed Economist ($300 per year). I want to thank you for your interest. # # #
-- Posted Monday, 3 November 2008 | Digg This Article | Source: GoldSeek.com
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