-- Posted Monday, 23 July 2012 | | Disqus
The word "untouchable" means something different in India than it does in the West. In India, no one wants to be an untouchable. In the West, achieving the status of untouchable is the supreme organizational goal.
In India, untouchable status means that you cannot move up. In the West, it means that you can't be pulled down.
In every Western nation, certain institutions are untouchable. Anyone challenging them is regarded as a revolutionary, a kook, or a self-promoter looking for publicity.
Untouchable status means that the organization gets a free ride in society. Its mistakes are overlooked. Its deviations from established standards are overlooked. It is immune from the usual criticisms that all other institutions are subjected to.
The Communist Party in the Soviet Union had this status. So did the Politburo.
These organizations are at the center of the social order. They are immune from politics, because they are the basis of power. The famous Powers That Be, whose interests are linked to the success of these institutions, have such influence that they can bring socially effective pressure against those who go on the attack against these organizations.
It is considered unthinkable that society could function without an untouchable institution. The organization is so deeply ingrained in the thinking of the intelligentsia that leaders are literally unable to imagine how society could exist without it.
There can be obscure bureaucracies that are never criticized in print. This is because they have so little influence that almost no one knows of their existence. This is not what I mean. I am speaking here of powerful agencies with large constituencies. They have few enemies. They are not subject to budget cuts. There are no rival constituencies that would be happy to see them shut down.
Yet at some point in a nation's history, society and politics did without every presently untouchable organization. It was not only not untouchable, it did not exist.
There are two such organizations in the West today: the public school system and the central bank.
THE PUBLIC SCHOOLS
The first famous proponent of compulsory education in the West was Martin Luther. Scottish Calvinists passed a law in 1616. Compulsory attendance and tax funding of poor parents were made mandatory thirty years later in Massachusetts. But the law was not enforced widely for two centuries. Then Unitarians gained control over Massachusetts politics. Congregational churches were disestablished in Massachusetts in 1833. The statewide public school system began four years later. A new established priesthood replaced the older one.
It is no more possible for the average American to imagine America without tax-funded schools and compulsory attendance than the average resident of Massachusetts in 1650 could imagine a holy commonwealth without tax-funded churches and compulsory attendance. Yet such a world came when a majority of people finally changed their minds.
The Powers That Be do not send their children into compulsory tax-funded schools. At least 140 years ago, they created a separate school system in the Northeast, modeled along the lines of the private schools – called public – in England. Their children have never mixed with the common people.
So, those at the top buy their children's way out. They make sure that the youth of the masses spend a dozen years in the propaganda mills whose curricula materials are designed or at least certified by professors at Columbia, Harvard, Yale, Chicago, Stanford, and the other Ivy League universities. The means of social control are in their hands, but their children are not under the authority of this system.
It is the same throughout Europe. The power elite maintains control through the compulsory school systems which their wealth allows them to escape.
It is possible to criticize the public schools' methodologies and pedagogies. Reform fads come and go like mayflies. But the following do not go: (1) tax funding, (2) compulsory attendance, (3) falling test scores, (4) increased percentage of budgets for administration, (5) teacher certification by accredited universities, (6) rising violence, (7) student boredom, (8) increased drug use, (9) and the sacred religion of football.
Similarly, the established churches of the West were subjected to reforms from the inside. New theologies came and went. New preaching styles came and went. What did not go was bureaucratization. The best book on American church practices is The Churching of America. The authors show that tax funding and political favoritism undermined established churches. When the funding and the favors ceased, they could no longer compete.
The mark of untouchable status is the phrase, "Without [x], it would not be possible to. . . ." Yes, it would. And, sooner or later, it will.
There are more critics of central banking today than there were in 2007. There were more in 2007 than there were in 1997. And so it goes, decade by decade. There is growing criticism, but not in high places.
The twentieth century was the century of central banking. Almost every nation had a central bank in 1999. Monaco didn't, but it is one large private gambling casino. It does not need a central bank.
Central banking is untouchable. Except for Austrian School economists and fiat money Greenbackers, no one calls for the abolition of central banks. To get involved in opposition to central banking is like applying for membership in the Black Helicopters Society. (Note: do not search Google for "YouTube" and "black helicopters." Do not view these videos, especially the ones run on local TV news programs. If you talk about these videos, people may conclude that you oppose the Federal Reserve.)
Here are three places where you will not see criticism of the Federal Reserve System as the enforcer and the insurer of the cartel of large commercial banks: (1) college-level textbooks on economics, (2) financial media outlets, (3) Congress.
Congress legally is in charge of the FED. Yet it has yet to audit the FED, with a comprehensive audit of the gold holdings. It does not set policy for the FED. "Where is the government's gold?" "In our vaults." "How do we know?" "Trust, but don't verify."
The Board of Governors of the FED is the only governmental agency that is legally independent of the government, and is praised by the nation's opinion leaders for this independence. That is to say, the FED is the most anti-democratic agency in the country. It is not just that politics has no control over it. This is operationally true of most of the federal government, day to day. It is that, as a matter of principle, those who proclaim democracy as a religion of social healing are on the side of an agency that supposedly regulates the nation's central economic institutions – commercial banks – which is itself controlled by the largest banks.
The foxes guard the henhouse. The largest banks were bailed out. Bernanke promised the banks $16 trillion worth of back-up in 2008. Yet in the Senate, only independent Senator Bernie Sanders bothered to look into this. He is the source of the story.
Here is an institution whose publicly appointed agents are paid by the government, yet whose 12 regional banks are privately owned, and no one in Congress knows by whom. These 12 regional banks have the power of civil governments, yet they are immune from civil government. No Congressman or local politician dares call for public representation on their boards. There is no other institution like this in the nation. Yet this is the third incarnation of the American central bank.
Andrew Jackson saw fit to fight the Second Bank of the U.S. in 1832. He won politically. The government refused to re-charter it in 1836. Yet in every textbook that discusses this battle, Jackson is criticized for this action. He is treated as an economic ignoramus. He was a gold standard ideologue as no President ever has been, yet he is dismissed as a fiat money representative of indebted farmers.
When an institution that was self-consciously established to violate the official religion of the civilization – democracy – and the priests and acolytes of this religion praise it to high heaven, you can be sure of this: its origin was not in high heaven.
Read The Creature from Jekyll Island.
CONGRESSIONAL CRITICS OF THE FED
The Federal Reserve System has enemies today. This is due almost entirely to Congressman Ron Paul. His tireless criticism of the FED began from the week he was sworn in back in April of 1976. He wanted to see the FED abolished before he was elected to Congress. He still does. But he is still alone in Congress on this issue.
There have been a few critics of the FED in Congress. They did not have national constituencies. They were not elected for their views on the FED.
One of them was Howard Buffett of Omaha, who had served several terms from 1942 to 1952. He was a gold standard man. He was a free market proponent. He did not persuade Congress. He did not even persuade his son.
There were two other Congressional critics of the FED in 1943, when Buffett was sworn in. These two critics were Greenbackers. The Greenback movement began in the 1870s. These people have always been on the fringes of American politics. They are advocates of pure fiat money issued by the federal government. They got their name from the green paper bills issued by the Union in the Civil War. They oppose the gold standard. They oppose banks. They oppose the FED.
One FED critic was a Texas Congressman, Wright Patman. He really hated the FED. He was a Greenbacker. He wanted Congress to control money, issuing greenbacks on its own authority, and paying no interest on the national debt held by a commercial bank. He was thrown out of his position as chairman of the House Banking Committee in 1975. He died in office almost exactly when Ron Paul was sworn in. Patman had served since 1925. He became legendary for a question directed to Arthur Burns, FED chairman under Nixon. "Can you give me any reason why you should not be in the penitentiary?"
During World War II, Patman and Congressman Jerry Voorhis of California inflicted the greatest wound ever suffered by the FED. They got a law passed that forced the FED to pay back most of the interest paid to the FED by the U.S. Treasury. The Treasury since 1914 had been paying interest to the FED's privately owned banks, despite the fact that the FED bought these IOUs with fiat money. This rip-off had been the greatest cash cow in American history from 1914 until World War II. Wikipedia comments in its article on Voorhis.
Voorhis advocated the purchase by the Federal Government of the stock in the Federal Reserve Banks, which was held by the member banks, as a way of financing government expenditures and briefly got President Roosevelt to support the measure until the President's advisers caused Roosevelt to change his mind. Voorhis later allied with future House Banking Committee chairman Wright Patman to force Federal Reserve Banks to pay most of the interest they earned on federal securities to the U.S. Government, rather than to the bank stockholders.
This was one of the most important political triumphs of economic logic over crony capitalism in America's history. Yet the story is unknown. There is no monograph on how Patman and Voorhis pulled it off. There is dead silence on this event in the history books.
Voorhis was a Greenbacker who wrote a book on this: Out of Debt, Out of Danger. Richard Nixon defeated him in the 1946 election, when Republicans regained control over Congress.
With the overthrow of Patman in 1975, the Establishment believed that it had silenced the last Congressional critic of the FED. Then, a year later, Ron Paul showed up.
The best laid plans of mice and men. . . .
WHEN QE3 TURNS INTO MASS INFLATION
At some point, the FED will once again expand the monetary base. At some point, commercial banks will start lending. If they don't, then America's businesses will never escape from the turndown that has produced over 8% official unemployment. This is the weakest recovery in the post-World War II era. The FED's ad hoc hyperinflation of the monetary base has not led to anything like a recovery. It has pushed on a string.
It can goose the economy at any time. It can adopt a new rule that all excess reserves held by the FED will be subject to a 5% fee per annum. Banks overnight would pull back their reserves and start lending. The M-1 multiplier would skyrocket, and hyperinflation would rear its ugly head. The FED knows this, so it does not do it. It is muddling through. All it needs to do is sit tight. Ron Paul will soon retire.
A recession looms, despite Bernanke's assurances to the contrary. The fiscal cliff looms on January 1: the expiration of Bush's tax cuts. The prospect of an annual deficit approaching $2 trillion looms. Social Security is running a deficit. Asia may stop buying Treasury debt. Then what?
Inflate or die.
Bernanke's term as chairman ends on the last day of January 2014. If he can tough it out until then, he gets the money monkey off his back. He can go back into the shadows. He can stay on the Board of Governors, or he can return to Princeton's tenured safety.
At some point, his successor must decide: hyperinflation, or Great Recession III, or Great Depression II.
Mass inflation (20% to 25%) will be a defeat for the FED. But either hyperinflation or Great Depression II will be an even worse defeat. Yet these are the choices.
The FED will try to play the boom/bust game one more time. This has worked for 60 years. But the annual deficit was not $1.2 trillion. Social Security was not in deficit mode. The Baby Boomers were not retiring. Foreign central banks were not holding 40% of the public debt.
Bernanke's successor will not have the wiggle room Bernanke has enjoyed: almost $2 trillion in purchases of government debt, 2008-2011, but with almost stable consumer prices.
Over the next decade, central banks will have their respective moments of truth. They will be called upon to bail out the West's economies, from Eastern Europe to China. The deeply confessional religion of fiat money as the creator of wealth and the guarantor of stability will suffer from events that do not conform to the confession. As surely as the voters of Massachusetts in 1833 abandoned two centuries of established churches, so will voters decide that West's central banks are liabilities.
It may take two decades to unseat them, but they will be unseated. Religions that fail to deliver the goods always are.
Then it will be the public schools' turn.
July 21, 2012
Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.
Copyright © 2012 Gary North
-- Posted Monday, 23 July 2012 | Digg This Article | Source: GoldSeek.com