Government Loans: Risky Business for Taxpayers

by Matt Battaglioli– Mises Daily:loans

Obtaining a loan from the government now seems perfectly normal to most Americans, be the loans for education, business, healthcare, or whatever else.

Examples include Small Business Administration loans, where a potential business owner goes to the government to get startup cash, and student loans, where a college student borrows money for tuition or even living expenses. These loans can often be paid back with interest over the course of what is often several decades.

Other examples might include Federal Housing Administration (FHA), Veterans Administration (VA), or Rural Housing Services (RHS) loans, which differ from the former in the sense that they are government insured loans, yet the fundamental principle behind them remains the same: government is taking upon itself (via taxpayers) the risk behind making the loan.

Of course, private loans are also available, though those that do not employ government insurance or other subsidies usually come with higher interest rates. The higher interest rates in the purely-private sector come from the fact that the private entity making the loan must take on all the risk, instead of externalizing it to the taxpayers.

So, the reality of lower interest rates in government and government-subsidized loans means they are vitally necessary, right?

First of all, the government doesn’t “make money,” in the way that private entities do. There is only one way in which states initially accumulate revenue, and that is through taxation. This extorted wealth is originally made in the private sector. So, in order for a government to make a loan back to the private sector, that money must first be removed from the private sector via taxation.

 

Government Knows How To Best Spend Your Money

For private entities, however, when they make a loan and determine who qualifies for it, and at what interest rate, the private firm making the loan is basically determining at what price (i.e, interest rate) the firm feels adequately compensated for the risk of lending out this money, and for giving up direct control over that money for the duration.

To claim, therefore, that the government should be in the business of making loans because private loans are generally too costly or too inaccessible for buyers, is no different than saying that government must take individual’s money and use it in a way that the original owners (i.e., the taxpayers) themselves would determine to be reckless and irresponsible. While it is true that occasionally a government loan may be paid back with interest at the appropriate time, it would be absurd to suggest that politicians would be more knowledgeable about how a person’s money should be used than the person who originally created and owned the wealth in the first place.

 

But Government Should At Least Prevent Usury, Right?

Moreover, there are those who will say that private firms making loans should be restricted from charging “excessive” interest on their loans (i.e., usury). This is an example of a very well-meaning, but utterly damaging regulation. It is crucial to note the differences in time preference displayed by both the lender and the borrower. The lender’s time preference (in this case) is lower than that of the borrower’s, meaning that the lender prefers a larger sum of money in the future, and the borrower prefers a smaller sum now. To get money now, however, the borrower must pay for it in the form of interest.

This represents a healthy balance between lenders and borrowers. It is why loans are made. Laws passed that prohibit certain interest rates on loans are far more likely to hurt those who need the loans, than anyone else. As was previously stated, a firm or person making a loan must feel compensated for the risk of making the loan, and that compensation manifests itself in the interest rate. To restrict a firm from charging a certain percentage of interest on their loans will only reduce the amount of loans it gives out.

 

Taking Away Your Choices

If a potential borrower who is determined to be a rather high risk asks for a private loan, then their interest on that loan will be quite high, but at least in that situation, the borrower has the choice of taking the loan, or to not take the loan. In the end, the borrower will choose what he or she believes will most benefit him or her. Yes, the borrower might miscalculate and the loan might turn out to have been a bad idea, but at least the borrower had a choice.

On the other hand, if the amount of interest that could be charged on the loan were to be forced down via government regulation, then the firm or person making the loan would simply not offer the loan at all, as he or she would not feel their risk is justified by the legally-allowable interest rate.

Faced with a lack of loans, risky borrowers may then look to government and government-subsidized loans as an option, but we find here just another case of government offering itself as the (taxpayer-funded) solution to a problem it caused in the first place.

Article originally posted at Mises.org.

Why the Austrian Understanding of Money and Banks Is So Important

by Jörg Guido Hülsmann– Mises Daily:Money and Bank

This article is adapted from the foreword to Finance Behind the Veil of Money: An Austrian Theory of Financial Markets by Eduard Braun.

The classical economists had rejected the notion that overall monetary spending — in current jargon: aggregate demand — is a driving force of economic growth. The true causes of the wealth of nations are non-monetary factors such as the division of labor and the accumulation of capital through savings. Money comes into play as an intermediary of exchange and as a store of value. Money prices are also fundamental for business accounting and economic calculation. But money delivers all these benefits irrespective of its quantity. A small money stock provides them just as well as a bigger one. It is therefore not possible to pull a society out of poverty, or to make it more affluent, by increasing the money stock. By contrast, such objectives can be achieved through technological progress, through increased frugality, and through a greater division of labor. They can be achieved through the liberalization of trade and the encouragement of savings.

 

The Austrians Are the True Heirs of Classical Economics

For more than a century, the Austrian school of economics has almost single-handedly upheld, defended, and refined these basic contentions. Initially Carl Menger and his disciples had perceived themselves, and were perceived by others, as critics of classical economics. That “revolutionary” perception was correct to the extent that the Austrians, initially, were chiefly engaged in correcting and extending the intellectual edifice of the classics. But in retrospect we see more continuity than rupture. The Austrian school did not aim at supplanting classical economics with a completely new science. Regarding the core message of the classics, the one pertaining to the wealth of nations, they have been their intellectual heirs. They did not seek to demolish the theory of Adam Smith root and branch, but to correct its shortcomings and to develop it.

The core message of the classics is today very much out of fashion — probably just as much as at the end of the eighteenth century. As the prevailing way of economic thinking has it, monetary spending is the lubricant and engine of economic activity. Savings are held to be a plight on the social economy, the selfish luxury of the ignorant or the evil, at the expense of the rest of humanity. To promote growth and to combat economic crises, it is crucial to maintain the present level of aggregate spending, and to increase it if possible.

This prevailing theory is precisely the one refuted by Smith and his disciples. Classical economics triumphed over that theory, which Smith called “mercantilism,” but its triumph was short-lived. Starting in the 1870s, at the very moment of the appearance of the Austrian school, mercantilism started its comeback, at first slowly, but then in ever-increasing speed.1 In the 1930s it was led to triumph under the leadership of Lord Keynes.

 

How Keynesianism Destroyed Economics

Neo-mercantilism, or Keynesianism, has ravaged the foundations of our monetary system. Whereas the classical economists and their intellectual heirs had tried to reduce the monetary role of the state as much as possible, even to the point of privatizing the production of money, the Keynesians set out to bring it under full government control. Most importantly, they sought to replace free-market commodity monies such as silver and gold with fiat money. As we know, these endeavors have been successful. Since 1971 the entire world economy has been on a fiat standard.

But Keynesianism has also vitiated economic thought. For the past sixty years, it has dominated the universities of the western world, at first under the names of “the new economics” or of Keynesianism, and then without any specific name, since it is pointless to single out and name a theory on which seemingly everyone agrees.

 

The Key Importance of Money and Banking

No other area has been more affected by this counter-revolution than the theory of banking and finance. It was but a small step from the notion that increases in aggregate demand tend to have, on the whole, salutary economic effects, to the related notion that the growth of financial markets — aka “financial deepening” — generally tends to spur economic growth.2 Whereas the classical tradition had stressed that “financing” an economy meant providing it with the real goods required to sustain human labor during the production process (which was called the wage fund respectively the subsistence fund), the Keynesian counter-revolution deflected attention from his real foundation of finance. In the eyes of these protagonists, finance was beneficial to the extent — and only to the extent — that it facilitated the creation and spending of money. Financial intermediation was useful because it prevented that savings remained dormant in idle money hoards. But finance could do much more to maintain and increase aggregate demand. It could most notably rely on the ex nihilo creation of credit through commercial banks and central banks. It provided monetary authorities with new tools to manage inflation expectations, for example, through the derivatives markets. And financial innovation was likely to create ever new opportunities for recalcitrant money hoarders to finally spend their cash balances on attractive “financial products.”

The youthful and boastful neo-mercantilist movement of the 1930s and the early post-war period did not bother to refute the classical conceptions in any detail. The theory of the wage fund was brushed aside, rather than carefully analyzed and criticized, just as Keynes had brushed aside Say’s Law without even making the attempt to dissect it.3 As a consequence, the foundations of the theory of finance have remained in an unsatisfactory state for many decades. A newer vision of finance had supplanted the older one. But was the latter without merit? The new theory appeared to be new. But was it true?

Finance Behind the Veil of Money is one of the very first modern discussions that try to come to grips with these basic questions. Steeped in the tradition of the Austrian school, Dr. Eduard Braun delivers a sweeping and original essay on the foundations of finance. Relying on sources in three languages, and delving deep into the history of capital theory — most notably the neglected German-language literature of the 1920s and 1930s — his work sheds new light on a great variety of topics, in particular, on the history of the subsistence-fund theory, on the relation between monetary theory and capital theory, on economics and business accounting, on price theory and interest theory, on financial markets, on business cycle theory, and on economic history.

Two achievements stand out.

One, Braun resuscitates the theory of the subsistence fund out of the almost complete oblivion into which it had fallen after WWII. He argues that this theory has been neglected for no pertinent reason, and with dire consequences for theory and economic policy. In particular, without grasping the nature and significance of the subsistence fund, one cannot understand the upper turning points of the business cycle, nor the economic rationale of business accounting, nor the interdependence between the monetary side and the real side of the economy.

Two, the author reinterprets the role of money within the theory of finance. He revisits the theory of the purchasing power of money (PPM) and argues that a suitable definition of the PPM relates exclusively to consumer-good prices, not to capital-good prices. Dr. Braun argues that the PPM in that sense is the bridge between the theory of money and the classical theory of the subsistence fund.

His book shows that this is a fruitful approach and a promising framework for future research in a variety of contemporary fields, such as financial economics, finance, money and banking, and macroeconomics. The current crisis is a devastating testimony to the fact that mainstream thought in these fields is very deficient, and possibly deeply flawed. At the very moment when governments and central banks, with the encouragement of academic economists, set out to apply the conventional Keynesian policies with ever greater determination, Eduard Braun invites us to step back and reflect about the meaning of finance. This is time well spent, as Braun’s readers will find out.

Article originally posted at Mises.org.

The Private Equity Boom, Easy Money, and Crony Capitalism

by Brendan Brown – Mises Daily:private equity

Amongst the big winners from the Obama Fed’s Great Monetary Experiment has been the private equity industry. Indeed this went through a near-death experience in the Great Panic (2008) before its savior — Fed quantitative easing — propelled it forward into new riches. There is no surprise therefore that its barons who join the political stage (think of the last Republican presidential candidate) have no interest in monetary reform. And the same attitude is common amongst leading politicians who hope private equity will provide them high-paid jobs when they quit Washington.

The ex-politicians are expected by their new bosses to join the intense lobbying effort aimed at preserving the industry’s unique tax advantages, especially with respect to deductibility of interest and carry income. They are also expected to do this while establishing the links with regulators and governments (state and federal) that help generate business opportunities for the private equity groups themselves. The special ability of these political actors to take advantage of the monetarily induced frenzy in high-yield debt markets — and secure spectacularly cheap funds — means they become leading agents of malinvestment in various key sectors of the economy.

 

What’s Makes Private Equity Run?

Spokespersons for the industry claim that the private equity business is all about spotting opportunities to take over already established businesses, and then using home-grown talent (within the private equity management team) to transform their organization so as to create value for shareholders. And this can all be accomplished, they say, without the burden of frequent reporting requirements as in public equity.

That is all very laudable, but why all the leverage, why all the political connections, and why all the tax advantages? And even before getting to these questions, why should we praise the secrecy? After all, public equity markets are meant to do a good job of incentivizing and disciplining management, especially in this age of shareholder activism. So why is private equity supposedly superior?

Perhaps there are instances where companies which are now in the public equity market cannot economically justify the fixed costs of maintaining their presence there (filing reports, auditing, etc.). In practice, though, this public-to-private conversion function of the private equity industry has been dwindling in overall significance compared to private-to-private acquisitions and new ventures.

 

Why There’s So Much Leverage

But why should there be so much leverage? Why could their economic functions not be achieved on a purely or largely equity basis?

After all, there are reports of private equity groups turning away would-be new participating partners offering to bring in zillions of new funds to the party. If individual investors in private equity wanted high leverage they could do this on their own account without saddling the particular enterprises with large debts.

The obvious answer to this conundrum is that the private equity groups are in fact risk-arbitragers (and tax arbitragers) between what they view as greatly over-priced high-yield debt markets (sometimes described as junk-debt markets) and less overpriced equity markets.

 

How Easy Money Enables Private Equity

The Great Monetary Experiment has induced such a plague of market irrationality characterized by desperation for yield that the price of junk has reached the sky. On top of this, the US tax-code incentivizes such arbitrage by allowing full deduction of interest from corporate profit. Why are some affiliates of private equity groups buying the junk? Perhaps that has to do with the benefits to be derived in the event of any particular enterprise owned by the group filing for bankruptcy. The private equity group would be in a better position to negotiate a debt-equity swap if it is on both sides of the deal.

The name of the game is achieving as high a leverage as possible and nothing brings success here like success. Specifically, as private equity investments have produced a series of great returns in recent years — as indeed we should expect from highly leveraged strategies in a powerfully rising equity market — the speculative story that their managers really have talent has attracted more and more believers who are willing to back it with their funds. One aspect of this has been the ability of private equity groups to leverage up their businesses to an extent never previously achieved as the buyers of their junk debt believe that unique talents of the partners and their managers make this acceptable. And the cost of equity to the private equity groups falls as a wider span of potential partners believes in their power of magic.

 

The Crony Capitalist Connection

The new business ventures on which private equity has concentrated in recent years are often in areas where regulatory or political connection is important — whether in finance, real estate, energy extraction, or providing health-care facilities. A private equity group buys the advantages of “connections” (otherwise described as cronyism) for all the small or medium-sized enterprises operating within its fold. If each one were to build up its connections independently that would be much more expensive per unit of enterprise capital.

Hence one essential feature of private equity is the taking advantage of economies of scale in cronyism. And the tax advantages secured by political connections are crucial to the private equity model. The case for a reform of the tax code which would lower the overall rate on corporate profits but end the tax deductibility of interest is strong. But how could this ever make headway against the private equity industry and its deep roots in Washington, DC?

 

Private Equity, Shale Oil, and Other Bubbles

In thinking about the downside of private equity for economic prosperity there is much more to consider than stalemate on tax reform. There is the specter of the infernal combination of monetary disequilibrium and cronyism producing huge malinvestment. That picture is already emerging in the shale oil and gas industries where private equity with its highly leveraged structures has been prominent. Elsewhere, the finance companies spawned by private equity and outside the ever-more regulated traditional bank sector. These have played a lead role in rapid growth of sub-prime auto-loans which have contributed importantly to the boom in vehicle sales. Private equity owned leasing companies have outsmarted their competition to provide enticingly cheap terms to aircraft carriers especially in Asia and helped fuel a tremendous boom in sales by Boeing and Airbus. Private equity participation in investing in apartment blocks has helped fuel the mini-boom in multifamily housing construction.

This is all fine whilst folks are dancing to the music of the Great Monetary Experiment. But what will happen when speculative temperatures fall across a wide range of markets presently infected by asset price inflation? We know much about the disease of asset price inflation from the past 100 years of fiat money under the leadership of the Federal Reserve. Each episode of disease is different but there are common elements. One of these is a deadly end phase featuring plunging speculative temperatures, great recession, and the revelation of huge capital squandered in previous years. The private equity story is new, but there is nothing new under the sun.

Article originally posted at Mises.org.

The Truth About Homework

by Author Alfie Kohn – ICPA.org:Homework

Widespread misconceptions about learning keep our children busy with needless assignments.

There’s something perversely fascinating about educational policies that are clearly at odds with the available data. Huge schools are still being built, even though we know that students tend to fare better in smaller places that lend themselves to the creation of democratic caring communities. Many children who are failed by the academic status quo are forced to repeat a grade, even though research shows that this is just about the worst course of action for them. Homework continues to be assigned— in ever greater quantities—despite the absence of evidence that it’s necessary, or even helpful, in most cases.

The dimensions of that last disparity weren’t clear to me until I began sifting through the research for a new book. To begin with, I discovered that decades of investigation have failed to turn up any evidence that homework is beneficial for students in elementary school. Even if you regard standardized test results as a useful measure, homework (some versus none, or more versus less) isn’t even correlated with higher scores at these ages. The only effect that correlates with homework is a more negative attitude toward school on the part of students who get more assignments.

In high school, some studies do find a correlation between homework and test scores (or grades), but it’s usually fairly small, and it has a tendency to disappear when more sophisticated statistical controls are applied. Moreover, there’s no evidence that higher achievement is due to the homework, even when an association does appear. It isn’t hard to think of other explanations for why successful students might be in classrooms where more homework is assigned—or why they might spend more time on it than their peers do.

The results of national and international exams raise further doubts. One of many examples is an analysis of 1994 and 1999 Trends in Mathematics and Science Study (TIMSS) data from 50 countries. Researchers David Baker and Gerald LeTendre were scarcely able to conceal their surprise when they published their results in 2005: “Not only did we fail to find any positive relationships,” they wrote, but “the overall correlations between national average student achievement and national averages in [amount of homework assigned] are all negative.”

Finally, there isn’t a shred of evidence to support the widely accepted assumption that homework yields nonacademic benefits for students of any age. The idea that homework teaches good work habits or develops positive character traits (such as self-discipline and independence) could be described as an urban myth, except for the fact that it’s taken seriously in suburban and rural areas, too.

In short, regardless of one’s criteria, there is no reason to think that most students would be at any sort of disadvantage if homework were sharply reduced or even eliminated. Nevertheless, the overwhelming majority of American schools—elementary and secondary, public and private—continue to require their students to work a second shift by bringing academic assignments home. Not only is this requirement accepted uncritically, but the amount of homework is growing, particularly in the early grades. A large, long-term national survey found that the proportion of 6- to 8-year-old children who reported having homework on a given day had climbed from 34 percent in 1981 to 58 percent in 1997—and the weekly time spent studying at home more than doubled.

Sandra Hofferth of the University of Maryland, one of the authors of that study, has just released an update based on 2002 data. In it, the proportion of young children who had homework on a specific day has jumped to 64 percent, and the amount of time they spent on it has climbed by another third. The irony here is painful, because with younger children the evidence to justify homework isn’t merely dubious—it’s nonexistent.

Why Homework Persists

So why do we do something where the cons (stress, frustration, family conflict, loss of time for other activities, a possible diminution of interest in learning) so clearly outweigh the pros? Possible reasons include a lack of respect for research, a lack of respect for children (implicit in a determination to keep them busy after school), a reluctance to question existing practices, and the top-down pressures to teach more stuff faster in order to pump up test scores, so we can chant, “We’re number one!”

All of these explanations are plausible, but I think there’s also something else responsible for our continuing to feed children this latter-day cod-liver oil. Because so many of us believe that it’s just common sense that homework would provide academic benefits, we tend to shrug off the failure to find any such benefits. Our belief that homework ought to help is based on some fundamental misunderstandings about learning.

Consider the assumption that homework should be beneficial just because it gives students more time to master a topic or skill. (Plenty of pundits rely on this premise when they call for extending the school day or year. Indeed, homework can be seen as a way of prolonging the school day on the cheap.) Unfortunately, this reasoning turns out to be woefully simplistic. “When experimental psychologists mainly studied words and nonsense syllables, it was thought that learning inevitably depended upon time,” reading researcher Richard C. Anderson and his colleagues explain. “Subsequent research suggests that this belief is false.”

The statement “People need time to learn things” is true, of course, but it doesn’t tell us much of practical value. On the other hand, the assertion “More time usually leads to better learning” is considerably more interesting. It’s also demonstrably untrue, however, because there are enough cases where more time doesn’t lead to better learning.

In fact, more hours are least likely to produce better outcomes when understanding or creativity is involved. Anderson and his associates found that when children are taught to read by focusing on the meaning of the text (rather than primarily on phonetic skills), their learning does “not depend on amount of instructional time.” In math, too, as another group of researchers discovered, time on task is directly correlated to achievement only if both the activity and the outcome measure are focused on rote recall, as opposed to problem solving.

Carole Ames of Michigan State University points out that it isn’t “quantitative changes in behavior”—such as requiring students to spend more hours in front of books or worksheets—that help children learn better. Rather, it’s “qualitative changes in the ways students view themselves in relation to the task, engage in the process of learning, and then respond to the learning activities and situation.” In turn, these attitudes and responses emerge from the way teachers think about learning and, as a result, how they organize their classrooms. Assigning homework is unlikely to have a positive effect on any of these variables. We might say that education is less about how much the teacher covers than about what students can be helped to discover— and more time won’t help to bring about that shift.

Alongside an overemphasis on time is the widely held belief that homework “reinforces” the skills that students have learned—or, rather, have been taught—in class. But what exactly does this mean? It wouldn’t make sense to say, “Keep practicing until you understand,” because practicing doesn’t create understanding— just as giving kids a deadline doesn’t teach time-management skills. What might make sense is to say, “Keep practicing until what you’re doing becomes automatic.” But what kinds of proficiencies lend themselves to this sort of improvement?

The answer is behavioral responses. Expertise in tennis requires lots of practice; it’s hard to improve your swing without spending a lot of time on the court. But to cite an example like that to justify homework is an example of what philosophers call begging the question. It assumes precisely what has to be proved, which is that intellectual pursuits are like tennis.

Learning Versus Drill

The assumption that education and tennis are analogous derives from behaviorism, which is the source of the verb “reinforce,” as well as the basis of an attenuated view of learning. In the 1920s and ’30s, when John B. Watson was formulating his theory that would come to dominate education, a much less famous researcher named William Brownell was challenging the drilland- practice approach to mathematics that had already taken root. “If one is to be successful in quantitative thinking, one needs a fund of meanings, not a myriad of ‘automatic responses,’” he wrote. “Drill does not develop meanings. Repetition does not lead to understandings.” In fact, if “arithmetic becomes meaningful, it becomes so in spite of drill.”

Brownell’s insights have been enriched by a long line of research demonstrating that the behaviorist model is, if you’ll excuse the expression, deeply superficial. People spend their lives actively constructing theories about how the world works, and then reconstructing them in light of new evidence. Lots of practice can help some students get better at remembering an answer, but not to get better at—or even accustomed to—thinking. And even when they do acquire an academic skill through practice, the way they acquire it should give us pause. As psychologist Ellen Langer has shown, “When we drill ourselves in a certain skill so that it becomes second nature,” we may come to perform that skill “mindlessly,” locking us into patterns and procedures that are less than ideal.

Practice Makes Problems

But even if practice is sometimes useful, we’re not entitled to conclude that homework of this type works for most students. It isn’t of any use for those who don’t understand what they’re doing. Such homework makes them feel stupid; gets them accustomed to doing things the wrong way (because what’s really “reinforced” are mistaken assumptions); and teaches them to conceal what they don’t know. At the same time, other students in the same class already have the skill down cold, so further practice for them is a waste of time. You’ve got some kids, then, who don’t need the practice and others who can’t use it.

Furthermore, even if practice was helpful for most students, that doesn’t mean they need to do it at home. In my research I found a number of superb teachers (at different grade levels and with diverse instructional styles) who rarely, if ever, found it necessary to assign homework. Some not only didn’t feel a need to make students read, write or do math at home, but they preferred to have students do these things during class, where it was possible to observe, guide and discuss.

Finally, any theoretical benefit of practice homework must be weighed against the effect it has on students’ interest in learning. If slogging through worksheets dampens one’s desire to read or think, surely that wouldn’t be worth an incremental improvement in skills. And when an activity feels like drudgery, the quality of learning tends to suffer, too. That so many children regard homework as something to finish as quickly as possible—or even as a significant source of stress—helps to explain why it appears not to offer any academic advantage even for those who obediently sit down and complete the tasks they’ve been assigned. All that research showing little value to homework may not be so surprising after all.

Supporters of homework rarely look at things from the student’s point of view, though. Instead, kids are regarded as inert objects to be acted on: Make them practice and they’ll get better. My argument isn’t just that this viewpoint is disrespectful, or that it’s a residue of an outdated stimulus-response psychology. I’m also suggesting it’s counterproductive. Children cannot be made to acquire skills. They aren’t vending machines such that we can put in more homework and get out more learning.
But just such misconceptions are pervasive in all sorts of neighborhoods, and they’re held by parents, teachers and researchers alike. It’s these beliefs that make it so hard even to question the policy of assigning regular homework. We can be shown the paucity of supporting evidence and it won’t have any impact if we’re wedded to folk wisdom (“practice makes perfect”; more time equals better results).

On the other hand, the more we learn about learning, the more willing we may be to challenge the idea that homework has to be part of schooling.

Article originally posted at ICPA.org.

It’s All About How You Think!

by R. Nelson Nash
Author of Becoming Your Own Banker
Article originally published in the April issue of BankNotesthink

 

Some years ago, the late Nobel prize-winning Dr. Albert Schweitzer was asked by a reporter, “Doctor, what’s wrong with men today? The great doctor was silent a moment, and then he said, “Men simply don’t think!”

Surely, by this time in your life, you have a deepseated feeling that there is something fundamentally wrong in the financial world today. There is debt of unbelievable proportions! There is confused thinking that results in irrational behavior as a matter of course. We are treated to a plethora of information daily to substantiate this truth.

As a result of all this, I see a lot of despair and anguish expressed by a large segment of our population. I really think that it is the feeling of most people. They are saying, “What a mess we are in! What are they going to do about it? We need to get the right folks in our government offices! Get out and vote! That is our only hope!”

Of course, there is another large faction that is totally consumed with apathy. They don’t have a clue as to what has happened – and what is currently happening. You see them – and you can identify them – so I don’t see a need to elaborate this point.

The fact that you are taking the time to read this article indicates that you are searching for an answer to financial matters in your life. We hope that the efforts of the Nelson Nash Institute will be of benefit to you. Thank you for your search. The solution to any money problem begins there.

What happened to cause this deplorable situation?

These things just don’t happen by chance. There is always an underlying cause.

 

How Did Governments Build A Trap To Enslave People Financially?

Here in the United States two significant events occurred just over one hundred years ago:

1. The Income Tax Law – October 3, 1913

2. Adoption of the Federal Reserve Act – December 23, 1913

But, something else occurred 100 years ago: World War I – a tragic event! One that should never have happened! It was the result of unsound thinking by government leaders.

Notice that the Income Tax Law was adopted one year before WWI, and the Federal Reserve preceded WWI by just eight months.

Why is this significant? Study history and you will find that during the War of 1812 an attempt to adopt an income tax failed. Citizens wanted no part of another tax to fund the war. Apparently we had a greater proportion of clear thinkers at that time than we have today.

So – what to do? Plan ahead – because the “powers that-be” knew full well that war was imminent. But, in order to gain public acceptance create the means of funding it before the war starts! But, use some other reason for doing so! This form of deflection is necessary in order to fulfill the hidden agenda.

Wars cost lots of money! Who benefits from all this? History is clear – International Bankers, that’s who! They not only create wars but also actually financeboth sides! If you haven’t figured this out, then you need to start studying history. As a starting place please study the lives of the preeminent Rothschild banking family. Take note that it was the patriarch Rothschild, Mayer Amschel Rothschild, who famously proclaimed, “Give me control of a nation’s money and I care not who makes the laws.”

On our website www.infinitebanking.org you will find a resource tab. Click it on and then click on the Recommended Reading List. There you will find a large selection of books on economics and history that will help you in your search for the truth about the financial world and the ways bankers carry out their goals. A good starting book to read would be The Law by Frederic Bastiat. Then read Economics in One Lesson by Henry Hazlitt.

A word of caution – this action can lead to a beneficial compulsion to continue reading all the books listed there!

For instance, are you aware of the characters at Jekyll Island, Georgia who designed our Federal Reserve System? It is well acknowledged that the chief driving force of this scheme was Paul Warburg, a Germanborn banker. The mismatch between the story the public receives, versus what really happened behind the scenes, has rarely been so large as it was with the founding of the Fed and the advent of World War I.

For example, are you aware of how this central bank idea was made into law by Congress in late December 1913, while most Americans were busy celebrating Christmas with their families? There is plenty of information available to teach you the real history of how all this came to be if you will simply search the right sources.

Let me issue a warning that some revisionist authors make unwarranted leaps and see sinister plots when there is really a much simpler explanation, but that doesn’t mean the entire genre is misguided. A careful student of history will see that the public has been systematically misled about the origin of our modern banking institutions; this was not all designed “forour benefit.” It is not the purpose of this article to show you all this information. My purpose here is to challenge you to read and think!

 

Removing The Blinders

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”― John Maynard Keynes

Probably the greatest source of our disastrous financial situation can be laid at the feet of Lord Maynard Keynes with his book, The General Theory of Employment, Interest, and Money, published in 1936. Keynesian thinking has the entire world in a death grip. I well remember Richard Nixon, in a speech on TV saying, “We are all Keynesians now!” He absolutely did not speak for me, but that is the method that such leaders use to induce people to think the way they do.

Only the Austrian School of Economic thought is correct in explaining the business cycle – central bankers inflate the money supply dramatically and people behave as if the money is “real.” But, it is all an illusion – it is a lie! This inflation always results in booms and busts. What is called a “depression” is not really a “depression” – it is a return to reality! The Austrian economists point out that the real harm during the business cycle comes during the boom phase, not the depression, and that if you want to avoid the painful busts, then you must stop artificially inflating the economy. But the public has been convinced that the boom is a period of genuine prosperity. Those who benefit most from this chicanery are always the bankers.

Your local commercial bank is the primary indirect source of inflation by way of a warped law within their “fractional reserve lending system.” They are actually lending money that doesn’t exist! Note, however, that they cannot lend money unless theyhave customers. Therefore, if you have a loan at any such financial organization, then you are a part of the problem!

I got “hooked” on Austrian Economics 58 years ago and the study of the subject became a passion for me. It was this background, plus a 35-year career in life insurance sales, which led me to see there is a way to build a system for individuals to avoid the devastating effects of inflation in their lives – and to be free of the clutches of bankers. There really is a way out of the financial condition that has enslaved most people and the Nelson Nash Institute can help you discover it.

We have had a tragic change of behavior in our country during the last 100 years. Thought always precedes behavior. The easiest way to motivate people to a desired action is through producing fear in the minds of people! War is probably the ultimate method of doing so.

The State uses contingencies of crisis and misfortune to increase its power – which in turn develops the habit of acquiescence in the people.

In the words of Judge Andrew Napolitano, our country has become a nation of “sheeple.”

This is why I’m leading a movement to change the name of Washington, D.C. to “The Fear Factory.” Notice that every action that is proposed in Washington has fear as its reason for being. “The world is coming to an end if the Government doesn’t take immediate action on (blankety, blank, blank)______________.” You fill in the blank. I challenge you to examine every one of their proposals and determine the validity of my statement.

I had a personal experience with this phenomenon in 1961. I was educated as a forester at the University of Georgia, class of 1952. The Korean Conflict was two years old at that time. During my college years I was an Air Force ROTC student as part of the means of financing my way through school. As a result, all of my ROTC class had to go on active duty for two years to repay the government for the stipend they paid us while we were in college.

During the two years of active duty, I was an aerial photo interpreter with Strategic Air Command at March Air Force Base, California.

Upon completion of this obligation, I moved to Eastern North Carolina to begin my career as a private forester. I did not work for the government; Smokey Bear and I don’t agree on much of anything. It was here that I came face-to-face with the mental paralysis that Socialism causes among people. Up to that time I really never knew much about the idea itself. But, inherently I knew something was fundamentally wrong with it. It just didn’t “square” with my Christian upbringing which began when I was nine years old.

At that time the predominant agricultural product in Eastern North Carolina was tobacco. The entire production of tobacco was totally controlled by a government allotment program. Such programs dominated the thinking of the people who lived in that area of the state. I noted that this pattern of thinking spilled over into everyday life of people.

Upon witnessing all this over a significant period of time, I wondered, “Why do people think (and thus behave) this way?” This led me to become acquainted with the Austrian school of economic thought when I first read Henry Hazlitt’s book Economics in One Lesson. I became a voracious student of their teachings in 1957.

This brings us to 1960 when an article appeared in FOREST FARMER magazine about a proposed government program that would literally take over all the woodlands of private owners in the United States. Nikita Khrushchev, who was premier of the Soviet Union at that time, could not have pulled off such a program in that country! I could not sleep for several nights after reading the article. “How in the world could this be happening?” I thought.

In 1961, I was encouraged to write a memo on this proposed program and send it to a number of publishers and media outlets that would expose the absurdity of the idea. One of those places was NATION’S BUSINESS magazine produced by the U.S. Chamber of Commerce. My memo crossed their path at exactlythe right time! They knew the proposed program was “coming out of committee” soon and was to be voted on in Congress – and hopefully (for the bureaucrat proponents), to become law of the land. The editors at NATION’S BUSINESS were looking for a way to create a story for their magazine that would expose the nonsense of this Socialist proposal. And, so, they contacted me to help in developing it.

In June 1961 I became the subject of a feature article in NATION’S BUSINESS entitled, “Pattern for Federal Takeover of Your Business.” If you care to look it up, simply Google “NATION’S BUSINESS MAGAZINE JUNE 1961” and you will find it starting on page 34. You might find it interesting because the author, TaitTrussell, did a thorough job of isolating the methodology of every activity that exists in governments throughout the world.

The article was reproduced in large quantities by the Association of Consulting Foresters. Bottom line – we were able to defeat the program before it ever got out of committee and voted on by Congress. All this stuff is a lot of work for anyone that is involved so I won’t bore you with minute details.

However, I learned this about anything that goes on in Washington, DC. Bureaucrats take one segment of the economy, they accumulate bogus data, then they run this stuff through “their crystal ball” and conclude that we will all perish from the face of the earth unless the government takes over this particular economic activity.

During my experience with this event I became acquainted with many of the people advocating the idea. The architect of the proposed program to take over the timberland of private landowners was Undersecretary of Agriculture, Mr. Murphy. Upon defeat of the project, all Mr. Murphy could up offer up was, “I had heard that we were running out of timber and I just wanted to help.” Murphy knew absolutely nothing about timberlands or the forestry world.

None of the concerns expressed by the program were true, but that fact doesn’t matter to these folks. They just talk to themselves within the “D.C. Beltway” andbecome believers in their own nonsense. During all my work on this project I discovered that the Department of Agriculture was under some severe criticism at that time and this program was created to divert attention from their real problem.

This all reminds me of Argentina’s efforts to reclaim the Falkland Islands in 1982. The real reason for the action was because of the horrible economic conditions in Argentina at the time and they needed a smoke-screen to divert attention from their economic misery. If you have seen one government idea, you have seen them all!

Yes, we defeated the attempt of takeover the timberlands of private landowners in the U.S.– but another program of like kind appears again and again and again! When will people ever learn?

 

There Is A Way To Change Your Financial World

Let’s go back to the WWI – August 1914 began the bloodiest century of all time. I am soon to turn 84 years old as I write this, and thus, have witnessed most of this irrational behavior.

Yes, we do live in some interesting and deplorable situations in the financial world – but, it doesn’t have to be that way for any one individual person. However, this is going to require a significant change in the way that one thinks.

In the Sermon on the Mount, Jesus explains the human nature of people to His listeners.

Matthew 7:13-14 says, “Enter through the narrow gate for wide is the gate and broad is the road that leads to destruction, and many enter through it. But small is the gate and narrow the road that leads to life, and only a few find it.”

If Jesus were teaching us today, I think He would probably say, “Why do you folks want to follow those who are always wrong? – Is your mind really all that dull?”

While growing up in Athens, Georgia, I was amember of Prince Avenue Baptist Church. All churches encourage young folks to express their understandings of the vital things of life. I remember, at age 15, I was asked to make such a presentation at a Sunday evening service. I laid the foundation for my talk by pointing out that we know our world through our five senses that we all possess and that our brain determines our evaluation of what we experience. And that our attitude toward these things is all-important in determining outcomes in life. In other words, I could “change the world – my world – by changing my thinking.”

I continued, stating that, as you change your thinking, your attitude will change. As your attitude changes, your belief and actions will follow, and “a peace that transcends all understanding will guard your heart and mind in Christ Jesus.”

In Romans 12:2 St. Paul is teaching that we should not “conform to the pattern of this world, but be transformed by the renewing of your mind. Then you will be able to test and approve what God’s will is — his good, pleasing and perfect will.” I believe that Paul is teaching that we should secede from the way the world thinks. That you have to abandon the thoughts and behavior of the world in which you live. Here I am drawing on this ancient text to demonstrate to you that all of the relevant points of this article can be found there.

Furthermore, consider that the conscious mind can only entertain one thought at a time. Thinking is hard work and mankind is a lazy beast! The result of this idleness is rote behavior with most people. And so, we all have a paradigm by which we live our lives. This is the work of our sub-conscious mind.

When we ask, “Why is it that people behave the way they do?” The answer is quite obvious. It is all because of the way they think. That is the paradigm they have created for themselves sometime in their past. Most of our personal, everyday behavior, is determined by our untrained sub-conscious mind. It is as if we are on autopilot!

My personal observation reveals – that there is not all that much conscious mind thinking – going on in our world today.

However, we should take caution. There are certain caveats that appear in life. In other words, beware of an “open mind!” Without careful filtering you can get a lot of garbage thrown in there. We are totally surrounded by worthless noise! The financial world is a perfect example of this phenomenon. Develop the ability to recognize nonsense and don’t waste your valuable time on it!

On long airplane flights I use my “noise-cancelling headset” – a product manufactured by the Bose Company. Wouldn’t it be nice if we had such a device built into our minds to block the nonsense that dominates our every-day world? You can create one.

Consider what St. Paul counseled his followers to do a couple of thousand years ago in Philippians 4 verse 8. “Finally, brothers, whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable, if anything is excellent or praiseworthy — think about such things.”

 

Confiscation

Now, let’s turn our attention to the Internal Revenue Code.

According to the Commerce Clearing House Standard Federal Tax Reporter, as of 2013, it now takes 73,954 regular 8-1/2” x 11” sheets of paper to explain the complexity of the U.S. federal tax code. Additionally, the IRS continually makes changes in the Code. These constant changes are sometimes humorously referred to as “The Accountants and Lawyers Relief Act.”

Personally, I don’t know of anyone who has read the entire IRS code. I have read that the first nine pages contain the definition of income. The next 1,100 pages describe exceptions to the code.

Read just a few of the exceptions to the code and you can very easily understand what the entire IRS Code is really saying. Essentially, “We own everything and we are going to allow you to do these certain things.”

The object of the IRS code seems to be the outright control of your life and make you think that your blessings come from government instead of from God!

For example, tax-qualified retirement plans were all created under the guise of “giving you a taxbreak.” First, there were pension plans for corporate employees, then came HR-10 plans for partners and sole proprietors, and finally, IRAs for individuals, and, lastly 401(k)s.

Now, everyone has an exception to the IRS Code available to them. Think about it. If the government really wanted to give you a tax break all they had to do is cut out the taxes! Do you really think they want to do that?

And so, I ask, “When government creates a problem (onerous taxation) and then, turns around and grants you an exception to the problem they created (such as in any tax-qualified plan) — aren’t you just a little bit suspicious that you are being manipulated?” That leads to another question – “then, why are you participating in them?”

This entire confiscation scheme is similar to the modus operandi of the Mafia! They create a problem and then sell their victims protection services against the problem they created! For an in-depth explanation of what I am saying here I suggest that you read The Income Tax: Root of All Evil by Frank Chodorov. Just how blatant can an activity become before people take notice? It is the perfect example of the elephant in the room, but no one seems to recognize it!

 

Now, Let’s Talk About How You Think

I was introduced to The Foundation for Economic Education in 1957 through its monthly journal, THE FREEMAN.

I was particularly drawn to the writings of Leonard E. Read, the founder of the organization – along with cofounder, Henry Hazlitt, plus several additional greatthinkers. Over a period of time Leonard became my good friend and mentor. What a privilege it was to know, to talk with, and learn from such great minds as these two! Neither of these two had college degrees but they were voracious readers.

Among many other great writers, Leonard admired the works of Albert Jay Nock. I urge you to read Nock’s book, Our Enemy the State, published in 1935.

Another of my favorite authors is Mike Rozeff, a retired finance professor, who is a frequent columnist on LewRockwell.com. On July 16, 2013 he wrote an article entitled, “Don’t Go Back to The Original Constitution.”

Mike observes that a great many Americans who are unhappy with various facets of America’s political system, laws, rights, and justice system think that the solution is to “go back to the original Constitution.”

They do not understand that the original Constitution is a major cause of our present woes and troubles. For further understanding of the validity of this observation, I suggest you read Tom DiLorenzo’s book, The Curse of Hamilton. DiLorenzo points out that upon separation from the mother country, England, in 1776, our Confederation of States became “Jeffersonian” – following the thoughts of the author of the Declaration of Independence, Thomas Jefferson. But, while Jefferson was away in France as ambassador, in 1789 we became “Hamiltonians” – right back into the mercantilism we escaped from while we were subjects of English rule!

Mike Rozeff continues to note, “One man who recognized and explained this – and related developments – many years ago is Albert Jay Nock in his 1935 book, Our Enemy the State.” In the following I will provide some quotations from Nock’s book, with my commentary in parentheses.

• “Every increase in State power necessarily accompanies a decrease in social power. Increases in State power – reduce the disposition among people to use social power – and it indoctrinates the idea that social power is no longer called for.”

• “Government conceptually is not the same as the State.” (This confusion of the two is so prevalent that I recently spent several hours trying to explain the difference to my wife.)

• “Government does not arise from conquest and confiscation. The State does.”

• “Moreover the sole invariable characteristic of the State is the economic exploitation of one class by another – every State known to history is a class-State.”

• “Statism is the concentration of economic controls and planning in the hands of a highly centralized government often extending to government ownership of industry.”

• “Whatever noble government protective of rights that the Declaration of Independence suggested the influential and leading colonists were after a State, that is, an instrument whereby one might help oneself and hurt others; that is to say, first and foremost they regarded it as the organization of the political means.”

• “The U.S. Constitution did not place the principles of Thomas Jefferson and Thomas Paine in the Declaration concerning government into practice. To the contrary it intentionally set up a State, and a State that could become more and more powerful over time.” (For proof of Nock’s assertion, simply observe what has happened in our country since 1789.)

• “The ‘government’ was set up under this Constitution to do the work of the State — that is, to bring into effect the political means and exercise political power, was not from its birth a government consistent with the Declaration of Independence.”

Government schools do not teach this fact to your children! If they did so, then the agenda of Hamiltonians would be exposed.

 

The World In The Grip Of An Idea

As I began reading THE FREEMAN, the publication of The Foundation for Economic Education, I was also drawn to the work of Dr. Clarence B. Carson. My wife and I worked on his Board of Directors for over 20 years. He was a dear friend of ours. Among many other books Clarence was the author of The World In The Grip of an Idea (1977). On page 454 of that book he, like Rozeff and DiLorenzo, echoes Nock’s assertions:

“There is a crucial distinction between the state and government. The worship of government is attended by the same difficulty as the worship of humanity. The difficulty is that actual governments have flaws, or rather those who run them do. The state is an abstraction; it is pure; it can even be an ideal.”

Carson continues:

“Power vested in the state cannot be misplaced, for it is the natural repository of all power over a given territory. Sovereignty, absolute sovereignty, is its prerogative, its reason for being.”
On page 245, he says:

“The thrust of the idea that has the world in its grip is to take away the independence of the individual… the aim is to concert all human efforts for the common good.”

My mentor, Leonard Read once wrote a piece entitled, “There Ought To Be A Law” — that was not the way Leonard thought, he was merely being ironic. Leonard was reflecting on the confidence that most Americans have in the idea of The State. “Whatever the ideal an individual might have in mind the State must compel everyone to comply. We must force people to see the wisdom that I possess.”

Along the lines of everything we have said thus far, another of my favorite authors is Butler Shaffer who teaches at the Southwestern University School of Law. He makes these invaluable points that seem tosummarize everything:

“Whether mankind is to survive, or bring about its own extinction, will depend largely on the premises that underlie our social organizations. Will they exist as voluntary, cooperative systems through which individuals can mutually achieve their respective interests; or will they continue to function as herdoriented collectives that allow the few to benefit at the expense of the many?

The answers to such questions are to be found only within our individual thinking. Secession does not begin at the ballot box, or in courtrooms, or in signing petitions, but in the same realm where you lost your independence: within your mind, and your willingness to identify with conflict-ridden abstractions.”

And so, how do you secede without seceding? You simply don’t play their game!

All the foregoing in this article is evidence of mankind’s worship of the State — a mind-set that is totally irrational! The idea of “the State” is nothing more than mankind trying to play the role of God (in the pagan sense of the word). The book of Exodus in the Bible plainly tells us that, “God is a jealous God.” Obviously He won’t put up with that nonsense! History demonstrates that fact conclusively. All of mankind’s efforts to displace Him are doomed to failure. The fact that this takes place over a long period of time completely eludes mankind.

Look at what this mind-set has done to our present financial world.

•Unbelievable debt throughout the world. Financial slavery everywhere.

• People who are totally dependent on a government program.

• People who put confidence in a tax-qualified financial plan, even though all government programs have a perfect record of failure when compared with their stated objective.

• Mind-numbed robots that cannot seem to think for themselves.

 

Reclaim The Power

We hold the key through social power – voluntary and private social relations, including associations and economic exchange. And so, I ask, “Do you have the courage to examine your own thought processes and determine if you are, indeed, a STATIST?”

Or, do you have the courage to secede from the thinking that predominates in our world?

If you do then join together with those who have found the financial freedom that can be obtained through theInfinite Banking Concept (IBC) as taught by the Nelson Nash Institute. Your world will never be the same again.

Our mission is to educate and inspire the public to take control of their financial lives.

Our vision is a free society characterized by creative financial solutions independent of government intervention.

Please see the April issue of BankNotes for the original article and others like it.

What is Education?

by Author Bob Webb – ICPA.org:Education

A burning desire to learn is the key to a fulfilling lifestyle. It’s something school rarely inspires.

What is education? Is it knowledge in basic skills, academics, technical disciplines, citizenship…or is it something else? Our formal education system says only the academic basics are important, emphasizing the collection of knowledge without understanding its value. What about the processing of knowledge—using inspiration, visionary ambitions, creativity, risk, motivation and the ability to bounce back from failure? These skills are associated with understanding the value of knowledge, but many education institutions don’t consider these skills. There is a huge, disconnected gap, which is a problem for high school students in particular.

Thomas Edison and many other super achievers never finished school. They succeeded because they knew how to research information for a selected project and process that knowledge. The classroom environment does not work that way. It focuses on the collection of knowledge with no clear purpose other than high grades. If pleasing the teacher does not motivate, then there is nothing to process, outside of memorizing answers for a test. The typical student is academically challenged while being starved for motivation. Lack of motivation is lack of knowledge-processing skills. The typical college graduate will emerge with a professional skill that can provide for life’s basic needs, but that’s all.

What is education? All the elements in my opening paragraph relate to education, and all should be considered. This would be ideal, but “all” is not possible where performance must be measured. Only what can be measured will be selected, and the measuring tool is the written test. Anyone who does not have the ability to put clear thoughts on paper is labeled a failure. Natural skills, including knowledge processing, do not count. What is exercised grows stronger, and what is ignored stays dormant. The classroom exercises the collection of academics, leaving all other natural skills in the closet.

Tests do not measure intelligence or ability; they do not measure how the mind processes information, how motivating experiences develop persistence, or how the mind sorts out instincts, opinions, evaluations, possibilities and alternatives.

Knowledge by itself has no value; it is like a dictionary filled with words. Words alone have no value; they are given meaning by the process of stringing them together. Unfortunately, our education system is becoming a system that memorizes the dictionary. When students have memorized selected knowledge, then they are given a one-day test, based on dictionary knowledge, which will influence their employment opportunities for the rest of their lives. Natural skills are not considered. Is this how America became the world’s economic leader? No! Knowledge only has value when used with a process, and process in an artificial environment is not predictable or measurable.

Achievers in life use inspiration and motivation to overcome barriers. Teaching to the test does not inspire or motivate anyone. Memorizing does not inspire a love of learning; in fact, it does just the opposite. Education’s goal should be to develop a love of learning that stays with students throughout their lives. Education should be a lifetime experience, not limited to youth.

Educators are switching to tests because there is a crisis in education of their own making, and society wants measurable results. This pressure is passed on to political leaders, who base political decisions on measurable academic testing. These tests are based on acceptance of the educational status quo. Every student must now become an academic intellectual, or be labeled a failure. Natural talent and knowledge-processing skills do not count. More and more students are receiving the “failure” label, all because the system measures selected knowledge on a one-day standardized paper test.

Consider a parent who is having a problem with a word processor. On his own, he can’t solve the problem. He’s been collecting knowledge for years, but his knowledge processor is in hibernation. With any new gadget, someone has to teach him; he can’t figure it out for himself. His 13-year-old son comes to the rescue. The boy has limited knowledge, but he knows how to processes available information. He explores the word processor problem until he finds a solution. He is not unusually smart—this is just a teenager’s natural approach to finding solutions.

All young children have a natural talent for creatively processing information. It’s during the teen years that natural creative processing is replaced with the status quo: memorizing knowledge, without regard to how to process it. In the classroom, memorizing is what counts. Standardized testing reinforces the status quo. It kills creative processing ability. Status quo attitudes will follow children into adult life, where they will have to ask their children for help.

Today, the educational system has a new tool on the market: behavior-control drugs. Any student who refuses to accept the status quo is labeled a troublemaker and will be drugged. The glassy-eyed student will then behave in the classroom, and school officials will receive high performance ratings. The student may get passing grades and land a job with a comfortable wage, but that will be the extent of it. His teenage dreams and great ambitions will be gone.

Fact: Self-made millionaires are not “A” students in the classroom. The way they process knowledge conflicts with classroom priorities. The self-made millionaire has a vision. Then he researches specific knowledge, applies intuitive knowledge and processes all the elements, searching for a workable solution. Millionaires are made by finding alternative ways to do common tasks. The secret is vision, research and processing, not pre-stored knowledge alone.

The typical employer wants employees with dictionary knowledge, not visionaries. Businesses want employees who follow orders, are willing to do repetitive tasks, are happy with a limited role, and accept the status quo. Repetitive tasks means efficiency, which is where profits are made. Also, accepting the status quo prevents the exposure of blunders by leaders. Too many blunders, and profits disappear. In a status-quo environment, visionaries become bored quickly and soon receive the “troublemaker” label when they offer alternatives or expose blunders. This sometimes leads to dismissal, even though their ideas can increase efficiency and create new sources of profits for the company. In the long haul, visionaries are the ones who make above-average wages, no matter their formal education level. But with behavior-controlling drugs, the education system now has the tools to eliminate this type of person.

As I write this, e-learning is becoming an education model that the present system cannot compete with. It focuses on what motivates, rather than what the system thinks is good for students. It is also sidestepping politicians, textbook industries, testing companies and unions. These forces are now fighting back, trying to maintain a system that is in their own interest, instead of the students’. At this time, they are focusing on standardized testing, which seems to be a last-ditch effort to maintain the status quo.

What can be considered a quality education? A quality education is custom designed, addressing the unique abilities of each student, and provides a positive emotional experience. Customized education evaluates natural talent and how a student learns. This is why home-schooled students outperform classroom students. Parents learn what works and what doesn’t, and then focus on what works. With this method, students develop a love of learning, and learning becomes a lifelong process.

Which type of education environment do you think will produce consistent winners?

Article originally posted at ICPA.org.

The Scary Truth Behind Friday’s Jobs Shocker

by Bill Bonner – Bonner and Partners.com:jobs

On Friday, the Labor Department released a shockingly weak March jobs report. The feds and their cronies on Wall Street spent the weekend trying to put a bag over its head.

Former Pimco CEO and Bloomberg columnist Mohamed El-Erian gave this quick reaction:

The US employment machine notably lost momentum in March, with just 126,000 new jobs added – far fewer than the consensus expectation of around 250,000 – and with revisions erasing 69,000 from the previous two months’ total, according to the Labor Department. The lackluster result ends an impressive 12-month run of job gains in excess of 200,000.

Yes, the employment numbers were ugly. They confirm the other evidence coming in from hill and dale, industry and commerce, households and homesteads all across the nation, and all the ships at sea: This is no ordinary recovery.

Nip and Tuck

In fact, it’s no recovery at all. It is strange and unnatural, like the victim of a quack plastic surgeon.

But the damage was not an accident. No slip of the hand or equipment malfunction produced this horror. It was the result of economic grifters plying a fraudulent trade.

The Dow rose 118 points in Monday’s trading. A 0.7% increase, this was neither the result of honest investing nor any serious assessment of the economic future. Bloomberg attributed it to scammery from the Fed:

New York Fed President William Dudley said the pace of rate increases is likely to be “shallow” once the Fed starts to tighten.

His comments were the first from the inner core of the Fed’s leadership since a government report showed payrolls expanded less than forecast in March.
While data signaling rates near zero for longer have previously been welcomed by American equity investors, concern is building that economic weakness will worsen the outlook for corporate profits.

Get it?

“Shallow” rate increases. Translation: Savers will get nothing for their forbearance and discipline for a long, long time.

Instead, the money that should be rightfully theirs will be transferred to the rich… and to gamblers and speculators… as it has for the last six years.

A Frankenstein Economy

Back to El-Erian who, having seen the evidence of this botched operation, then goes goofy on us. He calls upon the authorities to “do something.”

As if they hadn’t done enough already!

The feds were the ones who injected the credit silicon, hardened the upper lip and created the Monster of 2008.

And then, when the nearest of kin started retching into the hospital wastebaskets, they went back to work. Now, the economy is more grotesque than ever.

But here’s El-Erian, asking for more:

The report is a further reminder of how much more the US economy could – and should – achieve if it weren’t for political dysfunction in Washington and a “do little” Congress that preclude more comprehensive structural reforms, infrastructure spending and a more responsive fiscal policy.

El-Erian is not the only one. One of our favorite knife men, Larry Summers, is suggesting more nip and tuck on the whole world economy.

It was Summers, as secretary of the Treasury between 1999 and 2001, who helped stitch this Frankenstein economy together.

He and his fellow surgeons are responsible for its unsightly lumps and inhuman shape. Their trillions of dollars of EZ credit leaked all over, causing bulges almost everywhere.

Does China have too much industrial capacity? Does the world have a glut of energy? Are governments far too deep in debt? And corporations?And households? Didn’t nearly every central bank in the world try to stimulate demand with cheap credit… thus laying on a burden of debt so heavy that it now threatens the entire world economy?

Poor Larry Summers

Now, Summers waves his scalpel in the air and can’t wait to get the patient back on the table.

He worries that the US should have given the International Monetary Fund more money, which would have “bolstered confidence in the global economy.”

He thinks the world’s problem is that “capital is abundant, deflationary pressures are substantial, and demand could be in short supply for quite some time.”

Poor Larry can’t tell the difference between capital and credit.

Capital – what you get from saving money and investing it wisely – is an economy’s real muscle. EZ credit – what the quacks pump into flabby tissue to try to make things look more fetching – is what has turned the economy into such a freak.

Alas, failing to give more money to the IMF, says Summers, may mean “the US will not be in a position to shape the global economic system.”

That would be a real pity.

Article originally posted at Author Joe WithrowPosted on Categories Finance & EconomicsTags , , , , , , , , , Leave a comment on The Scary Truth Behind Friday’s Jobs Shocker

Does an Oracle Have All the Answers? Flaws With the Current Teaching Model

by Simon Paul Harrison – ICPA.org:Teaching Model

A number of years ago I had the pleasure of teaching a class of 9 and 10-year-olds in my native England. We were in the middle of a history lesson when an incident occurred that created a profound change in my understanding of how to best support children.

One of the children asked a question, and, after thinking about it for a few moments, I answered, “I don’t know.” You would have thought I had just announced that I was in fact an alien sent from outer space to suck out the brains of the children before me. Thirty mouths took an intake of breath, and thirty pairs of eyes swiveled toward me, all looking aghast.

“But Mr. Harrison, you’re a teacher,” said one of the children. “You’re supposed to know everything.” The other children nodded in agreement. This was the way the world is, according to them. Teachers know everything, and students learn from teachers.

Naturally, I explained that teachers certainly did not know everything; nobody does. I added that when anybody tells you anything, you should question it to see if it’s right for you. This went down well with some children, but most of them were visibly shocked by my admission of ignorance.

I have spent the best part of a decade in various forms of teaching, which has allowed me to see a wide variety of different educational models. I cannot stress how much damage the “teacher as oracle” culture is wreaking on the long-term development of our children. Just because this model of doing things is normal, it should not be considered healthy.

One of the major problems it creates is that it sets up an environment where children learn that all the answers they need in life are to be found and acquired from an external source. Children come to a point very quickly where they discard their own paths of discovery and substitute their teacher’s answer for their own. This leaves the child in a precarious position: What will happen when the teacher is no longer around to give answers? At best they accept someone else’s version of the world, and live by the creations of others. The worst-case scenario is that, without the prompting of a teacher to ask questions, independent exploration and discovery simply cease. One of the saddest things to see is a child who has lost the passion to explore life.

If a child cannot find answers internally, or does not have the life experience that has fostered a desire to find answers, what will happen to his creativity? What will happen to his confidence? And what will happen to his independence?

We have set things up like this, deluding ourselves that retention and regurgitation of information constitutes success. Maybe it is success, if we’re trying to create a society of robots. However, it goes without saying that a human being is a creature whose very nature is to want to discover every last nuance of life. It is the very core of us, our soul, that drives us to want to go on adventures, discover the universe, and find out who we really are. If the answers come thick and fast from an external source—an oracle—they deprive children of the opportunity to respond to the calling of their souls. And, once the connection to our soul is lost, it’s very difficult to get it back. Apathy runs deep with children in our modern society, and a large reason for this is that we have taught them that answers come from outside themselves.

It seems the oracle is not really an oracle at all, but a system that has completely lost sight of who we really are. Next time a child asks you a question, see if you can answer not with the little snippet of information, but with another question that helps the child use her creativity to find the answer for herself. Watch as she takes delight in responding to the call of her soul. Watch as the next time she has a question, she has the confidence and ability to find out the answer for herself. My experience is that when we support children like this they discover the most amazing things. They dive deeper into life than even we may have, and they in turn teach us.

This long-term approach obviously requires love, and it requires patience. If we cannot find these basics of life in our relationships with children, it might be time to stop considering the role of the teacher and adult to be that of an oracle. It should quickly become obvious we actually have very few answers at all.

Article originally posted at ICPA.org.

Markets Restrain Bank Fraud; Central Banks Enable It

by Frank Shostak – Mises Daily:Bank

Originally, paper money was not regarded as money but merely as a representation of a commodity (namely, gold). Various paper certificates represented claims on gold stored with the banks. Holders of paper certificates could convert them into gold whenever they deemed necessary. Because people found it more convenient to use paper certificates to exchange for goods and services, these certificates came to be regarded as money.

Paper certificates that are accepted as the medium of exchange open the scope for fraudulent practices. Banks could now be tempted to boost their profits by lending certificates that were not covered by gold. In a free-market economy, a bank that overissues paper certificates will quickly find out that the exchange value of its certificates in terms of goods and services will fall. To protect their purchasing power, holders of the over-issued certificates naturally attempt to convert them back to gold. If all of them were to demand gold back at the same time, this would bankrupt the bank. In a free market then, the threat of bankruptcy would restrain banks from issuing paper certificates unbacked by gold. Mises wrote on this in Human Action,

People often refer to the dictum of an anonymous American quoted by Tooke: “Free trade in banking is free trade in swindling.” However, freedom in the issuance of banknotes would have narrowed down the use of banknotes considerably if it had not entirely suppressed it. It was this idea which Cernuschi advanced in the hearings of the French Banking Inquiry on October 24, 1865: “I believe that what is called freedom of banking would result in a total suppression of banknotes in France. I want to give everybody the right to issue banknotes so that nobody should take any banknotes any longer.”

This means that in a free-market economy, paper money cannot assume a “life of its own” and become independent of commodity money.

The government can, however, bypass the free-market discipline. It can issue a decree that makes it legal (or effectively legal) for the over-issued bank not to redeem paper certificates into gold. Once banks are not obliged to redeem paper certificates into gold, opportunities for large profits are created that set incentives to pursue an unrestrained expansion of the supply of paper certificates. The uncurbed expansion of paper certificates raises the likelihood of setting off a galloping rise in the prices of goods and services that can lead to the breakdown of the market economy.

Central Banks Protect Private Banks from the Market

To prevent such a breakdown, the supply of the paper money must be managed. The main purpose of managing the supply is to prevent various competing banks from over-issuing paper certificates and from bankrupting each other. This can be achieved by establishing a monopoly bank, i.e., a central bank-that manages the expansion of paper money.

To assert its authority, the central bank introduces its paper certificates, which replace the certificates of various banks. (The central bank’s money purchasing power is established on account of the fact that various paper certificates, which carry purchasing power, are exchanged for the central bank money at a fixed rate. In short, the central bank paper certificates are fully backed by banks’ certificates, which have a historical link to gold.)

The central bank paper money, which is declared as the legal tender, also serves as a reserve asset for banks. This enables the central bank to set a limit on the credit expansion by the banking system. Note that through ongoing monetary management, i.e., monetary pumping, the central bank makes sure that all the banks can engage jointly in the expansion of credit out of “thin air” via the practice of fractional reserve banking. The joint expansion in turn guarantees that checks presented for redemption by banks to each other are netted out, because the redemption of each will cancel the other redemption out. In short, by means of monetary injections, the central bank makes sure that the banking system is “liquid enough” so that banks will not bankrupt each other.

Central Banks Take Over Where Inflationist Private Banks Left Off

It would appear that the central bank can manage and stabilize the monetary system. The truth, however, is the exact opposite. To manage the system, the central bank must constantly create money “out of thin air” to prevent banks from bankrupting each other. This leads to persistent declines in money’s purchasing power, which destabilizes the entire monetary system.

Observe that while, in the free market, people will not accept a commodity as money if its purchasing power is subject to a persistent decline. In the present environment, however, central authorities make it impractical to use any currency other than dollars even if suffering from a steady decline in its purchasing power.

In this environment, the central bank can keep the present paper standard going as long as the pool of real wealth is still expanding. Once the pool begins to stagnate — or, worse, shrinks — then no monetary pumping will be able to prevent the plunge of the system. A better solution is of course to have a true free market and allow commodity money to assert its monetary role.

The Boom-Bust Connection

As opposed to the present monetary system in the framework of a commodity-money standard, money cannot disappear and set in motion the menace of the boom-bust cycles. In fractional reserve banking, when money is repaid and the bank doesn’t renew the loan, money evaporates (leading to a bust). Because the loan has originated out of nothing, it obviously couldn’t have had an owner. In a free market, in contrast, when true commodity money is repaid, it is passed back to the original lender; the money stock stays intact.

Article originally posted at Mises.org.

Brushing Up: Smile! You’re About to Change Toothpastes

by Brian Wimer – ICPA.org:natural toothpastes

If you are one of the majority of Americans that dutifully brushes with Colgate Total® on your dentist’s recommendations, you may be doing yourself more harm than good. What is first in the eyes of the dental dictocrats may be the last thing you want in your mouth.

American Dental Association (ADA)-approved Colgate Total® claims to be the only toothpaste “clinically proven” to “protect both above and below the gum line.” It has a patented formula for “12–hour” protection against cavities, gingivitis and plaque, due to the active ingredients: fluoride and triclosan (paired with gantrez, an adhesive copolymer).

Let’s start with fluoride. Now, listen closely: fluoride might cause cavities. Sounds like heresy, doesn’t it?

But this has been known since 1942, when Proctor & Gamble’s own initial clinical studies found a 23% increase in dental caries among children who used their fluoride toothpaste. The reason: for fluoride to bond to teeth, it must remove calcium—that’s called fluorosis.

The United Nations Children’s Fund (UNICEF), which currently runs de-fluoridation programs for the World Health Organization, says: “Agreement is universal that excessive fluoride intake leads to loss of calcium from the tooth matrix, aggravating cavity formation throughout life rather than remedying it.”

Sorry, water fluoridation is quite likely a bust. And that’s not news.

In 1999, the New York State Department of Health completed an unprecedented 45-year study comparing children in Newburgh, New York, which had fluoridated water for 45 years, with Kingston, New York, which never had fluoridated water. Conclusion: there was no significant difference in the amount of cavities between the two cities, but statistically there was more dental fluorosis in fluoridated Newburgh.

This critical study effectively nullified the prior findings of the benchmark 10-year 1955 survey comparing these same towns. The 1955 study allegedly found 70% fewer caries in fluoridated Newburgh and stood as the ADA’s primary clinical “evidence” for the nationwide fluoridation policies that followed.

Again, the 1999 findings were no revelation. In 1988, the National Institute of Dental Research and the United States Public Health Service completed a massive $3.6 million nationwide survey to assess fluoridation efficacy. The data (unveiled by a Freedom of Information Act filing) revealed no difference in tooth decay between fluoridated and nonfluoridated communities. Similar findings had been made by public health officials in New Zealand and Canada.

Water fluoridation promotion boils down to bad research. A 2000 review of 214 water fluoridation safety and efficacy studies (which censured both fluoridation proponents and critics) found little more than a wealth of poor science. Among researchers’ conclusions, “The most serious defect of the studies of possible beneficial effects of water fluoridation was the lack of appropriate design and analysis.”

A similar summation of fluoridation efficacy studies is spelled out in a statistical overview undertaken by the University of California, Davis Department of Mathematics. “The announced opinions and published papers favoring mechanical fluoridation of public drinking water are especially rich in fallacies, improper design, invalid use of statistical methods, omissions of contrary data, and just plain muddleheadedness and hebetude.”

There’s more. Fluoride may even cause gingivitis. According to a 1998 US patent (#5,807,541) by the pharmaceutical company Sepracor, fluoride activates the very oral “G proteins” that lead to chronic gingivitis, periodontal disease and ultimately tooth loss.Besides, fluoride is poison. EPA scientists rate fluoride as “more toxic than lead, and not quite as toxic as arsenic.” That’s why all fluoride toothpaste tubes warn: “If you accidentally swallow more than used for brushing, seek professional assistance or contact a Poison Control Center immediately.”

Fluoride (despite ADA claims) is also a carcinogen. Studies by the National Cancer Institute’s former Chief Chemist Emeritus, Dr. Dean Burke, show that fluoridation is responsible for 10,000 cancer deaths yearly. “In point of fact, fluoride causes more human cancer deaths, and causes it faster, than any other chemical,” says Burke.Research from St Louis University, Japan’s Nippon Dental College, and the University of Texas show that fluoride stimulates tumor growth rate. The New Jersey Department of Health found the risk of osteosarcoma among males under 20 was up to seven times higher in fluoridated areas.

A 1995 peer-reviewed study by Harvard neurotoxicist Dr. Phyllis Mullinex concludes that fluoride also causes brain damage. Her findings were corroborated by more recent clinical surveys in China. Also, in 1999, 1,500 EPA scientists, lawyers and engineers signed a joint resolution to oppose fluoridation because they found that fluoride causes “gene mutations, cancer, reproductive effects, neurotoxicity, bone pathology, and…decreases (of ) about 5 to 10 I.Q. points in children aged 8 to 13 years.” Robert Carton, Ph.D, a former president of the EPA professionals union who spent 15 years as a US EPA toxicologist, says, “Fluoridation is the greatest case of scientific fraud of this century, if not of all time.”

Now, let’s talk about triclosan. It’s a pesticide, technically a chlorinated aromatic, similar in molecular structure to the most toxic forms of dioxins and PCBs. It’s also the antibiotic disinfectant used in kitchen sponges and hospital soap.

Microbiologists at the Tufts University School of Medicine believe overuse of triclosan promotes the creation of antibiotic- resistant “superbugs.’’Worse still, findings presented to the American Society for Microbiology over the past several years suggest that triclosan actually helps resistant bacteria thrive, forming resilient biofilms on teeth and water pipes. Moreover, triclosan is a nonspecific biocide. It kills all microbes, the good and the bad—even those flora necessary for digestion. The copolymers used in Colgate Total® keep triclosan active for 12 hours after you brush.

Lastly, triclosan may even contain true dioxins. A report from Quantex Laboratories, in Edison, New Jersey, states, “Polychlorodibenzo-p-dioxins (dioxins) and polychlorodibenzofurans (dibenzofurans) can be found in varying low level amounts, as synthesis impurities in triclosan.” Similar findings were made in 2003 by researchers at the University of Minnesota.

Triclosan is also used in Crest®, Mentadent®, Sensodyne® and Macleans® toothpastes, all of which also contain fluoride. And let’s mention sodium and potassium hydroxides (also known as lye), the whitening ingredient in many conventional toothpastes. Lye is considered a poison by the Food and Drug Administration.

So, what to use? Try natural toothpastes, which battle cavities without potentially dangerous synthetic ingredients. Many natural brands utilize neem (Indian lilac) bark, a natural astringent and antiseptic, containing immunomodulatory polysaccharides that increase antibody production. Neem also increases lymphomatic counts of red and white blood cells, and aids in treating digestive disorders like diarrhea, hyperacidity and constipation—just what you need after a meal.

Another popular natural ingredient is peelu, from the East Asian Siwak (chewstick) tree. Peelu’s non-abrasive vegetable fiber gently cleans teeth without eroding them like chalk (widely used in toothpastes) can. Peelu also contains antiseptic tannin, Vitamin C and natural resins that strengthen tooth enamel.

Most natural toothpastes also use myrrh, an anti-microbial, astringent immuno-stimulant, beneficial against gingivitis and mouth ulcers—and propolis, an immuno-stimulating anti-bacterial resin. Many contain plaque-fighting eucalyptus, and are flavored and sweetened naturally with fennel, anise and cinnamon, all of which are herbal aids for digestion.

Auromere® Ayurvedic toothpaste contains such holistic astringents and therapeutic agents as Indian licorice root (excellent for mouth sores), pomegranate rind (an astringent), Persian walnut, Indian almond, Asian holly oak and geranium extract (an antiseptic anti-inflammatory). Weleda makes a toothpaste with calendula. Nature’s Gate® has goldenseal.

Herbal Vedic, made by Auroma™, contains banyan tree bark, wild celery (an anti-inflammatory carminative) and nutrientrich Irish moss.

Tom’s of Maine® toothpastes are the most widely available. They don’t do animal testing or use artificial sweeteners like carcinogenic saccharin or aspartame (unlike most major national brands like Colgate and Crest).

Perhaps the most innovative alternative toothpastes are those made by Jason Natural Cosmetics®. Jason Sea Fresh combines detoxifying, biologically-active blue green algae with sea salts. Jason toothpastes also use plaque-inhibiting, omega-3-rich Japanese perilla seed extract—and Coenzyme Q10 (ubiquinone), a naturally-occurring, detoxifying nutraceutical. They also avoid the use of caustic foamingagent sodium lauryl sulfate and humectant propylene glycol (a component of anti-freeze), both questionable ingredients of many national-brand toothpastes.

Consider also the addition of baking soda, a low-abrasion cleanser, which chemically neutralizes the staph-generated oral acids responsible for tooth decay.

The final word: Dental health is more dependent on your diet than your dentifrice. According to the United States Department of Agriculture, Americans per capita consume 34 teaspoons of sweetener per day. And not just in candy. Sweeteners are used in everything from breakfast cereal to pasta sauce. The worst is soda. Acidic, carbonated soft-drinks dissolve tooth structures—and their massive sugar content feeds plaque. And don’t drink too much green tea made with fluoridated water. Indeed, green tea has been shown to inhibit tooth decay. Green tea catechin (epigallocatechingallate, an antioxidant 100 times more powerful than Vitamin C ) suppresses the process by which decay-causing bacteria create plaque, and acts as an anti-bacterial, as well. But green tea contains considerable natural fluorine. Steeped in fluoridated water, green tea can put you way over your USDA recommended daily allowance of what is the new DDT at the Environmental Protection Agency.

All in all, consider your options when choosing dental products for you and your family. Make informed choices based on the literature, not the commercials, and try to find practitioners who support your choices and decisions.

Article originally posted at ICPA.org.