The Great Opportunity for Free Markets

submitted by jwithrow.Free Market

Journal of a Wayward Philosopher
The Great Opportunity

August 26, 2015
Hot Springs, VA

The S&P closed out Tuesday at $1,873. Gold closed at $1,138 per ounce. Oil closed out at $39.31 per barrel, and the 10-year Treasury rate closed at 2.00%. Bitcoin is trading around $229 per BTC today.

Dear Journal,

My last entry suggested that the centralized nation-state model looks to have peaked in the 20th century. I speculated that troubling macroeconomic trends related to government interventions will lead to a “Great Reset” sooner or later – probably sooner – as these massive nation-states are forced to ramp up the printing presses in attempts to service all of their debt and unfunded liabilities.

Today I would like to point out that we are approaching a crossroads and there is a tremendous opportunity for the growth of free markets and prosperity if we can shed the 20th century paradigm of centralization. A great golden age for civilization is staring us right in the face, but few have noticed. Why? Because we have placed too much emphasis on politicians, presidents, elections, and democracy and too little emphasis on individual self-empowerment.

For starters, consider the following advancements: indoor plumbing and electricity, refrigeration, cooking appliances, heating & air systems, local and long-distance transportation, local and long-distance communication, and access to information. Each of these items were non-existent, scarce, or unreliable just one hundred short years ago. Additionally, roughly 40% of the U.S. population was involved in agriculture in the year 1900 in order to produce enough food to meet demand. Today that number is around 2% and food is more available than ever. Fresh fruits and vegetables are available at the grocery store year-round. Also, thanks to technological development, oil and gas are now more abundant and cheaper than ever. This has reduced the costs of production and distribution significantly, and it has created competition for the oil cartels and monopolies that have had a strangle-hold on the industry for decades. Continue reading “The Great Opportunity for Free Markets”

Risk Update: Belief That Central Bank Methods Work

by Jeff Clark – Hard Assets Alliance :central bank proclamations

It’s painfully clear that Swiss monetary policy failed to work as planned—they pegged their currency to the euro just three years earlier and were unable to sustain it. On top of that, the SNB now charges commercial depositors 0.75% for the privilege of holding their money! Even some retail and private banks have begun to apply the negative rates on large customer deposits.

And yet they’re not the only country with negative interest rates: Two-year government bonds are also negative in…

• Germany
• Finland
• Austria
• Denmark
• France
• Holland
• Belgium
• Slovakia
• Sweden
• Japan

According to the Financial Times, there is now $3.6 trillion of government debt around the world with negative interest rates!

Meanwhile, Japan continues to inject $700 billion a year into their financial system, which equals 12% of their GDP. Their debt now exceeds 250% of GDP, and the government uses more than 25% of tax revenue just to pay the interest on that debt!

Then the ECB unveiled an expanded program where it will increase asset purchases to €60 billion a month through at least September 2016, its biggest push yet, to fend off deflation and revive the economy. So, why are they expanding the program when the prior money-printing efforts didn’t work? What will they do if bigger isn’t better and the program continues to fail?

Central bankers are taking the easy way out, because printing money (QE) reduces the incentive for governments to make structural reforms. This tells us that the ongoing experiments by central bankers—the largest such experiments ever conducted in history—will not accomplish what they had hoped and will hand us some very unpleasant consequences.

We live in a central bank-controlled world more than ever before, yet the odds of central planners steering us out of the corner they’ve painted us all into are remote. The gold you hold will offer a measure of protection against the fallout when it becomes obvious to the mainstream that failure is likely.

Article originally posted in the February issue of Smart Metals Investor at

The Folly of the Fed’s Central Planning

by Ron Paul – Ron Paul Institute for Peace and Prosperity:Ron Paul

Over the last 100 years the Fed has had many mandates and policy changes in its pursuit of becoming the chief central economic planner for the United States. Not only has it pursued this utopian dream of planning the US economy and financing every boondoggle conceivable in the welfare/warfare state, it has become the manipulator of the premier world reserve currency.

As Fed Chairman Ben Bernanke explained to me, the once profoundly successful world currency – gold – was no longer money. This meant that he believed, and the world has accepted, the fiat dollar as the most important currency of the world, and the US has the privilege and responsibility for managing it. He might even believe, along with his Fed colleagues, both past and present, that the fiat dollar will replace gold for millennia to come. I remain unconvinced.

At its inception the Fed got its marching orders: to become the ultimate lender of last resort to banks and business interests. And to do that it needed an “elastic” currency. The supporters of the new central bank in 1913 were well aware that commodity money did not “stretch” enough to satisfy the politician’s appetite for welfare and war spending. A printing press and computer, along with the removal of the gold standard, would eventually provide the tools for a worldwide fiat currency. We’ve been there since 1971 and the results are not good.

Many modifications of policy mandates occurred between 1913 and 1971, and the Fed continues today in a desperate effort to prevent the total unwinding and collapse of a monetary system built on sand. A storm is brewing and when it hits, it will reveal the fragility of the entire world financial system.

The Fed and its friends in the financial industry are frantically hoping their next mandate or strategy for managing the system will continue to bail them out of each new crisis.

The seeds were sown with the passage of the Federal Reserve Act in December 1913. The lender of last resort would target special beneficiaries with its ability to create unlimited credit. It was granted power to channel credit in a special way. Average citizens, struggling with a mortgage or a small business about to go under, were not the Fed’s concern. Commercial, agricultural, and industrial paper was to be bought when the Fed’s friends were in trouble and the economy needed to be propped up. At its inception the Fed was given no permission to buy speculative financial debt or U.S. Treasury debt.

It didn’t take long for Congress to amend the Federal Reserve Act to allow the purchase of US debt to finance World War I and subsequently all the many wars to follow. These changes eventually led to trillions of dollars being used in the current crisis to bail out banks and mortgage companies in over their heads with derivative speculations and worthless mortgage-backed securities.

It took a while to go from a gold standard in 1913 to the unbelievable paper bailouts that occurred during the crash of 2008 and 2009.

In 1979 the dual mandate was proposed by Congress to solve the problem of high inflation and high unemployment, which defied the conventional wisdom of the Phillips curve that supported the idea that inflation could be a trade-off for decreasing unemployment. The stagflation of the 1970s was an eye-opener for all the establishment and government economists. None of them had anticipated the serious financial and banking problems in the 1970s that concluded with very high interest rates.

That’s when the Congress instructed the Fed to follow a “dual mandate” to achieve, through monetary manipulation, a policy of “stable prices” and “maximum employment.” The goal was to have Congress wave a wand and presto the problem would be solved, without the Fed giving up power to create money out of thin air that allows it to guarantee a bailout for its Wall Street friends and the financial markets when needed.

The dual mandate was really a triple mandate. The Fed was also instructed to maintain “moderate long-term interest rates.” “Moderate” was not defined. I now have personally witnessed nominal interest rates as high as 21% and rates below 1%. Real interest rates today are actually below zero.

The dual, or the triple mandate, has only compounded the problems we face today. Temporary relief was achieved in the 1980s and confidence in the dollar was restored after Volcker raised interest rates up to 21%, but structural problems remained.

Nevertheless, the stock market crashed in 1987 and the Fed needed more help. President Reagan’s Executive Order 12631 created the President’s Working Group on Financial Markets, also known as the Plunge Protection Team. This Executive Order gave more power to the Federal Reserve, Treasury, Commodity Futures Trading Commission, and the Securities and Exchange Commission to come to the rescue of Wall Street if market declines got out of hand. Though their friends on Wall Street were bailed out in the 2000 and 2008 panics, this new power obviously did not create a sound economy. Secrecy was of the utmost importance to prevent the public from seeing just how this “mandate” operated and exactly who was benefiting.

Since 2008 real economic growth has not returned. From the viewpoint of the central economic planners, wages aren’t going up fast enough, which is like saying the currency is not being debased rapidly enough. That’s the same explanation they give for prices not rising fast enough as measured by the government-rigged Consumer Price Index. In essence it seems like they believe that making the cost of living go up for average people is a solution to the economic crisis. Rather bizarre!

The obsession now is to get price inflation up to at least a 2% level per year. The assumption is that if the Fed can get prices to rise, the economy will rebound. This too is monetary policy nonsense.

If the result of a congressional mandate placed on the Fed for moderate and stable interest rates results in interest rates ranging from 0% to 21%, then believing the Fed can achieve a healthy economy by getting consumer prices to increase by 2% per year is a pie-in-the-sky dream. Money managers CAN’T do it and if they could it would achieve nothing except compounding the errors that have been driving monetary policy for a hundred years.

A mandate for 2% price inflation is not only a goal for the central planners in the United States but for most central bankers worldwide.

It’s interesting to note that the idea of a 2% inflation rate was conceived 25 years ago in New Zealand to curtail double-digit price inflation. The claim was made that since conditions improved in New Zealand after they lowered their inflation rate to 2% that there was something magical about it. And from this they assumed that anything lower than 2% must be a detriment and the inflation rate must be raised. Of course, the only tool central bankers have to achieve this rate is to print money and hope it flows in the direction of raising the particular prices that the Fed wants to raise.

One problem is that although newly created money by central banks does inflate prices, the central planners can’t control which prices will increase or when it will happen. Instead of consumer prices rising, the price inflation may go into other areas, as determined by millions of individuals making their own choices. Today we can find very high prices for stocks, bonds, educational costs, medical care and food, yet the CPI stays under 2%.

The CPI, though the Fed currently wants it to be even higher, is misreported on the low side. The Fed’s real goal is to make sure there is no opposition to the money printing press they need to run at full speed to keep the financial markets afloat. This is for the purpose of propping up in particular stock prices, debt derivatives, and bonds in order to take care of their friends on Wall Street.

This “mandate” that the Fed follows, unlike others, is of their own creation. No questions are asked by the legislators, who are always in need of monetary inflation to paper over the debt run up by welfare/warfare spending. There will be a day when the obsession with the goal of zero interest rates and 2% price inflation will be laughed at by future economic historians. It will be seen as just as silly as John Law’s inflationary scheme in the 18th century for perpetual wealth for France by creating the Mississippi bubble – which ended in disaster. After a mere two years, 1719 to 1720, of runaway inflation Law was forced to leave France in disgrace. The current scenario will not be precisely the same as with this giant bubble but the consequences will very likely be much greater than that which occurred with the bursting of the Mississippi bubble.

The fiat dollar standard is worldwide and nothing similar to this has ever existed before. The Fed and all the world central banks now endorse the monetary principles that motivated John Law in his goal of a new paradigm for French prosperity. His thesis was simple: first increase paper notes in order to increase the money supply in circulation. This he claimed would revitalize the finances of the French government and the French economy. His theory was no more complicated than that.

This is exactly what the Federal Reserve has been attempting to do for the past six years. It has created $4 trillion of new money, and used it to buy government Treasury bills and $1.7 trillion of worthless home mortgages. Real growth and a high standard of living for a large majority of Americans have not occurred, whereas the Wall Street elite have done quite well. This has resulted in aggravating the persistent class warfare that has been going on for quite some time.

The Fed has failed at following its many mandates, whether legislatively directed or spontaneously decided upon by the Fed itself – like the 2% price inflation rate. But in addition, to compound the mischief caused by distorting the much-needed market rate of interest, the Fed is much more involved than just running the printing presses. It regulates and manages the inflation tax. The Fed was the chief architect of the bailouts in 2008. It facilitates the accumulation of government debt, whether it’s to finance wars or the welfare transfer programs directed at both rich and poor. The Fed provides a backstop for the speculative derivatives dealings of the banks considered too big to fail. Together with the FDIC’s insurance for bank accounts, these programs generate a huge moral hazard while the Fed obfuscates monetary and economic reality.

The Federal Reserve reports that it has over 300 PhD’s on its payroll. There are hundreds more in the Federal Reserve’s District Banks and many more associated scholars under contract at many universities. The exact cost to get all this wonderful advice is unknown. The Federal Reserve on its website assures the American public that these economists “represent an exceptional diverse range of interest in specific area of expertise.” Of course this is with the exception that gold is of no interest to them in their hundreds and thousands of papers written for the Fed.

This academic effort by subsidized learned professors ensures that our college graduates are well-indoctrinated in the ways of inflation and economic planning. As a consequence too, essentially all members of Congress have learned these same lessons.

Fed policy is a hodgepodge of monetary mismanagement and economic interference in the marketplace. Sadly, little effort is being made to seriously consider real monetary reform, which is what we need. That will only come after a major currency crisis.

I have quite frequently made the point about the error of central banks assuming that they know exactly what interest rates best serve the economy and at what rate price inflation should be. Currently the obsession with a 2% increase in the CPI per year and a zero rate of interest is rather silly.

In spite of all the mandates, flip-flopping on policy, and irrational regulatory exuberance, there’s an overwhelming fear that is shared by all central bankers, on which they dwell day and night. That is the dreaded possibility of DEFLATION.

A major problem is that of defining the terms commonly used. It’s hard to explain a policy dealing with deflation when Keynesians claim a falling average price level – something hard to measure – is deflation, when the Austrian free-market school describes deflation as a decrease in the money supply.

The hysterical fear of deflation is because deflation is equated with the 1930s Great Depression and all central banks now are doing everything conceivable to prevent that from happening again through massive monetary inflation. Though the money supply is rapidly rising and some prices like oil are falling, we are NOT experiencing deflation.

Under today’s conditions, fighting the deflation phantom only prevents the needed correction and liquidation from decades of an inflationary/mal-investment bubble economy.

It is true that even though there is lots of monetary inflation being generated, much of it is not going where the planners would like it to go. Economic growth is stagnant and lots of bubbles are being formed, like in stocks, student debt, oil drilling, and others. Our economic planners don’t realize it but they are having trouble with centrally controlling individual “human action.”

Real economic growth is being hindered by a rational and justified loss of confidence in planning business expansions. This is a consequence of the chaos caused by the Fed’s encouragement of over-taxation, excessive regulations, and diverting wealth away from domestic investments and instead using it in wealth-consuming and dangerous unnecessary wars overseas. Without the Fed monetizing debt, these excesses would not occur.

Lessons yet to be learned:

1. Increasing money and credit by the Fed is not the same as increasing wealth. It in fact does the opposite.

2. More government spending is not equivalent to increasing wealth.

3. Liquidation of debt and correction in wages, salaries, and consumer prices is not the monster that many fear.

4. Corrections, allowed to run their course, are beneficial and should not be prolonged by bailouts with massive monetary inflation.

5. The people spending their own money is far superior to the government spending it for them.

6. Propping up stock and bond prices, the current Fed goal, is not a road to economic recovery.

7. Though bailouts help the insiders and the elite 1%, they hinder the economic recovery.

8. Production and savings should be the source of capital needed for economic growth.

9. Monetary expansion can never substitute for savings but guarantees mal–investment.

10. Market rates of interest are required to provide for the economic calculation necessary for growth and reversing an economic downturn.

11. Wars provide no solution to a recession/depression. Wars only make a country poorer while war profiteers benefit.

12. Bits of paper with ink on them or computer entries are not money – gold is.

13. Higher consumer prices per se have nothing to do with a healthy economy.

14. Lower consumer prices should be expected in a healthy economy as we experienced with computers, TVs, and cell phones.

All this effort by thousands of planners in the Federal Reserve, Congress, and the bureaucracy to achieve a stable financial system and healthy economic growth has failed.

It must be the case that it has all been misdirected. And just maybe a free market and a limited government philosophy are the answers for sorting it all out without the economic planners setting interest and CPI rate increases.

A simpler solution to achieving a healthy economy would be to concentrate on providing a “SOUND DOLLAR” as the Founders of the country suggested. A gold dollar will always outperform a paper dollar in duration and economic performance while holding government growth in check. This is the only monetary system that protects liberty while enhancing the opportunity for peace and prosperity.

Article originally posted at The Ron Paul Institute for Peace and Prosperity.

Fiat Money Undermines Society

submitted by jwithrow.Fiat Money

Journal of a Wayward Philosopher
Fiat Money Undermines Society

October 14, 2014
Hot Springs, VA

The S&P is checking in at $1,878 today, gold is up to $1,234, oil is down to $85, bitcoin is up to $403, and the 10-year is now down to 2.20%.  All in a day’s work, I suppose.

Autumn is truly a beautiful season.  There is a gentle, crisp breeze in the air up here in the mountains of Virginia and a myriad of red, orange, and yellow leaves dot the landscape.  As we await Maddie’s entrance, wife Rachel and I will spend the day making homemade apple cider to celebrate such a fine season!

Last week I suggested that fiat money always seems to undermine the morality and stability of society throughout history.  Let’s examine this a little bit more today.

First, we must be clear about what fiat money is.  Fiat money is any currency that derives its value from government law and regulation.  The word ‘fiat’ is Latin for “let it be done”.  Essentially, fiat money is what the government says is money.  Once decreeing something as money, governments usually force people and businesses to use whatever it is through legal tender laws.  Fiat money has taken different forms throughout history.  Today we primarily use electronic credit-based national currencies (U.S. dollars, Euros, Yen, etc.) as our fiat money.  We still use fiat paper currency also but we are gradually transitioning away from this form of money.  Here in the United States we use “Federal Reserve Notes” as our paper currency.  Take a look at what the bills in your wallet say to confirm this.

Societies, to the extent that you can pinpoint a beginning and end to them, have not started out with fiat money.  Historically, society starts out with free-market money – usually gold, silver, or some other valuable commodity – and then unwittingly moves to fiat money as its government becomes more and more corrupt.

Rome was using a pure silver “denarius” at the beginning of the 1st century, A.D.  Roman emperors then learned how to ‘print’ money by melting down their silver coins, adding cheap base metal into the mix, then re-minting the denarius with a lower silver content.  This enabled them to mint more silver coins than they had melted down, but the denarius was no longer pure silver.

The denarius was 85% silver by the year 100.  By 218, the denarius was down to only 43% silver content.  And by year 244 the denarius contained only .05% silver.  This meant that each Roman denarius coin could purchase 99.95% less than what it could originally purchase!  In other words, everyday prices were 99.95% higher for Romans in year 244 than they were in year 1.

So why in the world did the Roman emperors debase their currency so much?  Why, for great wars, great public works, and to enrich themselves, of course!  You have read all about the Roman Empire in the history textbooks.  Maintaining an empire requires soldiers and soldiers require food, water, and payment.  Oh, and weapons.  This gets more and more expensive as the empire gets bigger and bigger.  I bet you have read about the coliseum too – it was very expensive to build and maintain.  Who was going to pay for it all?

The emperor certainly wasn’t about to curtail his lavish lifestyle to chip in.  Instead he turned to dishonest fiat money: he melted down silver coins and made more of them with a lesser silver content.  Then he paid the soldiers and workers and pretended like nothing was different about the money.  As the currency was debased, Roman society got poorer and the government became more corrupt.  Eventually the Roman Empire became impoverished and collapsed.

Looking farther east, Marco Polo documented the use of fiat money in China:

“You might say that [Kublai] has the secret of alchemy in perfection… the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.”

He continues:

“Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both… All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth.  These effects were not slow to develop themselves… The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion.”

The same thing happened in France when John Law introduced fiat paper currency in 1716: the currency was inflated into oblivion and the society was impoverished.  And in Weimar Germany in the 1920’s – it got to the point where Germans were using paper marks to heat their furnaces!  Argentina has followed suit a couple times in the late 1900’s.  Zimbabwe was one of the wealthiest countries in Africa until its government ramped up the printing presses in 2008 and implemented price controls.  It wasn’t long before civilized society was wiped out in Zimbabwe and people could no longer get enough food and water for themselves.

Do you notice a trend?

Fast forward to present day: the U.S. dollar has lost 98% of its value since the Federal Reserve was implemented in 1913.  Much of this devaluation has occurred since all ties to gold were removed in 1971.  What has happened to our cost of living?

Technology has also boomed since 1971 such that the means of production and distribution are much more efficient today than ever before.  It seems to me this scenario should have reduced the cost of living for everyone.  But has it?  It wasn’t that long ago when an average American household consisted of only one wage earner.  This one income was enough to provide a high quality of life for the family while the spouse stayed home to raise the kids.  Most households now require two incomes just to get by.

The American standard of living is going in the wrong direction and this is largely due to fiat money.  Further, the fiat money is used primarily for the same things it has always been used for throughout history – war, public works, and the enrichment of the political class…

I will leave it there for today but I hope my point was made.

Until the morrow,







Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the Great Reset and regaining individual sovereignty please read “The Individual is Rising” which is available at  The book is also available on Amazon in both paperback and Kindle editions.