Sunday, January 4, 2009

Jim Grant on the Fed

Jim Grant (JG) has a fine article on the Fed, 20 December 2008 WSJ. David Theroux (DT) wrote of JG's article at Beacon, here: Elihu Root's attack on the Fed was in 1912, before the Fed was created. There are few new arguments against the Fed's existence. Some excerpts DT left out: "Who will finance America's annual surplus of consumption over production (After 25 more or less continuous years, almost a national trait)? Inflation is a kind of governmentally sanctioned white-collar crime. Every crime needs a dupe. Now that the Fed has announced its plan to deceive, where will it find its victims? ... Gold is a hard master, and a capricious one, too, insofar as growth in the world's monetary base depends on the enterprise of mining engineers. But as we have seen lately, there is no caprice like the caprice of sleep-deprived Mandarins improvising a monetary solution to a credit crisis (or, for that matter, of fully rested Mandarins setting interest rates by the lights of their econometric models). ... 'If the Goverment can create money,' as a hard-money propagandist put in an 1892 broadside entitled 'Cheap Money,' 'why should it not create all that everybody wants? Why should anybody work for a living?' ."

Absolutely! I made this argument about Americans not having to work in my first economics class! That "Macroeconomics" takes in adults is astounding. Sing "Rainbow Stew", my 28 October 2007 post, link: America eventually must choose: put your faith in Monetary Mandarins or Gold. George Bernard Shaw wrote in 1928, "At some point, you have to choose between trusting the natural stability of Gold, and the honesty and intelligence of the members of the government. With due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for Gold". Inflation is government sanctioned counterfeiting, my 24 August 2007 post, link: What don't adults understand?


Anonymous said...

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

by Alan Greenspan
This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal

You can run but you can't hide baby.

Anonymous said...

Elihu Root via Jim Grant via David Theroux...

Senator Root on the flow of credit on the economic system ...

“Little by little, business is enlarged with easy money.

With the exhaustless reservoir of the Government of the United States furnishing easy money, the sales increase, the businesses enlarge, more new enterprises are started, the spirit of optimism pervades the community. . . .

Bankers are not free from it.

They are human.

The members of the Federal Reserve board will not be free of it.

They are human. . . .

Everyone is making money.

Everyone is growing rich.

It goes up and up, the margin between costs and sales continually growing smaller as a result of the operation of inevitable laws, until finally someone whose judgment was bad, someone whose capacity for business was small, breaks; and as he falls he hits the next brick in the row, and then another, and then another, and down comes the whole structure.”