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THE "ART" OF DEVALUING MONEY
by The Mogambo Guru
TheStreet.com reports that "Ron Paul (R., Texas) is so disgusted with the Fed and its role in failing to stem inflation that he wants to eliminate the entire institution, including its army of economics Ph.D.s and other money wizards", which refers to a bill that he filed in Congress, HR2755, that would do just that.
As Junior Mogambo Ranger H.H.H. puts it, this shows that "Ron Paul will go to his grave with his honor and dignity intact, which is far more than I can say for most members of our government."
Why does Rep. Paul want to eliminate the Fed? Well, according to me at my loudmouth, know-it-all, arrogant best, it is because the Federal Reserve has been a complete, dismal failure in every freaking respect, and especially in their duty to protect the value of the dollar.
Well, nobody ever wants to hear what I think, and so I am happy that the question is admirably answered by the epic truth revealed by Antony Mueller at Mises.org and handily posted at Agora Financial's 5-Minute Forecast. "Central bankers," he writes, "sometimes describe their activity as 'more art than science', which is implicit recognition of their ignorance. The 'art of central banking' is the art of pretending to know what one does not know. Not only is it not a science; it is not even an art. At best, it is alchemy; at worst, it is a gigantic cheat."
Or as the Law of Logical Argument puts it, "Anything is possible if you don't know what you are talking about".
This leads to the Law of Lying and Statistical Manipulation, which I just made up, which is, "If you have a willing, co-conspirator like Congress, then the Federal Reserve can do and say anything it wants, whether it knows what it is talking about or not, and nobody will try to stop them, and the Fed will create so much money and credit that price inflation will destroy us all, which it will, and we are freaking doomed, doomed, doomed as a result."
Vaclav Klaus is Professor of Finance at the Prague School of Economics and is a former Minister of Finance, and is quoted in the Financial Times as saying (although originally in reference to something else), "I am not ashamed of this ignorance of mine. On the contrary, I am ashamed of the confidence of those who claim to know the answer. I see a big difference between science and 'national scientific establishments'. To believe in scientific establishment is impossible, this is just another powerful rent-seeking group."
In short, being just as disrespectful as I can muster, the Fed and the Congress are two symbiotic parasites guaranteeing their own free ride by telling and believing lies, which is only possible under a fiat-money standard, as under the gold standard, "you have fixed exchange rates and free mobility of capital, but you give up domestic monetary policy," says Robert Wright, who is a professor of economic history at New York University's Stern School of Business.
Perhaps because he is at a university that receives huge amounts of government money, he forgets to mention that a gold standard also constrains fiscal policy of the government, too, as they don't dare just spend and spend, because borrowed money has to be paid back by raising taxes! And the spending had better be good, too, because if it isn't (like spending tax money for stupid crap like creating huge entitlement programs and, ummm, funding universities), then the gold will actually flow out of the country as foreigners get scared of our idiocy and take their money away, actually shrinking our money supply!
Therefore, under a gold standard, the government and the banks had to be smart and act smart. Now they don't. And obviously aren't.
If you want to see the real beauty of "gold as money" and the wonderful economic bliss that comes from it, then it is inferred when Mr. Wright brings up "the phenomenon of falling nominal wages."
Note the use of the word "nominal" wages, which merely means wages expressed as a strict dollar amount (such as dollars per hour). "Real"
wages, on the other hand, means nominal wages expressed in terms of inflation-adjusted buying power, which is experienced as rising prices.
I mean, if your income doubles, but all prices double, too, then you are not better off, are you? No.
But if your income stays the same and prices go down, then you ARE better off, right? Of course you are! Welcome to the gold standard!
The "problem" Mr. Wright refers to is that the gold standard was so successful that "Many of the conflicts between labor and factory owners in the 1800s had more to do with adjusting workers' wages downward in line with the overall price level than they did with owner-inspired greed, as is popularly perceived."
Aha! In short, thanks to our money being gold, the standard of living of the country was increasing! People's lives were getting better! And they had more! And they bought more, although their nominal wages were exactly the same! And in fact, things were so good that the workers were becoming overpaid! Overpaid labor! What a Utopia!
And so who is so evil, so dastardly, so despicable as to screw with such a successful system?
Note the dark and gloomy soundtrack of wolves howling and the distant screams of people being eaten alive. The banks and the government! It's always the damned banks and the damned government!