Supply and Demand

Supply and Demand

We are taught by many that the value of a given product in our American economy is merely the product of supply and demand. We are also taught that inflation, or decrease in our money’s purchasing power, is a fact of life. However, upon further examination, the secret of our money’s value and the truth of inflation are hidden behind a vast array of linguistic slight of tongue. Our economic system hangs in the balance, tipped to the Right and then to the Left by the hand of man.

To understand value in our modern American money, it must be subjected to the supply and demand model while comparing its performance to a somewhat apolitical product using the Austrian Economic principals. Market equilibrium is struck when the value of a product is left to be determined its demand on the open market. Our money’s value has been separated from the market system in a most artificial way. Today’s money supply is increased by nothing more than a computer keyboard whenever it is deemed necessary to do so. Under the direction of our current central bank since it’s inception in 1913, our dollar has lost over 95% of its purchasing power. However, the purchasing power of Constitutional money, namely gold, has held its value very well in the same spread of time. Since commonly purchased goods today were in large part unavailable in 1913, a popular way of illustrating this phenomenon is with the value of a top-of-the-line men’s suit. A one-ounce $20 gold coin in 1913 would have traded for this costly garment squarely. In fact, that same coin would have bought the same quality suit in 1813. Today’s higher-end Armani suit costs roughly $1,200 to $1,500. Spot gold as of 28DEC2010 stands at just over $1,412. In simple terms, equilibrium in the market is proven in this model, and the artificial scheme of monetary inflation is exposed. Shouldn’t the American public be privy to the fact that home values continual increase over time has more to do with an increased supply of circulated dollars than inherent value of brick and mortar? “One of (inflation’s) consequences is that it falsifies economic calculation and accounting. It produces the phenomenon of illusory or apparent profits.” – Ludvig Von Mises Human Action

The key indicator of Dollar scarcity is its M3 quantity. M3 is, in basic terms, all money in circulation and held in a numerous variety of instruments of deposit. As described by Texas Congressman, Ron Paul, "M3 is the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation." The Fed Reserve once published this figure regularly for the public to digest, but in March of 2006, regular compilation data was deemed to cost-prohibitive made available to the public any longer. It has not been published since.

The supply of money is determined today by the George W. Bush appointed head of the Federal Reserve, Mr. Ben Bernanke. The demand for Mr. Bernanke’s products is one that is enforced by Federal Law. The only legal way to conduct business transactions in America is by the trade of the unconstitutional product of Mr. Bernanke’s institution. As Austrian economist Ludwig von Mises stated, “Thus the sound-money principle has two aspects. It is affirmative in approving the markets choice of a commonly used medium of exchange. It is negative in obstructing the governments propensity to meddle with the currency system.” Our current system proves to violate both sound-money principles by forcing by Federal Law a medium of exchange and regularly meddling with the currency system via the Federal Reserve policies.

Recent court rulings have brought stiff penalties to those who choose to trade in constitutional currency as originally defined in 1787. A Las Vegas man, choosing to pay employees in face value of US minted silver coins, is now serving a 15 year sentence in Federal Prison, and has been ordered to pay the IRS over $16 Million in fines. The power to coin money and to prohibit “any thing but gold and silver Coin as a Tender in Payment of Debts” was the responsibility dealt to the US Congress by the Founders of this Nation. The Founders understood the supply and demand model, as well as the inherent and historical value of these precious metals. The difficulty, if not impossibility, of monopolization adds value to this form of sound money. With the Revolutionary War and our Constitution as evidence, the Founders also seemed to understand the dangers of one man holding large amounts of unchecked power. This legal authority to issue legal tender was handed over to the Fed via the Federal Reserve Act passed by Congress on December 23, 1913. This Act has been amended more than 200 times, and can be repealed by Congress at any time.

A monopoly of supply is dangerous. How much more dangerous is an institution which controls both the Supply of a product, and sets policy to dictate its Demand? The man in charge of such an institution went on record in July of 2007 to say that, “Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend. In February of the same year, Mr. Bernanke said, “Our assessment is that there's not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy. And the lending side of that still seems to be healthy.”

A soul who is proven to be this out of touch with the stability of the economy he is sworn to protect is one who both Democrats and Republicans seem to find virtue of high degree. However, awakening of the American public to the Fed’s supreme role in our economy caused Bernanke’s re-nomination by President Obama and subsequent confirmation to fall under more scrutiny than any Fed head in recent history. Former head, Allen Greenspan, has recently admitted that now looking back at his time served at the central bank, his entire ideology was incorrect. Manipulation of money and credit markets by the hands of men, not markets themselves, allows malinvestment and debt to accelerate at exponential rates. The only hope to restore sound and Constitutional money to our great Nation is to first expose the full extent of Fed’s actions via a thorough audit. What questions would be answered by a true audit of the Fed? Here are a few:

Who are the shareholders of the Fed, and what dividends have been paid out? Why are we unable to see any activity in deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations? When, why, which and to what extent have foreign countries, central banks and non-private international financing organizations been propped up by Fed injections? What transactions have been made under the direction of the Federal Open Market Committee?

These are all questions that are off limits to any Government Accountability Office (GAO) audit. A recent partial audit, vehemently opposed by Mr. Bernanke, has keyed in the American public to some of these on-goings, but only to the window of time during the 2008 financial crisis. It took a literal Act of Congress to shoehorn this information out of the secretive institution, and it came with considerable resistance. It was found that the Fed engaged in more than $3.3 trillion in emergency loans and other assistance and more than $9 trillion in more than 21,000 short-term loans and other financial arrangements beyond the $700 Billion TARP bailouts. Big winners in these secret bailouts of 2008 were Goldman Sachs, Citigroup, General Electric, Deutsche Bank, Credit Suisse, McDonald’s, Verizon, Toyota, Caterpillar, Harley Davidson, Morgan Stanley, Bear Stearns, and Merrill Lynch.

Believers in the Fed will argue that an audit will inject harmful politics into the workings of our Nation’s monetary policy. The same folks will find complete accounting of our current economic woes in the affordable housing legislation passed by a Democrat majority in the early 1990s. The argument, which is not untrue, is that many unqualified applicants for home mortgages were approved due to this damaging legislation. Default in these mortgages has resulted in the many problems in mortgage-backed securities, derivatives, and many other very complicated and questionable “products”. However, as Fed theory goes, the central bank – not Congress – has the last check upon the credit market. This final check, in the form of higher interest rates, should have countered Congress’ poor choices via their “apolitical” stance. Higher rates would have, in effect, nullified the new laws. This is not the choice that the Fed made. The Fed maintained the party line and kept interest rates artificially low. All the while, continuing to tell the American public that things were just fine until just months before the worst of the 2008 meltdown. According to the Fed’s own website, the first responsibility of the central bank is “Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.” Given that the Fed has had 97 years to practice its key role, we struggle to find grace for such incompetence.

We now have explored the arbitrary and irresponsible supply side of our unconstitutional money, as well as the brute force of government propping up the demand side of the familiar equation. The end product of this outright falsification of the supply and demand model is nothing more than robbery of the American public via inflation. Abuse of power exposed via the recent partial audit only adds fuel to this burning issue. A full and continued audit of all aspects of Fed policy will be the only way to provide the necessary transparency due to the American public. After all, it is our money, right?

-Brock T. Southwick

Con Job

When does a con game or confidence trick gain legal status? Better yet, when does this con-job become legal tender? How much must be stolen from the con-man’s target, or mark, before all confidence is lost and the scheme is turned on his head? This question came to me recently while pondering the commodity which now backs the US Dollar. That commodity, namely US and International Confidence, has been in shorter and shorter supply domestically and internationally. How did we get to such a place as the proverbial mark in such a scheme?

Backing of a currency by precious metal is a concept nearly instinctual for humankind, and for good reason. Even former FED chief, Allen Greenspan, made the case for the gold standard in his 1967 commentary entitled “Gold and Economic Freedom”. However, private ownership and trade of gold was outlawed for a period of 41 years beginning in 1933. Legal ownership and trade of gold coins and bullion by US citizenry was reinstated by Gerald Ford in 1974. This law, overturning FDR’s 1933 executive order, came with no golden peg to the dollar, so its price was determined on the open market.

The US Dollar was positioned as the world’s reserve currency under the Bretton Woods system organized by the world’s economic planners in 1944. This far from perfect system recognized the US Dollar as fully redeemable at the rate of $35/ounce, however only by governments and central banks as legal parties to such redemptions. During turbulent economic times, President Nixon single handedly extinguished the gold backing of the dollar under Bretton Woods on August 15, 1971.

A truly successful con-job is one which requires the artist to be skilled in the ways of deception, as well as top-notch showmanship. The artist must play the part of protector and provider of great service with his right hand, while robbing the Mark blind with his left. The purveyors of our current economic system of smoke and mirrors have stolen more than $0.81 of our dollar since 1971 (measuringworth.com).

This con is pulled off with flowery and dizzying jargon, which makes our resident artists appear brilliant beyond measure. To get a good dose of stupefying economic prose, try reading the “Implimentation of Monetary Policy” section of the FED’s publication entitled Purposes & Functions. Our international peers are beginning to wake up to the con being pulled, while the Austrian economists at large are bashed by the likes of Paul Krugman for exposing the lack of dollar confidence. China and Russia have publically denounced the Dollar as the dominant currency, and have vowed to trade bilaterally without involving the dollar. More are sure to follow as the world takes notice that the conmen are wearing no pants.

2011 marks the end of a 40 year experiment with a US Dollar left unsupported by gold. How will this confidence game unravel? With an antic dote from our 40th President as an economic snapshot of history, we may be in for an unpleasant ride. “You know, no nation that abandoned the gold standard has remained great,” – Ronald Regan.

-Brock T. Southwick

A Re-Revolution is taking form, and it's messenger aims to deliver it by way of 220 year old parchment. Please enjoy this little video from the always brilliant, Jack Hunter.