Economics 101

Most of the economics we teach at American Universities is Keynesian or fiat economics.  I don’t subscribe to it.  Especially when you consider a quote from the guy the entire system was named after, John Maynard Keynes:

” Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.”

Here are some ideas I want to share with you, a lot of it is based on Austrian Economics, the antithesis to Keynesian Economics.  (Friedrich Hayek shared a Nobel Peace Prize in Economics in 1974 and was an Austrian Economist.)

 

Here are the Topics:

1)  An economy grows by people saving to fuel later production.  Savings are the bedrock of a stable society.  You put off now so that you can have more later.   All consumption must be funded by one of two things:  savings or fiat dollars printed out of thin air.

This is the way the banking would work in a sound money society:  People sacrifice and save money in a bank.  The banks would have plenty of money to lend so they would lower ‘the cost of borrowing’ or  interest rates.  People who would want to take a risk with a good idea, would secure a loan (at interest of course because the banks are a business), and start their business or factory or farm.  That societies’ economy would grow.

As all of the available capital for investing and production gets used up, the banks would raise their interest rates or ‘the cost of borrowing,’ because there is less to go around.  The societies’ economy would go through a slight contraction and a period of trimming the fat, so to speak.   The Free Market would reward the best and the brightest of existing businesses.  The free market would essentially reward efficency, innovation, better management.  In this contraction period, people will start to save money again.  (Savings always go up in hard economic times.)  And then the process would begin all over again.

 

2) Now, the nature of a federal banking system is to regulate / manipulate interest rates.  (Never mind the idea of inflation for now.)  The original idea of Keynesians was to control the timeline of those periods of contractions or to streamline them artificially, and get one long period of consistent growth instead of having to deal with recessions.

The Chairman of the Federal Reserve is basically a central economic planner.  Instead of letting the free market dictate the cost of interest rates, he control them.  (A lot of power to give to someone who’s not held responsible to the people).  The chairman of the fed’s job (all evil intentions aside) is to juggle interest rates to maintain the direction of the economy he thinks the economy should be going.  Notice that fed has been keeping interest rates at all time low for several years now.

If the fundamentals of our economy were strong, would it be necessary to try and coerce the free market into something it didn’t want to do?  No, he is attempting to stimulate phony economic growth.  Our entire economic system is designed to grow with the expansion of debt.  Government debt and individual debt in our nation cannot expand anymore; we are completely maxed out.  The economy has finally had enough, and the American people can tell that something is wrong but cannot figure out what.  It is because we have gone into debt at all levels to fuel economic growth.  The real goal behind this is and was to enslave the American people to debt.

During the banking crisis of 2007 the market was trying to signal it’s time for a badly badly put off contraction.  Essentially, the free market was trying to signal that it was necessary for the American people to embrace a time of saving and under-consuming.  (If you remember during the bailouts, the banks didn’t want to lend the money out?  I personally believe it’s because they understood that the market didn’t need all that extra credit .)  The recession would have been really bad, but now it is going to be much worse because the system was then and is more so now maxed out to the hilt.

 

3)  Consumption must be either funded through real savings or borrowing.  We borrow through hiding our inflation overseas.  Because the dollar is the world’s reserve status, we are able to print money without dealing with the consequence: inflation.   We literally export our inflation.  Every central bank of the world holds US dollars on reserve because to purchase oil you must use dollars, and also most international transactions are done in dollars.

If you wanted to purchase a TV, you would need to get the money from one of two places: borrowing or saving.  The same things applies on a national level.

The nation’s economic spin doctor’s like to reference the GDP or ‘Gross Domestic Product’  as a good signal for the strength of a nation’s economy.  But consider the fact GDP encompasses ‘consumer spending.’

How is spending a signal for economic growth.  I can go out right now and spend $10,000 via credit cards on goods that do not produce me anything.  Is that a good indicator of my economic well being?  How much I can get into debt?

It’s not an accurate picture.  You need to look at the nation’s Balance of Trade and the savings of private citizens.  Having effectively ruined our great industrial capacity through over-regulation and taxation (and also a weakening currency); people like Ben Bernanke like talk about the strength of the economy in terms of how much were spending.

If you consider that 60% to 70% of our GDP is Consumer Spending, where to we keep getting the money to spend and buy things from?

The answer is inflation:

The fed is able to flood money into economic system because of our government’s massive dual welfare / military complex state.  The end result is that there is constantly much more money floating around in the economy, and it gives the illusion that the prices of things are rising.  It’s an illusion as well.  What is really happening is your purchasing power is shrinking.

Basically, they are keeping the system flushed with dollar to keep the illusion up.  We are not special.  Fiat currencies have historically always collapsed.

Our entire economic system is based on debt.  We are encouraged as a nation to go into debt as a lifestyle: cars, house, school, not to mention credit cards.

 

4)  The last and final thing I want to talk about it the fact that a fiat currency and wars go together.  One war leads to massive inflation which leads to diverted capital and re-directed capital, which leads to another, and continues the cycle.  Let me explain:    Historically you have not had one without the other for the entire course of human history.

A Federal Reserve type banking system makes it much easier for governments to go to war, because you don’t have to take out loans from other governments (selling treasury bonds) or raise taxes on your citizens.

They have a magic credit card.  Wars with a central bank basically result in a massive increase in available capital which creates one thing: inflation.

Here is the key:  War diverts capital that would have been invested in something like an automobile factory, refrigerator factory, for example, and puts it into a sector of the economy that it wouldn’t have normally been in.  That capital comes from somewhere.  Instead of the free market dictating the best place for that capital and investment, it’s redirected because of the war.

A federal reserve leads to war, which leads to a distortion of the free market.  A fed leads to another war which leads to more of the economy being diverted from where it would normally be doing the most efficient and profitable things.  A bigger portion of nationals capital and production is diverted for war purposes.  And the trend continues.

 

A couple of things are happening simultaneously:

1) Peoples purchasing power is being robbed.  Obviously.

2) A larger percentage of the nations industrial capacity is being diverted from its natural free state to fund the wars.

3) The fed is able to flush the system with more paper dollars.  The three feed into one another, until people begin to believe the lie that war is good for the economy.  It’s a lie.  It’s good for the politically well connected, the banks and corporations who are in position to profit from the war.  If war was so good for the economy, why wouldn’t we just do away with bombing other nations and just build buildings in mojave desert.

That way we could always have jobs for people to build the buildings and jobs for people to build the bombs and tanks we use to blow them up.

The truth is all that capital must come from somewhere.  In order to build a tank, you have to not build or upgrade a refrigerator or a radio.  You have to take from someone or a certain area of the economy and divert the free market to fund war.

 

There is a solution to all of this:  Free and Sound Money and De-Regulating our Industry so we can compete.  There is a silver lining (no pun intended).  As our dollar is devalued our goods will become more competitive internationally.  Our nation needs to embrace wisdom and common sense.  I look forward to the day here shortly when we do so.

10 comments to Economics 101

  • BlindersOff

    Sorry, but you are scream dreaming if you think this nation/gov. is going to mend its ways… it’s about to go global. Wisdom has been replaced with Dancing With The Stars, Evening Lies…I mean ‘News’, and Monday night football. There is awakened percentage…but nothing close to a whole nation, nor will there be. Some rats never notice their ship is sinking…and drown.
    They will crash this parade of slow motion stealing, extortion, and imprisonment. The New World Order wants all the charge over a globe of slaves. Revelation has been right on and the puppets is not drifting from the script. We can prepare,get educated and educate others, but the mark of the beast is not far off in the wings. A very bad season is about to begin to storm on us all.

    It’s about to get interesting.

  • 4 Liberty

    Brandon,very nicely written! For those of us that understand what is happening , the most frustrating issue becomes sharing the knowledge with others. Many of the pieces written have windows that allow the frustration and anger we feel to show through in the text of the material and that can be interpreted by the ignorant as being extremist or fringe. I selectively pass things on to people i know based on their ability to digest the subject matter and whether they are alpha,beta or gamma type personalities. Your piece is one that contains great information and can be passed along to all. The mindless garbage that our friends and family fill their time with is mind boggling and those that seek and find clarity that they wish to share for the good of all can find themselves intellectually isolated at times. So be it that we must choose the path less traveled as we will be better for it. nice job!

  • thanks for the great article about economics
    An unstated issue (elephant in the room) is that economists pretend to talk about reality but are far from reality and just playing games with themselves. Perhaps one view would be to always ask: how well does this economist/”theory” comport with reality? Is there an article on this topic? Following this line of logic, perhaps a new (or revised) understanding of economics should be based on and built within a real science such as biology, which deals with the reality of growth, reality of investments, exponential vs stationary phase growth, how to optimize each, etc (for biological systems, which use energy materials, and create complexity etc). We already understand these real issues within a real science. Does anyone know of such attempt to moor a real economics to science by using the language and truth of biology to inform/guide create, supplant or even replace some of this bull shit that we call “economics”?

    • George

      Some good books on Austrian economics:
      “The Road to Serfdom”, by Friedrich Hayek, an Austrian economist and contemporary, and antagonist, of Keynes.
      “Economic Facts and Fallacies”, by Thomas Sowell, a student of Austrian economics. He has many good articles and books on the subject.
      Also, check out:
      “The Debt Bomb”, by John Hart, Sen. Tom A. Coburn, an exposé of our current situation, and Sen. Coburn’s ideas on bringing us back from imminent bankruptcy.
      “Meltdown”, by Thomas E. Woods, reveals where the blame should really lie concerning the recent housing bust.
      Also read these two by Frederic Bastiat:
      “The Law”. In it he argues that the purpose of the law is the protection of individual rights, and that when governments adopt policies favoring particular industries or groups, the law becomes an instrument of injustice and oppression.
      “Things Seen and Things Not Seen”, Bastiat considers the value of a broken window in promoting industry; the value of armies, public works, and government credit guarantees in increasing employment; the danger that better machinery poses to employment; the use of tariffs to protect industry and other economic fallacies.

  • It’s called Austrian Economics. I wrote about it at the start of the article lol.

    Economics in one lesson by Henry Hazlitt is phenomanal.

    Peter Schiff’s Crash Proof 2.0 does a great job explaining things as well.

    • Jesse Thomas

      So glad to see Austrian Economics get out there, and enough already with the witchdoctor Keynesian nonsense. We see evidence that govenment people are starting to feel a little retarded as some sites are being suspended such as Brandon Raub above.

  • David Howard

    Google “the selective use of polygraphs”

  • j.k.

    I read about B R’s arrest and wanted to find out what it was all about so came here read the article and it made perfect sense to me the guy is right . Expect others will do the same . Best wishes to B.R. and hope he gets through this OK .

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