|"The actual culprit weighing down real growth is 'peak debt' on household, business and government balance sheets, not a perverse failure to spend." ~David Stockman|
August 30th, 2014
Many years ago a college intern in a television newsroom eagerly suggested that the simplest way to solve the problem of poverty was for the government just to create whatever amount of money was necessary and give it to the poor. We had a lively discussion about it but she was convinced she had the answer. She may have gone on to a career in Washington and has been successful in promoting her free money scheme.
Now, the ultimate "handout" is being floated.
How to Create Currency Inflation
We posted this image a couple of weeks ago in response to predictions the DOW was surely bound for 20,000. Our own guess was that a dip to 13,000 was more likely, although we don't very often get into the prediction business.
A few Gloomy Gus types are saying there could be a plunge to as low as 7,000, which strikes us as dreadfully deflationary. (Note: There is worry about deflation in the Eurozone at the moment.) On the other hand an optimist on Wall Street said yesterday that there is a correlation between the price of oil and the S&P 500. Generally, "when oil prices sink the S&P rises."
That bloated equity prices will eventually fall is a sure thing, but WHEN and by how much is a guessing game played by numbers crunchers. Studying up on how to behave in a serious deflation is probably a good idea because the present run of inflation is running out of steam as debt piles up and the money creation machinery is no longer able to perk up the general economy. When inflation peters out debt becomes an impossible cross to bear. Bankruiptcies take place like falling dominoes.
EXCESSIVE DEBT: Economic Stumbling Block
I think the main problem is that we’re excessively—we have too much debt, we have too much of the wrong type of debt. Debt’s not very well understood.”
- See more at: http://www.dailypfennig.com/2014/08/27/geopolitical-problems-persist/#sthash.ovGpJC1V.dpuf
"I think the main problem is that we have too much debt. We have too much of the wrong type of debt. Debt’s not very well understood.” ~Dr. Lacy Hunt
Chuck Butler quotes economist Lacy Hunt Wednesday in his Daily Pfennig column. We repeat a key point because Hunt refers to "the wrong type of debt" as being a drag on the economy. In other words, not all debt is bad. In other words, if "A" accumulates some surplus cash for which he has no immediate need and lends some of it to "B" who uses it in a project that not only yields principal and interest to be paid back to "A" while also providing a profit for "B", the the overall economy benefits. However, when money lent is not accumulated capital, but rather created from thin air the process inevitably leads to a chaotic economy.
The lesson is widely available in writings all the way back to the heyday of the Greek philosophers, such as Publilius Cyrus, who observed, "Debt is slavery of the free." However, each generation believes it is smarter than the preceding ones and repeats the monetary mistakes century after century.
Work vs. Plunder
"There are two fundamentally opposed means whereby man, requiring sustenance, is impelled to obtain the necessary means for satisfying his desires. These are work and robbery; one's own labor [or] the forcible appropriation of the labor of others," wrote Professor Franz Oppenheimer. He went on to define one's own labor and the equivalent exchange of that labor for the labor of others, as the "economic means" for the satisfaction of needs. The unrequited appropriation of the labor of others he called "the political means." He argues that the purpose of the state is to exercise the political means and that all of history has been primarily a report of the contest between political and economic means with emphasis always on the state. (This is why written history is all about kings, wars, etc., and not very much about the struggle of commoners.)
Is his thesis true? Of course! There is not a single exception to it. Some blowhard will insist that it's necessary for the government to take some of the people's assets and distribute them equitably "for the good of society." To be sure, that's the way the system presently works. Oppenheimer doesn't claim otherwise. Government takes money from the pockets of some citizens and puts it into the pockets of others. And it does so by force of law. All Oppenheimer does is clarify the terms so we may all understand "economic means" vs. "political means."
Both liberals and conservatives are fans of the political means of social operation. Here and there you will find an oddball dreamer who would prefer the "economic means" be given a chance, trusting charity to support those who cannot support themselves. That concept will never take hold. However, that's not the point. All we're trying to clarify is there are only two means to the same end in satisfying human needs. This concept should be taught in sixth grade, or sooner, so that future political debate may be better informed.
There are only two ways to live - either by working, or living out of the pockets of people who do. Oppenheimer, by the way, made his observation in 1908 in his classic "Der Staat." (The State.)
So - what's the point of digging up an antique essay by a long dead German professor? Only because it clarifies a basic economic fact....that the state constantly expands because of its power to take property from one set of pockets and transfer it into other pockets. It tends to set up a confrontation between the haves and have nots. Living out of the pockets of others has a strong attraction and politicians cater heavily to this human impulse.
Did Oppenheimer create a general awareness of the danger of the expansion of the state mechanism? Not a bit. The fact that government can't distribute 10¢ without raising it from tariffs, taxes or borrowing (to be paid back by future taxes) is little understood. This has led to the general belief that government money will flow endlessly from a wonderful cornucopia in Washington. Oppenheimer understood how these cornucopias worked. We all should be aware of it.