The 'Great Slump' of 2008 (Part 1)

The outstanding contemporary relevance of Lord Keynes’ short essay "The Great Slump of 1930" comes from the fact that Keynes faced very similar dire auspices as he grappled with the uncertain future of the 1930 global economic downturn. At the time he wrote the essay, Keynes was trying to explain both the origins of the crisis and its future length and severity.

Needless to say, he missed the boat completely, although like a good medieval soothsayer he did manage to hedge his bet a little. Obviously, the "Great Slump" was not a temporary downturn but instead heralded the Great Depression, which would last until the wartime economy of WWII stimulated industry in the United States while utterly destroying Europe, the epitome example of lost wealth via Henry Hazlitt’s "broken window" illustration. Based on recent Fed maneuvers and Obama's future taxation and government expansion plans, most likely the modern-day Keynesian-Friedmanite command-and-control corporate governments will respond in a similar hapless manner as Keynes’ abject failure almost 80 years ago.

First, here is a little historical context. The advent of the Federal Reserve in 1913 and World War I funding had severed most countries from the fiscal discipline of a true gold standard in 1914. (More on this in Part 2!) Throughout the 1920s, the pound sterling of the fading British Empire was continuously propped up on a ‘gold bullion standard’ (more or less fiat) that America’s Fed, on a ‘gold standard,’ supported via inflation. The British pound, however, kept falling off of its crutches, and was basically doomed by the time of Keynes’ essay. [Source: Murray Rothbard, "America’s Great Depression", p. 137-209/409.] This is can be compared to the completely fiat (money without intrinsic value) world of fluctuating exchange rates, heavily based on the American petrodollar, which is undergoing the final death throes of its present form. Lastly, the "extreme violence" of which Keynes writes was mainly manifested by 10 million unemployed in the USA, Germany, and the UK. As fellow Nolan Chart columnist Chuck Angier notes in "Jobs: Headlines I'd Like to See", 533,000 jobs were lost in November 2008 in the United States.

"We have magneto trouble." – Lord Keynes, 1930

In his prelude, Keynes wrote:

The world has been slow to realize that we are living this year in the shadow of one of the greatest economic catastrophes of modern history... [The man in the street] begins to doubt the future. Is he now awakening from a pleasant dream to face the darkness of facts? Or dropping off into a nightmare which will pass away?

He need not be doubtful. The other was not a dream. This is a nightmare, which will pass away with the morning. For the resources of nature and men's devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life—high, I mean, compared with, say, twenty years ago—and will soon learn to afford a standard higher still. We were not previously deceived. But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.

Keynes later added that the "fundamental cause of the trouble is the lack of new enterprise due to an unsatisfactory market for capital investment" and that "there cannot be a real recovery… until the ideas of lenders and the ideas of productive borrowers are brought together again; partly by lenders becoming ready to lend on easier terms and over a wider geographical field, partly by borrowers recovering their good spirits and so becoming readier to borrow."

Let’s now examine what I highlighted above. First, Keynes predicts that the crisis is just a figurative "nightmare," and will disappear simply because people are (he spoke the truth here!) still resourceful, the factories still exist, etc. Then he goes on to blame the market for not providing ample exchange of credit due to lack of "good spirits." Now, there is some sense to the saying that a depression is a state of mind, and trust must exist between both parties, but Keynes is barking up the wrong tree.

The fact of the matter is that whether it is an individual, a company, or a bank, it is a basic truth that in a free market, i.e. not one based on any form of force, parties will seek to exchange goods and services because they receive mutual benefits from the transaction. Keynes has omitted from his memory that barter, or direct-exchange, economies developed into indirect-exchange economies based on the use of "money." For all parties to have a solid trust in "money", money must be a commodity with intrinsic worth. (Read my article "The Money Matrix - What Makes Money Money? (PART 3/15)" for more details on this.)

Now what does our "Lord" Keynes suggest as the solution?

No one can take the first step except the central banking authorities of the chief creditor countries; nor can any one Central Bank do enough acting in isolation. Resolute action by the Federal Reserve Banks of the United States, the Bank of France, and the Bank of England might do much more than most people, mistaking symptoms or aggravating circumstances for the disease itself, will readily believe.

As Austrian economist Murray Rothbard demonstrates in his writings, kings, lords, dictators, and other governments of all kinds have proved repeatedly throughout the ages that they simply cannot be trusted with control over fiat currency and will ultimately fail at commanding economies. Today’s American Fed and Treasury "bailouts" are finally giving the American corporate-cronyism form of capitalism all the remaining aspects of the Leninist "commanding heights" economy that served the Soviet Union so well. The classical Keynesian-Friedmanite school of thought is that smart and slick central planners can somehow control and manipulate the economy by stimulating it at opportune times by inflation with unsound money, or holding back the throttle in times of abundance. The overall result is apparent to all - the well-known, inevitable Misesian "boom-bust" economic model - which can only be resolved with sound money and truly free markets.

Now look at the current American banking situation. As I noted in "Rioting at the Gates of Thermopylae: The Ramparts of the FED & Central Banks Shudder", the 3-month annualized growth of M1, the best approximate for dollar cash and coin in circulation, is at record-breaking 38%. In fact, the entire depressionary scenario as M1 and M3 (total money supply) shoot past each other in opposite directions can be seen in this graph from shadowstats.com. Our central bank, the FED, is embarking on a "quantitative easing" strategy that tries, as Keynes so desperately wished, to marry the borrower and lender once more, as this cartoon so lovely demonstrates. As Michael Maloney illustrates in his article "The Greatest Wealth Transfer Ever", banks are not lending since they have frightful balance sheets and are rightfully fearful of insolvency. Bank reserves and borrowing from the FED are going parabolic.

Meanwhile, the Obama version of FDR’s New Deal stimulus plan will fail miserably, just as FDR’s senseless failure did. (No, the New Deal did NOT end the Great Depression!) As Hazlitt explains in Chapter 4 of his "Economics in One Lesson," public works mean taxes. Future taxes to pay for today’s stimulus, that is all it is, and eventually this system will collapse under its own debt. Furthermore, Obama’s stimulus will allocate capital inefficiently, and although the "seen" beneficiaries may eke out a living enslaved to suckling the breast of the state, all of the "unseen" people (that is, you and me) will suffer and, what is far worse, pay for the breastfeeding of others.

[If Obama really wants to start to solve our economic woes, I DO have a "bailout" plan for him. Rather than spend billions or even a trillion of money that will eventually need to be paid back in taxes as a "stimulus," how about bailing out the taxpayer? Last time I checked, $1.2 trillion will be stolen in 2008 from all Americans via the income tax (p35/342). How about abolishing the income tax for 2008? The entire 92,000 employees of the IRS and the tax preparation industry can take a well-deserved vacation instead of sucking our economy for blood! Plus there will be no administration costs for this bailout! This will be the most efficient economic solution as each individual would then do what they see fit (and possibly even save a little!) to better their situation. While I am offering advice, withdraw all troops in foreign countries immediately, that will save us a bundle, and after this depression is felt by all, the absurd lunacy of defending other countries’ borders while we go bankrupt here at home will be revealed for all to see.]

Keynes, the Fed, Obama, Paulson, and most modern-day economists are completely missing the solution staring right at their blank, sweaty, panicked faces. I have termed this meltdown a "Triple D" Crisis; the petro-Dollar, the national Debt inherent in all fiat currencies, and the last straw to break the proverbial camel’s back, financial Derivatives. However, this term describes the problem, but not the solution. Everyone, we are living in a time when no one understands, or has forgotten, what money really is. In short, we are living in a Gold Crisis.

The financial crisis of 2008 and the "Great Slump" of 1930 can be resolved by releasing government and central banker control of money, by enabling gold and silver to compete as currencies against the governmental fiat paper. (I would mention that gold and silver are the only currencies allowed by the Constitution of the United States, Article 1, Section 8, but that would be beating a dead horse from prior articles.) I hope to explain this clearly in future articles, but by reading the sources I have highlighted and my partially-completed Money Matrix series below with a free mind, you may come to the same conclusion as I.

Lastly, with a closing quote from that false-free-market economist/prophet Milton Friedman. He once said:

Money is too important to be left to central bankers. You essentially have a group of unelected people who have enormous power to affect the economy. I’ve always been in favor of replacing the Fed with a laptop computer, to calculate the monetary base and expand it annually, through war, peace, feast and famine by a predictable 2%.

See, at heart Friedman is just another command and control freak! I wonder if Friedman was aware that mining naturally expands the gold supply by roughly 2% annually?

Comments

[dw57:]

and neither did WW2. the depression only was able to continue after 1937 because some one wanted to balance the budget before the economy had recovered. and so many seem to be doomed to repeat past errors. they think if we leave it to recover on its own, it will. news flash. it never has. and probably is incapable of doing so. the business community is only barely able to manage themselves, and only on good times (or close to). as we have seen in the last experiment (repeating one from 1873 and 1929), allowing totally unregulated markets always ends up the same way. with folks like madeoff pillaging the economy. and other like the brokers (seeming a good name for this bunch) in Florida, who have among the numbers, a bank robber. wonder why we are surprised at result? and looking back at the economy we had before the FED, ones can note lots of depressions and recessions, that ravaged our country. like clock work. with out exception. do we really want to go back to an economy that small? and what do we do with all of the people we have today that such an economy can't support?

2008 Dec 21 04:21 PM

[cyclingscholar:]

Friedman recommended the money supply expand by about 3% a year because that has been the long term growth rate in real output in the USA. Thus the quantity of goods and the quantity of money chasing them would remain roughly at parity; keep prices constant.

2008 Dec 21 05:00 PM

[Jake Towne:]

Dear cyclingscholar -
The whole money supply thing is actually a bit of a fallacy in itself. I recommend reading Rothbards "What Has the Govt Done With Our Money?" to explain. Link here www.nolanchart.com/art...


On Dec 21 05:00 PM cyclingscholar wrote:

> Friedman recommended the money supply expand by about 3% a year because
> that has been the long term growth rate in real output in the USA.
> Thus the quantity of goods and the quantity of money chasing them
> would remain roughly at parity; keep prices constant.

2008 Dec 21 06:03 PM

[bosun.j:]

Thought provoking article with both good points and a bad suggestion based on a fundamentally flawed idea. First the good:

Bring all our troops home. Enough said.

"releasing government and central banker control of money, by enabling gold and silver to compete as currencies against the governmental fiat paper." Enough said.

Restoring faith in the financial system. Very hard to do and very important. Short of dragging the Banksters and their Congressional lapdogs out in the street and executing them (after a fair trial, of course!) how do we do that?

As for your tax holiday:

First, income taxes go to paying a percentage of the interest on the debt not for services. So, were there to be a tax holiday it would only extend out and compound the amount that had to be paid to the Banksters. Possibly doing more damage than a stimulus.

Second, this idea that taxation is theft. As the wealthy benefit much more from the services of government through their greater use of the commons the wealthy should be required to pay their fair share. Just one example of this is the court system. Wealthy people use the court system to great advantage in order to skew the outcome in their favor. No knee jerk reactions here, everyone knows this is true. Unfortunately this isn't the only area where advantage is taken. Don't get me started on the trillions of tax dollars being thrown at the wealthy since September.

The wealthy who benefit more from the commons should have to pay their FAIR share.

Rather than suspend the federal income tax across the board it should be suspended for those making less than $200k a year. Say 10% tax on the first 100k above 200k, 15% tax on 300k-400k and topping out at 80% on anything above $2 million. No tricky IRS rules deducting this and that.

Fairness. The American way. So, lets live it. Make it mean something!

2008 Dec 21 10:01 PM

[John Lounsbury:]

I appreciate Seeking Alpha publishing an article with which I disagree with so much in detail, but appreciate the skill with which the philosophy is presented. I do not want to debate the details, except to say I am too pragmatic a person to buy into many of the Draconian proposals.

This article should produce an excellent comment stream. I especially like the efforts made by bosun.j and dw57 which are very provocative. I'll revisit tomorrow to read what follows.

2008 Dec 22 12:14 AM

[Jake Towne:]

Dear bosun.j -

Thanks a lot for your reply, this is the author. I do understand your feedback; actually I think its pretty common thinking. Actually my true view is that the fruits of your labor belong to you, not your government. If you have a typical job, you will work from Jan - May/June for your gov't and the remainder of the year for yourself.

Is taxation theft? Well, where I grew up, when someone takes what is yours without permission, that's theft. If I travel on a road, and need to pay a toll, I can avoid it by walking or another route. If I want to buy a TV and need to pay sales tax, I can avoid it by not buying it. Same with gas, I can decide to drive. If I decide to work and chop down a tree on my property for warmth, there is no tax then right? No one could rightfully steal my wood, they would be a thief right? So how do you suggest I work for my company that interacts with other customers (or anothers company) without having to avoid taxes? Don't we all need to work to survive? (rhetorical, btw I do choose to work and pay the IRS jackals)

So, my assumption is that the income tax and IRS are morally wrong, so before debating that can you support its morality, the actual need for it (I mean check out the OMB whitehouse.gov budget look at what we allocate it to right now) and even its constitutionality? I suppose its actually a very different side topic from this article's content though, feel free to send me any of your writings or sources.

I've changed my views on the fair tax since, but here's an article I wrote a long time ago that might be of interest called "First They Came for Those Who Didn't Pay Their Taxes..."

www.nolanchart.com/art...


On Dec 21 10:01 PM bosun.j wrote:

> Thought provoking article with both good points and a bad suggestion
> based on a fundamentally flawed idea. First the good:
>
> Bring all our troops home. Enough said.
>
> "releasing government and central banker control of money, by enabling
> gold and silver to compete as currencies against the governmental
> fiat paper." Enough said.
>
> Restoring faith in the financial system. Very hard to do and very
> important. Short of dragging the Banksters and their Congressional
> lapdogs out in the street and executing them (after a fair trial,
> of course!) how do we do that?
>
> As for your tax holiday:
>
> First, income taxes go to paying a percentage of the interest on
> the debt not for services. So, were there to be a tax holiday it
> would only extend out and compound the amount that had to be paid
> to the Banksters. Possibly doing more damage than a stimulus. <br/>
>
> Second, this idea that taxation is theft. As the wealthy benefit
> much more from the services of government through their greater use
> of the commons the wealthy should be required to pay their fair share.
> Just one example of this is the court system. Wealthy people use
> the court system to great advantage in order to skew the outcome
> in their favor. No knee jerk reactions here, everyone knows this
> is true. Unfortunately this isn't the only area where advantage is
> taken. Don't get me started on the trillions of tax dollars being
> thrown at the wealthy since September.
>
> The wealthy who benefit more from the commons should have to pay
> their FAIR share.
>
> Rather than suspend the federal income tax across the board it should
> be suspended for those making less than $200k a year. Say 10% tax
> on the first 100k above 200k, 15% tax on 300k-400k and topping out
> at 80% on anything above $2 million. No tricky IRS rules deducting
> this and that.
>
> Fairness. The American way. So, lets live it. Make it mean something!

2008 Dec 22 04:48 AM

[bosun.j:]

It is my understanding that the 16th Amendment was not ratified by enough states. I further understand that one state actually marked the bill and sent it back. So on that basis I can agree that the government is acting contrary to the Constitution. Is it proper to say breaking the law? Or, is it more correct to say acting extraconstitutionally? Either way the authority to tax income does not exist.

I believe too that taxation of wages is simply wrong and constitutes theft.

Taxation should be limited to corporate income and capital gains. Perhaps tariffs as well. I haven't given much thought to sales and VAT taxes. I have noticed that many taxing "authorities" are levying large taxes in instances like hotels, car rentals and restaurant checks to pay for stadiums and other such foolishness thereby forcing people who never use these facilities to pay for them.

Now, do we want to have a fire department? Do we want highways, bridges, airports, port facilities and other services considered to be the commons? Do we need these things? If so, how do we pay for them if there aren't any taxes?

Government officials have never met a tax they didn't like. Where and how do we draw the line?

Easy answers aren't available. I do know that its not as simple as "1" or "0"! On or off, black or white and all or nothing.

2008 Dec 22 09:58 AM

[Bengunnscave:]

Heres a what if answer for you....Tax Consumption, establish a National Sales Tax....Abolish the "Income Tax"...and in the process severely reduce the 92,000 strong IRS workforce reconstituting their pay into our coffers.

2008 Dec 27 10:14 PM

[bosun.j:]

@Bengunnscave:

Really bad idea as the poor would pay a higher percentage of their income for taxes than the rich.

In the same spirit how about this, all money acquired through investment be taxed at 95%? Hey, it's certainly not income and they certainly didn't earn it! Foolish yes?



On Dec 27 10:14 PM Bengunnscave wrote:

> Heres a what if answer for you....Tax Consumption, establish a National
> Sales Tax....Abolish the "Income Tax"...and in the process severely
> reduce the 92,000 strong IRS workforce reconstituting their pay into
> our coffers.

2008 Dec 28 04:40 AM

[Jakester:]

What does "Fair Share" of taxes mean? We already have a 'progressive' income tax but apparently not progressive enough for Bosun who wants an 80% tax rate for high earners! The wealthy already pay their "fair share" so let's not pretend they are getting a free ride. Then Bosun states that personal income shouldn't be taxed, only corporate income? So corporations will pay out all their earnings as salaries (or move to Switzeland). It's a bad idea and it won't work. Nuff said....


On Dec 21 10:01 PM bosun.j wrote:

> Thought provoking article with both good points and a bad suggestion
> based on a fundamentally flawed idea. First the good:
>
> Bring all our troops home. Enough said.
>
> "releasing government and central banker control of money, by enabling
> gold and silver to compete as currencies against the governmental
> fiat paper." Enough said.
>
> Restoring faith in the financial system. Very hard to do and very
> important. Short of dragging the Banksters and their Congressional
> lapdogs out in the street and executing them (after a fair trial,
> of course!) how do we do that?
>
> As for your tax holiday:
>
> First, income taxes go to paying a percentage of the interest on
> the debt not for services. So, were there to be a tax holiday it
> would only extend out and compound the amount that had to be paid
> to the Banksters. Possibly doing more damage than a stimulus. <br/>
>
> Second, this idea that taxation is theft. As the wealthy benefit
> much more from the services of government through their greater use
> of the commons the wealthy should be required to pay their fair share.
> Just one example of this is the court system. Wealthy people use
> the court system to great advantage in order to skew the outcome
> in their favor. No knee jerk reactions here, everyone knows this
> is true. Unfortunately this isn't the only area where advantage is
> taken. Don't get me started on the trillions of tax dollars being
> thrown at the wealthy since September.
>
> The wealthy who benefit more from the commons should have to pay
> their FAIR share.
>
> Rather than suspend the federal income tax across the board it should
> be suspended for those making less than $200k a year. Say 10% tax
> on the first 100k above 200k, 15% tax on 300k-400k and topping out
> at 80% on anything above $2 million. No tricky IRS rules deducting
> this and that.
>
> Fairness. The American way. So, lets live it. Make it mean something!

2008 Dec 28 01:09 PM

[Bengunnscave:]

Bosun.J, I understand your point, however, when consumption is taxed, taxes become more of a personal choice. The "poor" only pay a higher percentage of their income when they are attempting to purchase beyond their means...$30,000 pickup trucks, another flat screen TV, etc.

I would add that the national sales tax should not tax food, and while we are at it don't tax trips to the consignment store for clothing....reward frugality.

I wouldn't call that a "Really Bad Idea" any more than our current system or the myriad of other complicated solutions.

2008 Dec 29 12:20 PM

[honestscop:]

First, GREAT ARTICLE. I wish the web had more content like this. But, I have a couple disagreements:

1. Fiat Currency: I'm not entirely a Friedmanite; however, in the tradition of Friedman, I wish to take issue with your claim that money must be something with "intrinsic worth." I find it naive to make a claim that "intrinsic worth" is in any way measurable. The closest we can come is by weighing the supply and demand.

Why make the assumption that the supply/demand coordinates for gold or silver are any more "correct" than those same coordinates for the US dollar in the exchange markets? Sure, there's probably more scarcity to gold and silver since dollars can be printed at will. But the printing of dollars (while the BEP has been running on fumes as of late), is still driven by the global demand for our currency less whatever debt is bought by foreign governments (aka China).

So, my question is: Why gold? It has no "intrinsic worth" only insomuchas it is demanded by consumers.

2. Taxes: This answer (from my perspective) is simple: You are paying for the privilege of living in a civilized nation.

If you have time, I'm anxious to hear your responses. I know you'll probably disagree -- but I'm sure your arguments will be compelling.

2008 Dec 29 01:39 PM

[Jake Towne:]

Dear honestscop -

Appreciate your reply and thanks for the read. Although I am ignorant what BEP is, let me try to answer. I think its fair to mention in the original article (not here at SA) Part 2, I quoted Greenspan and Mises at length, might be worth a loo. Part 1 has my list of sources. www.nolanchart.com/art...

OK, on intrinsic worth, I recommend this series I wrote, Part 4 covers what honest money is. You certainly hit upon the key difference btw fiat and commodity money - scarcity. All of the gold on the planet ever mined fits into a cube 20 meters on a side - it cant be counterfeited, which is what happens with fiat. Basically, what is at stake here is government control over money, so actually the case that needs to be really built is why it should continue to stay fiat. It is very obvious that governments abuse their "lord's right" (Part 5) and put the hurting on every man, woman, and child and business on the planet

I recommend the link on Rothbards' "What Has the Govt Done with our Money?" and if you have time, "The Case Against the FED". Links in the below article. Part 1 has my world view, actually I got into economics only this year, previously I was a very unread antiwar author. Why economics? Because its the root of everything that is wrong with our world today (in my humble opinion).
www.nolanchart.com/art...

2) you wrote "2. Taxes: This answer (from my perspective) is simple: You are paying for the privilege of living in a civilized nation. "

Try my article "Rioting at the Gates of Thermopylae" on the banking system (link below). It has a link to the white house budget and you will find that total planned govt outlays was 2.9 trillion. (pg26/342). Total receipts 2.5 trillion, so the planned deficit was 0.4 trillion (add 0.8-1.0 due to this bailout nonsense) notice how the government has more than doubled over the past decade, which even outpaces inflation.

2008 Receipts (pg35/342) -
0.35 trillion from corporate income taxes
1.2 trillion from fed income taxes
0.9 trillion in soc sec/medicare/caid

Adds up pretty much to 100% right?

OK corporate taxes goes 100% to the military, and is actually limited this way via the Constitution - and is more or less still obeyed. However, the total cost of our foreign armies from reliable sources is very close to a trillion (deficit baby!). On pg65/342 you will see we spent $0.6 trillion, or 21% of outlays on the military.

Now, the corporations need to make a profit, so 1) everyones salary is lowered, and 2) the consumer pays for it with the increased price of goods. That's you!! All to catch some dude in cave. (I've written extensively about this, but my point is:

You are not paying for a "civilized" nation via corporate income taxes. You are hurting the economy, your own personal wealth to run wars. I am not OK with this.

$0.9 trillion for SocSec/Medicare. Do some research. Bloody Madoff-Ponzi scheme, its all wasted, and the baby boomers are screwed. This happens in a couple of years. What if I dont feel like working to support them? Or if the job losses continue since our monetary and foreign policies hollowed out our nation.

So you are left with $1.2 trillion in fed income taxes. I wont launch into a major tirade here, Look at what we spend it on, look at the size of the national debt and the interest on it. Decide for yourself how much you want to spend. The roads, libraries, fire dept, police, (are not federal) even Congress and the cabinet costs, dont cost much.

My conclusion is you are not paying for a civilized nation - you are paying for an empire that is about to collapse on its own currency and debt.

I recommend watching "America: Freedom to Fascism" - not because I wholeheartedly believe in everything it says, esp the end, but it will get you thinking more about the topic (taxes and control), possibly different from now. Zeitgeist is another freaky movie, same deal. just google it.
www.nolanchart.com/art...
www.whitehouse.gov/omb...

If you want to continue discourse, I recommend writing in my nolan chart articles or shoot me an email, I havent figured out how to get email flags from SA, but not sure if I want to, there'd be a lot more than I am used to.

I would very much like to hear back from you. Peace and happy new year!
Jake

2008 Dec 31 06:04 AM

[honestscop:]

BEP is the Bureau for Engraving and Printing -- the bureau under the Treasury Dept. responsible for printing money.

1) So are you saying that the main reason to abandon Fiat currency is because of the possibility of counterfeiting? It seems that counterfeiting would be possible with deeds to gold as well -- is that not the case?

2) Taxes: I find your points a little muddled here. You seem to claim that because of a corporation's need to make a profit, that contributes to higher prices paid by consumers in order to pay the taxes owed by that corporation.

On the surface, your point seems to make sense except that it hinges on a false assumption: that corporate tax is paid regardless of profit. Tax functions as a percentage of profit more so than a cost of doing business.

Now, I'm not denying that corp. tax is figured into the price of a product thereby moving along to the consumer -- I'm merely saying that paying tax is a result of rather than a barrier to making a profit. If a profit is not made, taxes are not paid. There is no such thing as a 100% tax rate.

Please elaborate.




On Dec 31 06:04 AM Jake Champion wrote:

> Dear honestscop -
>
> Appreciate your reply and thanks for the read. Although I am ignorant
> what BEP is, let me try to answer. I think its fair to mention in
> the original article (not here at SA) Part 2, I quoted Greenspan
> and Mises at length, might be worth a loo. Part 1 has my list of
> sources. www.nolanchart.com/art...
>
> OK, on intrinsic worth, I recommend this series I wrote, Part 4 covers
> what honest money is. You certainly hit upon the key difference btw
> fiat and commodity money - scarcity. All of the gold on the planet
> ever mined fits into a cube 20 meters on a side - it cant be counterfeited,
> which is what happens with fiat. Basically, what is at stake here
> is government control over money, so actually the case that needs
> to be really built is why it should continue to stay fiat. It is
> very obvious that governments abuse their "lord's right" (Part 5)
> and put the hurting on every man, woman, and child and business on
> the planet
>
> I recommend the link on Rothbards' "What Has the Govt Done with our
> Money?" and if you have time, "The Case Against the FED". Links in
> the below article. Part 1 has my world view, actually I got into
> economics only this year, previously I was a very unread antiwar
> author. Why economics? Because its the root of everything that is
> wrong with our world today (in my humble opinion).
> www.nolanchart.com/art...
>
> 2) you wrote "2. Taxes: This answer (from my perspective) is simple:
> You are paying for the privilege of living in a civilized nation.
> "
>
> Try my article "Rioting at the Gates of Thermopylae" on the banking
> system (link below). It has a link to the white house budget and
> you will find that total planned govt outlays was 2.9 trillion. (pg26/342).
> Total receipts 2.5 trillion, so the planned deficit was 0.4 trillion
> (add 0.8-1.0 due to this bailout nonsense) notice how the government
> has more than doubled over the past decade, which even outpaces inflation.
>
>
> 2008 Receipts (pg35/342) -
> 0.35 trillion from corporate income taxes
> 1.2 trillion from fed income taxes
> 0.9 trillion in soc sec/medicare/caid
>
> Adds up pretty much to 100% right?
>
> OK corporate taxes goes 100% to the military, and is actually limited
> this way via the Constitution - and is more or less still obeyed.
> However, the total cost of our foreign armies from reliable sources
> is very close to a trillion (deficit baby!). On pg65/342 you will
> see we spent $0.6 trillion, or 21% of outlays on the military.<br/>
>
> Now, the corporations need to make a profit, so 1) everyones salary
> is lowered, and 2) the consumer pays for it with the increased price
> of goods. That's you!! All to catch some dude in cave. (I've written
> extensively about this, but my point is:
>
> You are not paying for a "civilized" nation via corporate income
> taxes. You are hurting the economy, your own personal wealth to run
> wars. I am not OK with this.
>
> $0.9 trillion for SocSec/Medicare. Do some research. Bloody Madoff-Ponzi
> scheme, its all wasted, and the baby boomers are screwed. This happens
> in a couple of years. What if I dont feel like working to support
> them? Or if the job losses continue since our monetary and foreign
> policies hollowed out our nation.
>
> So you are left with $1.2 trillion in fed income taxes. I wont launch
> into a major tirade here, Look at what we spend it on, look at the
> size of the national debt and the interest on it. Decide for yourself
> how much you want to spend. The roads, libraries, fire dept, police,
> (are not federal) even Congress and the cabinet costs, dont cost
> much.
>
> My conclusion is you are not paying for a civilized nation - you
> are paying for an empire that is about to collapse on its own currency
> and debt.
>
> I recommend watching "America: Freedom to Fascism" - not because
> I wholeheartedly believe in everything it says, esp the end, but
> it will get you thinking more about the topic (taxes and control),
> possibly different from now. Zeitgeist is another freaky movie, same
> deal. just google it.
> www.nolanchart.com/art...
> www.whitehouse.gov/omb...
>
> If you want to continue discourse, I recommend writing in my nolan
> chart articles or shoot me an email, I havent figured out how to
> get email flags from SA, but not sure if I want to, there'd be a
> lot more than I am used to.
>
> I would very much like to hear back from you. Peace and happy new
> year!
> Jake

Jan 04 11:06 AM

[Jake Towne:]

Dear honestscop -

"1) So are you saying that the main reason to abandon Fiat currency is because of the possibility of counterfeiting? It seems that counterfeiting would be possible with deeds to gold as well -- is that not the case?"

Yes, but more than just "counterfeiting" - which to me includes modern money creation by frac reserve banking, not just the criminal type which you may be referring to. (Interesting that when govt's do it is fine and dandy, but woe if you try it!!) The main reason is government control over the money supply. I hold that money belongs to the people. Go ahead, call me an Austrian :)

Purely criminal "counterfeiting" (like in the article above even the "classical" gold standard was not fully honest, was it?) with gold could be made far less likely in our electronic age with multiple independent auditors at banks, etc, plus everyone would be holding some. Take a close look at goldmoney.com I think you will see what I mean

"2) Taxes: I find your points a little muddled here. You seem to claim that because of a corporation's need to make a profit, that contributes to higher prices paid by consumers in order to pay the taxes owed by that corporation.

On the surface, your point seems to make sense except that it hinges on a false assumption: that corporate tax is paid regardless of profit. Tax functions as a percentage of profit more so than a cost of doing business.

Now, I'm not denying that corp. tax is figured into the price of a product thereby moving along to the consumer -- I'm merely saying that paying tax is a result of rather than a barrier to making a profit. If a profit is not made, taxes are not paid. There is no such thing as a 100% tax rate. "

I mostly agree with what you wrote here. When I used 100%, I was referring that 100% of corporate taxes are used for defense and war per the Constitution - technically speaking they dont appropriate your income taxes or SocSec for this, but they do create more debt to do so, which sort of makes my claim moot :)

yeah, my response is a little garbled but I tried to give you some facts to challenge your claim that you are paying for a bloated government, not a fee to "live in a civilized nation". Want to cut gov't in half? Just go back to 1997 or so, the amount of gov't we had then was still OK, we were still "civilized" in my book. Take a close look at that whitehouse.gov link I posted above (Actually I think our gov't was still bloated in 1997 but thats another story)

Jan 06 05:11 AM

[honestscop:]

So, we were a decent size in 1997? Gov't was smaller then and taxes were higher -- but the budget was balanced. So that lends to my point that taxes contribute to civilization so long as the finances are balanced. I think we can agree on that.

Back to the monetarist points, I just wonder what the global economy would look like if we resorted back to some form of a gold standard or even bimetallist.

If we go back to the Greeks, all wealth started with land. Land was taken by force and aristocracies were built from subjects who found themselves in the king's favor -- thus receiving land as a gift. But each kingdom, in order to sustain itself, required resources that couldn't necessarily be provided in isolation. So trade developed.

Now, trade could only go so far because you couldn't trade an acre of land for a bushel of corn. Reason being that the corn is potable and land is not. So bartering came about but eventually that would break down as well. Example: If you produced wheat and you need corn, you can only get as much corn insofaras as your corn supplier has an equivalent need for wheat. So, what happens?

You develop some medium of exchange to secure the acquisition of the needed supplies. And the medium of exchange needs to be agreed upon by not only your kingdom's suppliers, but your suppliers' suppliers. It makes no difference what it is as long as there is agreement -- gold was one of the first forms to consolidate such a large contingency of agreement.

Then history moves on and we come to Rome -- one of the first civilizations to mint a currency. Who, incidentally, also fell victim to the world's first major credit crisis. In fact, it was so bad that we had to hit the reset button and start over -- this ushered in the age of feudalism that existed in medieval times. Land was once again the chief store of wealth.

I guess the point I'm trying to make in all of this is that the trend we seem to see historically is we are constantly uncovering mediums of exchange that are more available and more movable between buyers and sellers. All that is required to maintain this is that both parties agree on the value of the currency. Managing that agreement seems to me the fundamental function of monetary policy.

Now you can argue that it has been managed poorly, and I'd agree. But that is not to say that it can't be managed well. I think moving back to a gold standard is a pretty drastic response and would create a capital flight which could make the difference between facing a recession or a depression.

Unlike Rome, I think we have an opportunity to address the current situation without having to hit the reset button.

Jan 09 01:19 PM