Central Banks: More Harm than Good?

All global economic problems today are rooted in the existence of Central Banks and their commitment to an application of destructive Keynesian economic theories to our global monetary system that simply has not worked for the better part of this century. Within the realm of academics, monetary policy, politics and media, there is a persistent refusal to acknowledge the primary role Central Banks undertake in artificially creating boom-bust cycles that would not occur in such severe fashion were Central Banks simply willing to step out of the way and allow free market forces to operate.

If you ask anyone who graduated from Wharton, Harvard or Oxford, or any number of other Western universities, with a degree in business or economics, who Alan Greenspan is, I guarantee you that he or she knows (I myself graduated from the University of Pennsylvania). However, ask them who Friedrich A. Hayek is, and I doubt if anyone knows. Yet those of us that adhere to Austrian economic theories have used our understanding of sound monetary principles to accurately predict all steps of this crisis since 2006.

So how did I learn about Austrian economic theories despite never having heard of Friedrich A. Hayek during my entire 18 years of schooling? For the last 15 years, I taught myself what the institutionalized formal educational system refused to teach me. Despite the successful accuracy of our past predictions, even today, we are summarily dismissed as crazy “gloom and doomers," while those that steadfastly adhere to Keynesian economics principles (all Western Central Banks as well as the governments and politicians they control), upon reflection, are the ones guilty of the predominant body of wildly inaccurate, unsound, and failed predictions over the past 3 years. Need a sample? How about the US housing markets being fine and properly valued? How about the US being on a path to full employment? How about strong future economic growth and a boom in US exports? Though in hindsight, these predictions sound more like the ramblings of a madman, these predictions were all made by our current Federal Reserve Chairman, Ben Bernanke, in 2005 and 2006.

In reality, if we strip away the divisive jargon of politics, gloom and doomers are not the perpetual pessimists we have been inaccurately and unfairly portrayed as by the media (for even I told my clients just five months ago that a 1,000 point rise in the DJIA was entirely plausible though the Dow’s climb has admittedly been twice my expectation since). In reality, we are merely strong proponents of the Austrian School of Economics. In the Western sphere of academia, the principles advocated by the Austrian School of Economics have been so silenced that most of us who graduated from Western institutions of education with MBAs, graduated never having heard of Friedrich A. Hayek, one of the pioneers of the Austrian School of Economics. This, despite the fact that his economic principles are so important that he is the most quoted economist in the acceptance speeches of Nobel Prize winners in economics.

In fact, by cleansing banking history and monetary policy in all textbooks of any honest discourse about the Austrian School of Economics, Central Banks have even shut out nearly all Western educated young men and women from possibly understanding the true roots of this crisis. The reason for this is simple: If people understood Austrian economic principles, there would be instantaneous revolt in the Western hemisphere against the loony monetary principles enforced upon us by Central Banks. Ignorance is the great pacifier. Those who are ignorant of Austrian economic principles and most hurt by the financial oligarchs that inflict Keynesian economic policies often the economy often serve as their staunchest defenders and apologists. For example, the retail investor who defends current stock market rallies in China, Europe and the US as “fundamentally sound” and “sustainable” will be the first person to be wiped out when these rallies ultimately and necessarily crash.

It is an absolute lie when the media and financial executives stated last year that no economist foresaw the blowback of decades of loose monetary principles that created the perilous situation the world suffered in 2007 and 2008. And when they tell us that this crisis has bottomed, this is a lie too. It is true that no Keynesian economist forecast this crisis; however, there were plenty of Austrian economists who forecast nearly every step of this crisis months and even years before this crisis unfolded. I, myself, back in September of 2006 started writing about a “Peak Investment Crisis” and I was hardly the only one who foresaw the depth of this crisis more than 3 years ago.

Furthermore, one could review the very public predictions of self-proclaimed adherents to Austrian economic principles such as Jim Rogers, Max Keiser, Ron Paul, Peter Schiff and many others for the past 3 years as well. I am very confident that you will find that strong proponents of Austrian economics were well accurate in the majority of their predictions while all of our banking and political leaders were atrociously inaccurate in their predictions as a group. Given the huge chasm in the accuracy of predictions between proponents of Austrian and Keynesian economics, were it not for a realization that the media are shills for the financial oligarchs, it would indeed by perplexing to try to understand why they continue to marginalize the accurate predictors as “gloom and doomers” and continue to heap praise upon the atrociously poor predictors. I, for one, refuse to give power or credibility to the term “gloom and doomers” as it surely is a favored discrediting tactic of the financial oligarchs that rule the US Federal Reserve and the world’s other Central Banks.

The US Federal Reserve has always been eager to re-inflate collapsed asset bubbles with cheap credit and ultra-loose monetary policy (just reference the actions of the US Central Bank, post-crash, after the 2000 dotcom stock market crash, and the more recent US housing crash). In the face of a runaway asset bubble, however, Central Banks have always been reluctant to rein in the flood of malinvestment created by their loose (and damaging and foolish) monetary policies by raising interest rates. In fact, the only time that I can recall the US Federal Reserve proactively, instead of reactively, attempting to curb inflationary bubbles was in the late 70’s and early 80’s, when they raised the Fed Funds interest rate to 20.00% in order to serve a larger private agenda and prevent the US dollar from collapsing.

But today, eager to reinflate the stock market after the US housing market plunge, they have successfully re-inflated the US S&P 500 to a P/E valuation that, for the last four months, has been 7.5 times higher than its historical average of 17.79. And as usual, the US Central Bank stated yesterday that they have no interest in stopping this runaway malinvestment bubble either as they stated they will leave interest rates near zero for the foreseeable future.

Central Bank policies, as usual, only serve to postpone and exacerbate the problems that their loose monetary problems create by engineering illusory recoveries that are entirely borne out manipulating the monetary system that they control, but that have zero basis in fundamentally sound economic principles. What do I mean by this? It is quite simple. When economies struggle, Central Banks never seek to solve the root of the problem, but instead, choose to artificially cut interest rates due to Keynesian economic theories, even when free market dynamics call for no such actions. Consequently, a flood of cheap credit leads to spikes in investment borrowing solely due to cheap credit and not because of the existence of appealing investment opportunities that offer good growth prospects.

The flood of easy money that Central Banks create now needs a home, as investors don’t borrow money to earn less than 1% annual interest in a bank savings account. The home, outside of entrepreneurs who may reinvest this money into their own businesses, is either the real estate market or the stock market. In the case of the stock market, since the stock market was not demanding more new money but has been force-fed new money, it continues to absorb the excess liquidity artificially created by Central Banks even when stocks are already fairly valued and even overvalued. This is Central Bank force-fed malinvestment, not economic recovery, and outside of the manipulation of Wall Street high frequency computer trading programs, this is precisely how we ended up with an S&P 500 with a P/E over a 133 for the last four months.

In reality, if free markets were free of Central Bank meddling, and allowed to function and set interest rates, proper interest rates would be set, and the appropriate amount of borrowing and investment or disinvestment would occur in US stock markets to achieve a healthy valuation of stocks. Instead, when Central Banks' artificially create excess money that free markets do not demand, excess money chases poor investments, distort asset prices, and create an extended period of malinvestment. So while periods of malinvestment can last for exceptionally long periods of time as long as Central Banks keep shoving cheap credit down the throat of the economy, the “economic recoveries” they produce are unsustainable and therefore nothing more than prolonged periods of ill-advised malinvestment. Under these conditions, every higher rise is, in reality, nothing but a greater distortion and move away from fair market values that plant the seeds for a future disastrous and inevitable crash that cannot be prevented.

A recovery under these conditions, commonly and erroneously referred to by the media as a “boom”, is not a “boom” at all, but a mass distortion of prices not set by free market forces of supply and demand, but deliberately engineered by foolish Central Bank monetary policies that successfully “bait” foolish individuals and institutions. History tells us that malinvestments always end up in busts. Not in small corrections and further sustainable growth for the next five years as Keynesian economists would want you to believe, but in spectacular busts. This is why I can be 100% sure that a spectacular bust is in the future of the US stock markets and that the only question that remains is the timing of this bust.

And when the bust that is inevitable occurs, you can be 100% sure that the financial shills that are our mass media will once again erroneously describe the “bust” as an “unforeseeable event”. Through the lens of an Austrian economist, this bust is necessary as it is part of the market’s self-healing process whereby it sheds itself of the distorted value caused by prolonged malinvestment and returns assets to their proper fair market valuations. Of course, in the process of the bust, panic often ensues which depresses assets below fair market valuations.

In fact, if one just switches the media’s descriptions for stock market rises and gold and silver market rises, then one would have a correct representation of reality. Stock market rises that are described as sustainable and healthy are more apropros descriptions for the rises in gold and silver markets, whereas the speculative bubbles they use to describe gold and silver markets is a more fitting description for the stock markets.

For the reasons described above, I am 100% certain that the reinflation of the US stock market, the Chinese stock markets and the European stock markets will all end up in disastrous busts. People don’t understand that the predictions made by the small handful of us who advocate Austrian economic principles are not driven by a genetic propensity towards pessimism. To the contrary, our predictions are driven by the logic of real world application.

For the last century, Central Banks have interfered with free market forces and imposed loose monetary policies that have led to the formation of asset bubbles that were unsustainable in nature. In every single instance, these bubbles did not undergo mild corrections and further periods of sustained growth, but all eventually experienced spectacular crashes. Thus, the continued application of the same strategies by Central Banks today are already predestined to fail in the same manner. To call Austrian economics a “doom and gloom” economic theory is a great miscarriage of justice. If its sound principles were applied by world governments, then sustainable steady growth could be achieved without the cycles of boom and bust we experience every four or five years.

If the media insists on playing the role of financial shills and calling advocates of Austrian economics “gloom and doomers”, the least they could do is reciprocate and label Central Banks and all proponents of their monetary policies as “psychopaths”. Though one may believe such a label to be unduly harsh, the clinical definition of a psychopath is one who regularly engages in antisocial behavior and exhibits a chronic disregard for ethical principles. When Central Banks continually engage in the same loose monetary schemes when they already know that the end result will be massive failure, this behavior embraces the clinical definition of a psychopath. What the people have failed to realize for the better part of this past century is that the private families that own and operate Central Banks have reaped great rewards from creating these massive failures, with the cost being the great destruction of a nation’s wealth.

Henry Ford once reportedly stated, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, there would be revolution before tomorrow morning.” One thing we have learned today is that Central Banks have insured that the people of our nation still do not understand how our banking and monetary system works. For if they understood, they would not be following the road to destruction that is deliberately being paved for us by the US Federal Reserve, not dissimilar to the behavior of suicidal lemmings that follow one another off the edge of a cliff.

One tenet that all Austrian economic adherents would support that will never receive any acknowledgment from Keynesian economists is the following: Central Banks are a burden upon all humanity, and that until all are banished from this Earth no progress in economic or political freedoms is possible. It is an absolute myth that Central Banks are necessary for sustainable economic growth and that in their absence, anarchy would reign. There is no historic proof of this. In fact, during periods of history when Central Banks did not exist, much greater economic stability and sustainable growth persisted. If humanity were successful in shuttering all Central Banks, this would be the greatest modern day gift to humanity as true “green shoots” – free markets, economic freedom, and a realistic chance to finally end poverty – would blossom. Central Banks are masters at creating illusory economic recovery, and as we know, all illusions must eventually crumble.

Comments

[ryanclarke:]

It's just a matter of time and pressure to quote the guy from the Shawshank Redemption. If Bernake does not become Volkernized and defend the dollar .... within six months imports, in particular, gasoline prices, will go through the roof regardless of world demand for oil. Don't worry Mr. Kim, America is not Japan even though Summers is stupid enough to think he can turn this country into an "export" economy of technology within a year. Either Bernake forces the banks to take their losses in the fourth quarter earnings as they are supposed to .... which means an S&P of 600 this year .... or we have pretend monopoly money next year and prices at the pump of $6/gallon. You can kiss off the economy either way.

Sep 24 05:37 PM

[Leftfield:]

Central banks are all purveyors of fiat currency brought about as a debt to the nation. We pay them interest on their fiat. This brings about ultimately unpayable compounded interest in the economy every time.
Add to that, ultimate insider information they have for their policies; no wonder Woodrow Wilson said on his deathbed that his greatest regret wasn't WWI, but signing the Federal Reserve into law. The Fed immediately started with shenanigans to finance WWI and bail out Britain, which eventually led to the Depression. And the incredible misallocation throughout our economy now, with bloated government as well as excessive debt. The greatest evils of the 20th century were financed by central banker's funny money and continue with bought-off interests everywhere as we have strayed so far.
Sound money makes for sound decisionmaking. Sounds like day one, Economics 101, but you would never know it listening to mainstream economists..

Sep 24 05:50 PM

[ryanclarke:]

I should go on to mention that if Bernake does do the right thing and decide to defend the dollar there is a decent chance that there will be enough slack in the reduced depletion of the fundamental resource of oil to allow new technologies to come on line. Natural gas powered transports being but one. If Bernake is stupid enough to think he can inflate and sweep bank losses under the rug ... then Jim Rogers and Faber are 100% correct. Go get a gun and a plow .... because we are all going to be farmers, grow are own food, and defend our land with a bow and arrow if we have to. With gas at $20/gallon within two years because the world won't take a break from using oil, you better believe we are all going to learn how to ride a horse to town whether we want to or not.

Sep 24 05:52 PM

[lynnybee:]

..... another great article from one of my favorites, Mr. Kim. Sincerely ..........

Sep 24 06:02 PM

[Bill S. Friend:]

There is a pervasive anger rising from people who are beginning to understand the crisis we face. In the old west it was customary to shoot cheats and hang horsethieves on the spot. Seems like a reliable deterrent. There is a hearing tomorrow 9/25/09 at 9 am to audit the federal reserve. This link will let you enter your zip code and see if your congressman is supporting HR 1207.

www.ronpaul.com/on-the.../

It is vital that we all call the members of Congress that serve on the Financial Services Committee. It is imperative that we remind our Representatives not just to support an audit of the Fed, but we must also demand that they vote on this bill on its own merits, without adding or taking away from it in any way, and without adding it to any other legislation.

There are 71 members on this committee and they are all listed on the web site. Call their offices, write to them, email them. Let them know they need to support HR 1207 and demand an up or down vote in the House. If you live in their district, let them know. Go to their office.

Sep 24 08:13 PM

[TinyTim:]

If one examines the track record of the US Fed over the last 80 years, it becomes obvious that the answer to your question is they have done a lot more harm than good.

Fiat money and the related fractional reserve banking is a scam promulgated on us suckers.

The Fed has painted itself into a corner this time and is hoping to buy enough time for the paint to dry. One misstep and our creditors will hang us out to dry. Which is the same as saying the stock market will crater.

The Fed game plan to get us out of this fiasco is obvious, but I don't think they have either the expertise or luck to pull it off. It's unfortunate that neither the Fed nor Congress has the monetary or fiscal discipline to make fiat money work.

Sep 24 10:09 PM

[Hephasteus:]

Great article Mr. Kim. But you don't go far enough. The central banks always have a plan. Whether it be to create more facade monopolies that pretend to have competition or bring someone under control at a far off distant land or what have you, there's always something behind it. I think this is a plan to strip themselves of any regulatory capability. If you think back to just how fast and hard the central banks work from all the crashes leading up to the great depression this has been basically a long stale mate that they want to crush. They can't do it without causing alot more pain and suffering and uncertainty than they are capable of now. Remember paulson wanting the bailout no strings attached with no recourse for prosecution? It's simply because they knew that everything done with the 700 billion was illegal. Since then there's been much parading and hemhawing about SEC failures and trying to develope another system to replace it. They seek to have the power to destroy the economy at whim as a blackmail tool for any law or policy they want to put in place.
Their psychology is sociopathic by nature. So they need alot of stimulation. They just don't feel In control if they aren't pushing everything to the brink of destruction. The fed is in control of the supply of money and theres never enough supply to meet demand as it constantly struggles to repay debt while the FED creates more debt out of thin air. This causes uncoperative competitve energies that seek to extract the most out of everyones labors and margianilize the powerless to greater and greater degrees. It's a devisive tool using the only thing on this planet that EVERYONE needs. Money.

Sep 24 11:00 PM

[Yohei:]

Agree fully that the Austrian school is an accurate description of reality. Certainly it is the only theory that back tests economic history.

Sep 25 12:06 AM

[Jason Rines...:]

1) I am living prove of your beliefs Mr. Kim in Austrian Economics or just call it Fundamental Economics. I had excellent Fundamental VC mentors in Boston between 2005-2007.

2) I called the crash in August of 2007 between Bejjing Olympics and the Presidential Election. I didn't even have a Haaavahd degree.

3) I issued a memo to our management and board advisors (mentors whom took tiny equity positions in my business for being a humble student) that we would shorten our liquidation event from 2010 to spring of 2008.

4) Malinvestment. The TBTF intermediaries lined up at the discount window in February of 2008 and dropped the dough right into energy. My second round negotiations were slaughtered in there tracks when oil got above $110. Seems the potential acquirers were realizing the gravity of the situation.

5) Media shrills and blackouts. I am doing something very interesting about this. You would likely find it fascinating. Feel free to email to 'chat' someday.

All can go back to my comments here at SA from the beginning to validate points 1-5. I don't disagree the outcome at best for the USA is another lost decade or we become a total command economy lining up for our daily bread at worst. Strange to see 27 Czars in the White House...

Sep 25 01:58 AM

[derryl:]

Another clear thinking article. Thank you Mr. Kim.

Truth is the friend of those who seek to understand reality so we can align ourselves with it. Truth is the enemy of those who seek to manipulate reality for their own ends.

While I am not convinced that a gold based monetary system is superior to a fiat system, I do think the Austrians understand the macroeconomics of money and debt. The same psychopaths who manipulate fiat to enrich themselves and to gain control could manipulate and hoard gold to gain control. Gold-money is not a panacea.

Nor is fiat money necessarily a catastrophe-in-waiting. Our system of issuing ALL money as debt is catastrophic, and giving the money creation power to a privately owned for profit central banking cartel is a recipe for oligarchy. If governments took back from central bankers their constitutionally obligatory authority to issue money, and if the fiat money was freely created then distributed by using it to pay out program expenditures, the economy could be provided with whatever quantity of non-debt money it needs.

Sep 25 02:04 AM

[debtacid:]

I am reminded again of a USC business school grad who tried to sell me some financial product. During a casual discussion about gold, silver and real estate, I had to explain to him what a fiat currency was.
The most shocking aspect of central banking that has become so clear is the absolute power they exercise behind the scenes with no accountability whatsoever. They are unelected debt slavers who should be dragged in to the light of day.

Sep 25 02:25 AM

[Donald Duck:]

"It is dangerous to be right when the government is wrong."
- Voltaire

Sep 25 02:40 AM

[Hephasteus:]

I agree with debtacid. I have no proof or any way to back it up but it's a relatively common spiritual beleif that everything we learn in human form is retained 100 percent. By distorting the education and integration of people into the conciousness in such a obfuscated way it keeps the fractional reserve paradoxes and lies going. Charging interest doesn't work with gold. It won't inflate its atoms to match the interest matching mathematical model. This is why all gold based systems are ultimately doomed. You have too much population growth which isn't offset by mining. You eventually get too many new participants in the system and adding on interest you eventually get a system where you have too many paper receipts for too little underlying assets. Any fractional reserve system run for 40 years or more will eventually give you upwards of 2 to 4 times more paper receipts than are available for the underlying gold assets just from illogically adding interest to items in the system that are at a rate that doesn't match mining activity which would be a very very small percentage. Pegging gold price at a fixed value makes people feel comfortable with system but then increasing the paper supply through the mutable channels of mortgaging and population growth eventually create a valuation and asset paradox.
The only system that can eventually work stably for centuries would be a purely fiat system without any members of the system being able to print money unless it was to meet a new economic activity or to adjust money supply for increase in population. The mathematical hyperactivity of fractional reserve systems has gotten people accustomed to 30 40 and 50 percent taxation rates as they are necessary to balance the system. A purely fiat system could work very well with very small tax rates.
The system we have now has several advantages for control of the people. The banks become just about the only creative source because they get to make up the money and get to have nearly all say in who has access to money and who doesn't. They get to avoid democracy because so much money flows back to them that they can create and do new programs and undertake massive operations without even asking for the funds from the people. The people just become cog pieces to whatever the banks and corporations that develope around them wish to do through the government.

Sep 25 02:50 AM

[MattGigEm:]

Mr. Kim, if you were to recommend one book to serve as a primer for the Austrian School of Economics, what would it be?

Thanks for the great articles.

Sep 25 11:52 AM

[obewon:]

Thanks for another great commentary, J.S!

The Blight that is the FED:
The FED (and central bankers, in general) are an economic blight on the face of the earth. Since 1913, the general public has been brainwashed into believing that the FED was essential to a smooth running economy, when in reality, the reverse is true. The “law” that established the FED as a “private bank” was passed late at night, in late December of 1913, during a Congressional recess. The Power Elite at that time
(e.g. JP Morgan, Hapsburgs, Rothschilds, Warburgs, Rockefellers) were the force behind the creation of this illegal law, established so they and their families could benefit from the transfer of wealth from the US population.

The FED as Psychopaths:
Arguably, one could say so; they certainly fit the mold. But, without question, the 20,000 employees and consultants at the FED certainly qualify as being “non violent sociopaths”, defined as people who:
a) are completely free of internal restraints, whether from government or the general public
b) take illegal actions that are kept invisible from the population at large
c) believe they answer to no one, and are therefore able to do anything at all
d) are without conscience.

The FED ~ From the Eyes of Abe Lincoln:
In the early 1860s, Abe Lincoln recognized the illegal and despicable behavior of the Power Elite in the USA. Though the FED wasn’t established until 1913, he had this to say about them.
“The money power [i.e. the Power Elite] preys on the nation in times of peace, and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throws light upon its crimes. - Abraham Lincoln

Bill Friend’s Comment:
I encourage all readers to read Bill Friend’s comment, as it is “on the money.” The FED will be audited, in spite of the fact that the politicians (including Barney Frank and Chris Dodd!) have slow-rolled Ron Paul’s cries in the wilderness for years!). No doubt, the politicians will try to “water down” this legislation, because that is what politicians do best. However, in my opinion, it is essential that HR 1207 be passed “as is”, without adding or taking away from it in any way, as Mr. Friend has stated. Please consider this carefully, then contact your elected officials.

P.S. @ Jason Rines:
Good Calls! Obama now has over 30 direct report “Czars”, who freely bypass Cabinet officials. Within the Executive Branch of government, it’s only a matter of time before the internal squabbles and turf fights begin. Clearly, Obama doesn’t understand the First Principals of good management (and sadly, I was a strong supporter of Obama in 2008!).

Sep 25 04:36 PM

[debtacid:]

It still amazes me how millions of brainwashed sheeple think they can be in debt their whole life and then somehow end up rich in the end.
When you hold a gold or silver coin in your hand, you decide exactly how much its worth, not some central authority. Gold and silver are the ultimate power to the people and without it, they can never be free. Big banking, big government, and big military are the only benefactors of fiat paper until it collapses. Scarcity is exactly why metals are a great store of value that can’t be manipulated except by fraud. In addition, metals appreciate over time which makes them a great personal investment for the little guy. Imagine how great it would be to save a little gold when you are 20 and have it be worth more when you are 40. Instead, you make some fiat currency when you are 20 and it’s worth half when you hit 40. It’s impossible for the little guy to get ahead unless he risks his currency at some wall street churn mill.
Every civilization evolves from sound money and every civilization collapses when some parasitic government comes along and institutes a fiat currency. The framers understood these simple concepts very well which is why gold was codified in the constitution. Hating central bankers is as American as apple pie.

Sep 25 06:54 PM

[BRUCE E. W.:]

THE SHOCK DOCTRINE:THE RISE OF DISASTER CAPITALISM BY NAOMI KLEIN 2007 naomiklein.org
Read it and weep.

On Sep 25 11:52 AM MattGigEm wrote:

> Mr. Kim, if you were to recommend one book to serve as a primer for
> the Austrian School of Economics, what would it be?
>
> Thanks for the great articles.

Sep 25 11:09 PM

[BRUCE E. W.:]

www.atimes.com/atimes/...

www.atimes.com/atimes/...

www.piie.com/publicati...
AND DUE IN NOVEMBER:
1 "China’s New Order: Society, Politics, and Economy in Transition"
Hui Wang; Paperback; $13.94

1 "The End of the Revolution: China and the Limits of Modernity"
Wang Hui; Hardcover; $17.79

WITH RESPECT: For Mr. Kim. (Please also read Shock Doctrine by Naomi Klein) I look forward to your further ventures in self-education; but I strongly advise you to stop eating Brand. Che Che

Sep 25 11:45 PM

[I am not a ...:]

Same here.I cannot fault your logical argument and I'm in a country which never went into recession because of the anti- keynesian economics of our previous government under John Howard.


On Sep 24 06:02 PM lynnybee wrote:

> ..... another great article from one of my favorites, Mr. Kim.
> Sincerely ..........

Sep 26 06:30 AM

[I am not a ...:]

Gold should really be thought of As money,not a means to increase monetary value. When the value of paper scrip fades,Gold is always there to be traded for the staff of life.
The fact gold has risen in Monetary value is merely creme on top .


On Sep 25 06:54 PM debtacid wrote:

> It still amazes me how millions of brainwashed sheeple think they
> can be in debt their whole life and then somehow end up rich in the
> end.
> When you hold a gold or silver coin in your hand, you decide exactly
> how much its worth, not some central authority. Gold and silver are
> the ultimate power to the people and without it, they can never be
> free. Big banking, big government, and big military are the only
> benefactors of fiat paper until it collapses. Scarcity is exactly
> why metals are a great store of value that can’t be manipulated except
> by fraud. In addition, metals appreciate over time which makes them
> a great personal investment for the little guy. Imagine how great
> it would be to save a little gold when you are 20 and have it be
> worth more when you are 40. Instead, you make some fiat currency
> when you are 20 and it’s worth half when you hit 40. It’s impossible
> for the little guy to get ahead unless he risks his currency at some
> wall street churn mill.
> Every civilization evolves from sound money and every civilization
> collapses when some parasitic government comes along and institutes
> a fiat currency. The framers understood these simple concepts very
> well which is why gold was codified in the constitution. Hating central
> bankers is as American as apple pie.

Sep 26 06:33 AM

[Asbytec:]

I have to agree with everyone here. I believe in capitalism, but our system (and not so much capitalism as the financial system it operates under) has gotten way out of hand when only a few own nearly all the wealth...and it's not even real wealth...it's derivative, synthetic, Ponzi wealth. The rest of the wretched must fight over the scraps to pay off debt which is recycled into the proverbial trough from which the banks slurp.

We need a new banking system, one which does not indenture the population and provides a store of real wealth for the common person...as well as profits for those who risk, of course. A fiat currency fails miserably as a store of wealth, inflation sees to that. Inflation also diminishes our propensity to save (thank goodness for our bought of deflation.) Thus, we are forced to borrow our wealth. Such is our banking system...it needs to change and provie a means to wealth for all, the rich and the wretched.

But, if we are to have our current banking system, then the only way to save it is to pump money into it...tax money, unfortunately. Folks call this Keynesian economics, I guess it could be. The stimulus we were supposed to get is closer to my understanding of what Keynes intended. By the way, everyone saw that email showing how many huge stacks of money comprised billions of dollars? Somewhere in that huge warehouse full of money, I was to get two and a half pieces of that paper. We know who got the rest.

Sep 27 08:15 AM

[User 493636:]

I totally agree with Mr Kim , but the question here should be how far and how high central banks can take the asset prices.
Every investment asset right now is expensive including Gold at the moment, i am not saying Gold can not go higher than wherever it is right now .
What is left to inflate how far you can inflate when there is no jobs coming to bussiness life and prices are constantly rising.
Fed is only shifting the wealth from people who saved their dollars to incompentent people who purchased assets that they can not afford.
Can be homes, stocks and so on....
This is the robbery of the century with banksters hand in hand with politicians who call themselves leaders and of course the Fed.

Sep 30 09:53 AM

[J. S. Kim:]

Sorry for the late reply here but I rarely have the time to read any comments on my articles. In fact, many times I'm not even aware of what articles from my blog that Seeking Alpha chooses to reprint and which ones they do not. But just happened by today and saw your comment. So I hope you revisit this article to pick up my reply here, though it arrives very late.

I can't really say I can recommend just one because there are several great books and also it is necessary to read books on the two main Austrian theories advanced by Hayek and those advanced by Mises to achieve a well rounded view of the Austrian School of Economics and avoid a narrow interpretation of the theories. But here a few (I apologize for not just recommending one!)

(1) Theory of Money and Credit, Ludwig Von Mises
(2) The Road to Serfdom, Friedrich A Hayek
(3) The Pure Theory of Capital, Friedrich A Hayek

These books should serve as a "core" reading for those being introduced to Austrian economics. Furthermore, they do a fine job in dispelling the false notion that Austrian economists desire zero regulation, as they make cases for government regulation to ensure the smooth operation of free markets. They just don't want any type of central planning in the regulation of a nation's monetary supply, for the idea of central planning is antithetical to the idea of free markets.

"The Road to Serfdom" makes many prescient remarks. For example, Hayek claims that the founding of Central Banks, and the institution of a central monopoly over a nation's monetary supply is a critical ingredient for the rise of fascism, and then tyranny. He states that the notion of a failure in central planning will be sold to the public as the direct result of inadequate power as a ploy by Central Banks to seize even more power.

We have seen this happen when Timothy Geithner and the Obama administration tried selling the unfolding of the financial crisis to the public as a result of the Federal Reserve possessing inadequate powers to prevent the crisis, though the Feds were responsible, in reality, for creating the crisis. Though the Federal Reserve has seized additional powers due to this crisis, just as Hayek predicted, they are still attempting to seize even more power. Yet they already have extraordinary power that is already beyond dangerous to the interests of all Americans and all citizens of the world. Hope those books help!


On Sep 25 11:52 AM MattGigEm wrote:

> Mr. Kim, if you were to recommend one book to serve as a primer for
> the Austrian School of Economics, what would it be?
>
> Thanks for the great articles.

Oct 02 12:21 AM