Radio Free Market

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Re: A Bank Levy in Cyprus, and Why Not to Worry

Dear Sirs:

Is there any coercive and illegal act by a government anywhere that Andrew Ross Sorkin will not either endorse or rationalize away into the corn field?  Apparently the outright attempted theft by the EU and IMF of Cypriot bank customers is just fine with him.  He reminds me of the old Mad Magazine byline: What, Me Worry?  When will the great New York Times start examining the real lessons of the euro debt crisis, whose latest victims are the Cypriot bank depositors?  It should be apparent that there IS a limit to how much phony money central banks can print in order to cover up the wealth destroying effects of fractional reserve banking.  Ah, yes, we may all actually have to learn something, even New York Times columnists, about the real nature of banking as a depository of current account funds, for which the bank must maintain one hundred percent reserves, and as a fiduciary intermediary, in which the saver lends his money to the banker for the banker’s further lending to his borrowing customers at interest.  The former banking service is completely sound as long as the banker abides by normal commercial law and is prepared to meet his depositors’ obligations at any time, even if they all descend upon the bank at once.  The latter banking service cannot be guaranteed beyond the banker’s capital fund and his reputation for sound lending practices.  So-called deposit insurance is no insurance at all, but merely a promise by the central bank to print as much money as necessary when the banker cannot meet his legal obligations himself.  Fractional reserve banking has violated sound financial and economic laws, which has led to greater and greater crises.  Finally the Germans have said enough, which has revealed the true rot not only in Europe but all over the world, for banking systems everywhere have adopted this fallacious fractional reserve model.  Patrick Barron

By Andy Duncan

Just where do we begin with the Cyprus story?

Obviously, whenever a politician’s lips move they’re usually telling a deliberate lie, except when they tell the truth by accident. But now everyone in Europe, indeed in the entire world, knows that the IMF and the EU are entirely crooked, right through to their cores. Anyone with more than a single brain cell, from the dumbest socialists through to heroic and complete believers in a totally voluntary society, will never trust anything ever organization ever says again, about any subject, which is all to the good.

For to expose themselves as such charlatans and as such liars in such a naked way as to directly steal other people’s wealth in such a brazen fashion, really does mark the noontide of their freeloading arrogance and their parasitical hubris.

From now on, for both mafiosi organizations, the only way is down. For we have entered the realm where global-aspiring government bodies have decided to treat what they think of as their serfs – to borrow the apocryphal words of Doug Casey – as beef cow rather than as milk cows.

They have crossed their own Rubicon and the die will now run against them.

As Jim Sinclair has reported, Russian oligarchs may have had hundreds of billions of dollars squirreled away in Cypriot bank accounts. For the IMF and the EU to steal 10% of this enormous stash via their joint rapine confiscation is obviously direct criminality of the most breathtaking and gargantuan kind. However, such a height of open theft – all at the stroke of a single crooked bureaucrat’s pen – will also generate geopolitical repercussions which will ring out across forthcoming generations.

Although similar in its metaphysical nature to the Roman Republic’s Rape of the Sabines – a key historical abduction which helped grow the nascent power of Rome – this Rape of the Cypriots will instead lead to a rapid decline of the dreadful paper euro currency and then to a slower decline of the appalling EU itself.

So if we’re to use Roman history as our guide, this criminal act is going to have an effect more like the Diocletianic Persecution of 303 A.D., which tried to wipe out Christianity. This massive government crime completely backfired too and achieved the absolute opposite of its intentions, to the point where the most visible remnant of the Roman Empire has become the Christian Church of Rome, a glorious historical rebuke to Diocletian’s original Historicist and murderous intent.

The IMF and the EU have just tried to savage Russia to save the euro. The result will be the destruction of the euro and the rise of what I hope in its fullest extent might become a 100%-reserve golden rouble.

Though I’ll settle for the simple destruction of the euro, if that’s all that’s on offer.

In the meantime, do what the Russians are going to do. Start turning your paper junk into metal ingots.

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This Spiegel Online
International article contains a hidden lesson in the danger and fallacy of
fractional reserve banking, which is completely dependent upon the willingness
of the people NOT to demand their money all at the same time. Murray N.
Rothbard explained this fraudulent system in The Mystery of Banking.
You can download the relatively small book for free from this website. Pay special attention to the chapters on separating deposit banking from loan banking. Deposit banking (demand deposits or current accounts) must be back 100% by reserves. Loan
accounts are the only interest-bearing accounts, because the depositor LOANS his
money to the banker to re-loan to his customers at interest. There can be no
deposit guarantee other than the banker’s capital account and his reputation.
Know this–there is no such thing as deposit insurance. What everyone calls
insurance is merely the government’s promise to print as much money as needed to
bail out the banker when he cannot meet his contractual obligations to repay his
depositors. Such deposit insurance creates moral hazard, whereby bankers take
increased risk knowing that their losses will be partially born by others. This
is why J. P. Morgan’s early 20th century attempt to create a private insurance fund failed.
All he created was moral hazard that encouraged members of his consortium to
take increased risk. As a result, Morgan and others lobbied mightily for the
federal government to create a central bank that would bail them out of their
periodic liquidity crises.

The Great Cypriot Banking Heist is making all this very clear to those who take the time to understand the REAL business of banking.

Patrick Barron

In your report about Japanese scientists unlocking methane stored in ice, you state that “production costs for methane hydrate-derived gas…is nine times the US LNG benchmark…Japan typically pays about four times the rate…”

This is too high a price to pay for the dubious honor of becoming more energy self-sufficient.  In fact, there is no honor at all in wasting the nation’s capital for the fallacious mercantilist goal of self-sufficiency in anything.  Patrick Barron

Re: Nominee for Japan’s Central Bank Vows Aggressive Action

Dear Sirs:
Japan’s new prime minister, Shinzo Abe, wanted a reckless central banker and he certainly found one in Haruhiko Kuroda.  In a world of inflationists he is the current title holder.  The failed Keynesian policies of money printing haven’t worked for twenty years, but that isn’t stopping the new head of the Bank of Japan from printing money until he destroys the yen, with the stated intention of “ending deflation”.  But what is wrong with deflation?  Deflation means lower prices.  Aren’t lower prices what we all seek?  Won’t lower prices mean a rising standard of living even if one does not get a pay raise…perhaps even if one takes a pay cut?  And aren’t artificially high prices a barrier to economic equilibrium; i.e., if housing prices are so high that no one will buy, then prices must come down.  Trying to prop up prices merely keeps the glut on the market.  The Japanese people have been doing their fair share of innovating, working hard, and saving, but government and the central bank have been spending and inflating away all the people’s good work.  This horrible experiment in monetary central planning must end.   Patrick Barron

The adverse consequences of fiat money credit expansion keep piling up.  Sometimes it seems that almost everything wrong with society today can be traced back to unsound money.  I know that I may sound like the heroine’s father in the movie “My Big, Fat Greek Wedding”, who annoyed his family and friends with his claim that every English word could be traced back to the Greek, but hear me out.  The Italians have just given more votes to a new political party, the Five Stars Party, with Beppe Grillo, a professional comedian as its spokesman.  Caretaker prime minister Mario Monti, called a technocrat, was punished for attempting to instill some sort of discipline in the Italian budget.  The electorate would have none of it.  The Slovenians just threw out their prime minister for recommending what has come to be called “austerity”, meaning fiscally responsible government.  Even the usually responsible Dutch have announced that they will not meet the European Monetary Union’s goal of a three percent or less government deficit this year…maybe next year…or maybe never!  The new prime minister of Japan has announced that he will appoint a new head of the Bank of Japan based upon the nominee’s promise to drive the yen lower and generate more inflation.  And in America Fed Chairman Bernanke just testified before Congress that he will keep interest rates at zero until unemployment meets his goal.  Monetary responsibility?  Ha!

Fiat Money Makes It Appear that Resources Are Unlimited

Fiat money, created in unlimited amounts by national central banks, allows government to claim more resources than under a sound money regime.  Over time the public grows to demand more and more from government, knowing that government’s ability to print money allows it to confiscate resources and transfer them to special interest groups.  Any public concern that printing money might be harmful is ridiculed as a failure to understand its stimulative effect, as proven by Lord Keynes himself.  Europe is much further down this road than America, but we are determined to catch up.  With the ability of central banks to buy unlimited government debt, the public has grown to look upon any politician who recommends spending restraint as a throwback to the Dark Ages of analog television.

The effect of fiat money’s “collective corruption“, a term coined by Professor Thorsten Polleit, is to elevate society’s time preference.  Societal values that reflect the way in which man must act to succeed in the real world are eroded over time.  The real world requires savings in order for society to progress.  Savings takes time.  Keynes’ emphasis on aggregate demand would have us believe that consumption is the path to progress.  If this is true, why wait?  Consume now.  Since the central bank can funnel money to government in almost unlimited amounts, it appears that there is no reason to wait.  So we constantly hear that the failure of the capitalist economy must be overcome by government action, and any political leader who advises otherwise will be destroyed at the polls.  Thus has arisen a new kind of political leader, one whose theory of government matches that of the misled electorate.

Leadership Traits for Sound and Unsound Money Economies

Below are listed societal values and leadership traits that are appropriate for economies with sound and unsound money.

Values of a Sound Money Economy:

Savings encouraged in the young

Low time preference required to save

Government spending reduces wealth

Self-reliance celebrated

War consumes wealth

Minimize debt

Private charity encouraged

Private property protected

Leadership Traits in a Sound Money Economy:

Stable private life

Man of personal achievement

Restrained, modest demeanor

Patient and respectful of others

Age a sign of maturity and wisdom

Respect for the law

Frugal

Resists foreign entanglements

Contrast the societal values and leadership traits above with those of an unsound money economy.

Values of an unsound money economy:

Spending encouraged in all age groups

High time preference required to spend

Government spending stimulates wealth

No shame in dependency

War stimulates wealth

Leverage debt

Public welfare as an entitlement

Leadership traits in an unsound money economy:

Private life is irrelevant

Achievement in private life is irrelevant

Flamboyant lifestyle

Impatient and disrespectful of others

Youth a sign of vigor and willingness to act

Disrespect for the law

Spendthrift

Interventionist overseas

Unsound money elicits a leader who will spend and spend

One can see that the traits required by leaders of a sound money economy are not those that will be accepted by voters in an economy with unsound money.  As much as we may desire thoughtful, wise, frugal leadership, the electorate in an economy with unsound money will not accept anyone with those traits.  Instead it will desire those leaders who are most willing to exploit ruthlessly the ability of government to increase state spending.  Thus, most nations at war eliminate sound money as a war measure, because the electorate will feel the war’s expense sooner and, therefore, question the wisdom of continuing.  Domestically, citizens in an unsound money economy expect the government to “do something” about helping them get a college education, the house of their dreams, free prescription drugs, and now even free healthcare.  If you can dream it, government should provide it!  And remember, we need not worry about mundane matters like cost and debt, because all this will take care of itself through the wonders of an expanding economy, stimulated to greater production by government spending of fiat money.

The lesson is clear–wise, frugal, thoughtful leaders need not apply.  A comedian leading the largest party in Italy is simply a manifestation of a process that has been at work for some time and is becoming the new norm.  Experience, integrity, knowledge, etc. are not prerequisites to leadership.  The public desires only a promise to spend…and the more recklessly the better.  Unsound money is a blatant attack on economic reality and leads inevitably to the kind of leaders who are best suited for operating in this environment; i.e., fast-talking, glib charlatans with movie-star good looks and low academic, military, and business achievement.  We want our leaders to entertain us in good times, placate us in bad times (feel our pain), and tell us that we are not responsible for ourselves…that government will take care of us via social programs that can only be funded by unlimited amounts of unsound money.  Until this tyranny of unsound money is removed as a tool of government, we can expect leaders who are as weak and debased as the currency they print.  Patrick Barron