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Happy Easter Bunny from the Folks at the FED!

Ben Bernanke Admits to Milton Friedman that the FED caused the Great Depression

Professor of Economics Todd A. Knoop: Modern Economics is a Joke

Andrew Jackson on Central Banking

Andrew Jackson on Financial Reform






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Trionfo Publishing News Blog

March 19, 2010

Happy Easter Bunny from the Folks at the FED!

Publix Supermarket is selling Federal Reserve "Bunny Bucks" for $2.50. Publix assures us that the bunny money is legal tender everywhere in the United States.

Bunny Money

We all like bunnies and it is very nice of the FED to help out charity by selling us a one dollar Federal Reserve note for $2.50 but todayís Federal Reserve note is worth 3 cents in 1913 dollars thanks to the FEDs many years of "fighting inflation".

What would we do with out the FED?

The FED was born in 1913 as the result of the machinations of Jewish Bankers who wanted to get the US into World War I in order to destroy the Ottoman Empire so that the state of Israel (New Khazaria) might be born.

Benjamin H. Freedman, Germany and the Jews: The Role of the Jews in WWI and WWII

The FED has not only given us the Great Depression and the Volker Recession but almost every recession since then.

Ben Bernanke Admits to Milton Friedman that the FED caused the Great Depression

"On the occasion of Friedman's 90th birthday, Ben Bernanke (the current Fed Governor) remarked: 'I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.'"

But it is not responsible for the current downturn in the economy. Data from the FED website and Grolierís Encyclopedia clearly show that interest rates and the national debt exhibit a 54 year cycle (called a Kondratieff cycle).

Nickolai Kondratieff was a Soviet economist who was banished to a Siberian concentration camp by Trotsky for his blasphemy against the Marxian prophesy that capitalism would fall of its own weight. He suggested that the capitalist economy ran on long wave cycles of 50 to 60 years.

Nikolai Kondratieff

Real increases in price (not merely due to inflation but due to increasing demand) affect interest rates. It is no coincidence that Paul Volker triggered the recession which bears his name when public debt was at its lowest since the end of the Second World War. Old debt was being retired faster than new debt was replacing it so the FED decided to crash the economy. The economy was weak because it was in a transition between increasing and decreasing demand. It was at a plateau, an inflection point, where an increase in treasury bill returns above that which was being paid by AAA corporate bonds would cause the economy to crash, which it did. Jimmy Carter paid the price, he was not re-elected. Carter was the Herbert Hoover of the second price production cycle in the 20th Century.

You can think of business cycles as the humming of the machines which make the economy work. The problem is not in business cycles as the boot licking establishment economists have claimed but in the manipulation of the money supply by the FED.

The gold standard is often blamed for the "Great Depression" but if we ever had a true gold standard during the FED's now nearly century reign over the money supply then the price of gold would be historically correlated with the consumer price index (cpi). This clearly has not been the case. Indeed, it is only after the US went off the "gold standard" that we see a correlation between gold prices and inflation.

Consumer price index and annual percent changes from 1913 to 2008

(The cpi is given as a fractional change over previous year.)

What we see instead is the FED depressing the gold market to give us the illusion that the US is on a gold standard when it is really not. Controlling the price of gold is not the same thing as a gold standard.

If gold was being used as a currency then its price would have been tied to the demand for money. Instead we see the real price of gold slowly declining or remaining constant regardless of the state of the economy while the money supply continues to grow. This manipulation of the gold market has made gold one of the worst investments in history. This can be seen when we adjust the historic price of gold to 1913 dollars.

As can be seen, the real price of gold has been either on the decline or stable between 1913 and 1970 except for an abrupt rise in the early 1930s during the depression. Even then it only rose back to its previous 1913 level. The next 35 years saw a slow decline in real gold prices until the US went off the "gold standard" in 1970 when it rose to above its 1913 value and then began a sharp decline catching many investors with their pants down. It then fell below its 1913 value and began an abrupt increase to almost 3 times its 1913 value and then fell just as abruptly back down to its 1913 value. After another sharp increase it began a slow downturn in real value to about 60% of its 1913 value.

This was accomplished by Executive Order 6102 and the Gold Reserve Act of 1934 which limited the amount of gold which Americans could own and fixed its price.

The Gold Confiscation Of April 5, 1933

Executive Order 6102

But the dollar was not based on the amount of gold that the Federal Reserve had in its vaults. Its value was tied to other national currencies which were controlled by the same bankers who ran the FED.

Chart of who "owns" the Federal Reserve">

Not to be outdone by the FED in the smoke and mirrors department is the US government. A careful analysis of the unemployment and inflation data shows curious cycles of about 4 year and 8 years.

What could be causing this? Well, we know that a reduction in demand can cause firms to lay off workers and an increase in the price of goods and services can cause a reduction in demand. Could it be that in their never ending efforts to cure unemployment with Keynesian economics the US government has been increasing the money supply using the FED to delay the inevitable inflationary effects?

An increase in the money supply may reduce unemployment initially but invariably it also results in reduced demand because of an increase in the price of goods and services which, as we know, reduces demand and leads to an increase in unemployment.

All this results, of course, in a continual devaluation of the dollar with the FED making money on each turn of the merry-go-round.

But it creates the illusion of enormous growth there by justifying the inflationary policy.

(GDP is given in billions of dollars.)

As shown in the above graph, over the last 60 years the real GDP of the US has grown ony about as much as the increase in the size of the US population (proportionally).

Today if you say someone is "sound as a dollar" someone might be prompted to call an ambulance.

The incredible shrinking dollar owes its diminutive powers to the wars made possible by the FED: The First World War, The Second World War, the "Cold War" and now the phony "War on Terroism".

The vast majority of people in America, of course, do not want this wasteful and from their point of view stupid spendingon war but they seem powerless to stop it, perhaps because it has been written

"The rich ruleth over the poor, and the borrower is servant to the lender."

...Proverbs|22:7

and

"Give me control of a nation's money and I care not who makes the laws. "

...Mayer Amschel Bauer Rothschild

and

"The time to buy is when blood is running in the streets"

...Nathan Rothschild

Nathan and Adolf Rothschild

and

"Deuteronomy|15:6 For the LORD thy God blesseth thee, as he promised thee: and thou shalt lend unto many nations, but thou shalt not borrow; and thou shalt reign over many nations, but they shall not reign over thee.

Deuteronomy|23:19 Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury:

Deuteronomy|23:20 Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it."

...Levite Priests

The Levites and the Law

Zionism and the Third Reich

Data Sources:

Grolier's Electonic Encyclopedia

Federal Reserve Website

The US Unemployment Rate January 1948 to January 2010

Consumer Price Index Data from 1913 to 2010

US Government Spending As Percent Of GDP

It is claimed by a Wikipedia article that Milton Friedman dismissed Edward R.Dewey's "Cycles the Science of Prediction" as "pseudoscience".

"In 1947 Edward R.Dewey and Edwin F. Dakin published their book Cycles: The Science of Prediction which argued the United States economy was driven by four cycles of different length. Milton Friedman dismissed their theory as pseudoscience"

Edward R. Dewey

I have read the book. This is not true. It is true that the book has no bibliography nor are references cited at the end of chapters but Dewey does give footnotes. And despite the fact it that Cycles was written in 1947 one can predict the current downturn in the economy and in the real estate market by extrapolating the predicted curves into the future.

Milton Friedman claimed on the Charley Rose show that the FED "broke the back of inflation" in the 1980s. Does this look like a broken back to you?

Behold What The Fed Hath Wrought!

As far as cycles theory being a "pseudoscience", I can only say that while cycles theory has not yet been perfected it beats the hell out of all the other economic theories including the "monetarism" of Milton Friedman.

Professor of Economics Todd A. Knoop: Modern Economics is a Joke

"The jokes are almost as old as the profession itself.

Q: Why did God create economists? A: To make weathermen look good

(That was before NASA started launching weather satellites).

Did you hear that economists have forecast 8 of the last 2 recessions? Or how about the one-handed economist, who was popular because of his inability to say "On one hand, but on the other hand..."

Economists themselves have been no less critical of their profession's ability to forecast the future. The economist John Kenneth Galbraith (Wall Street Journal, Jan. 22, 1993) claimed "There are two kinds of forecasters: those who don't know and those who don't know they don't know." Because of the poor historical performance of economic forecasting, many firms have reassessed their need for extensive and personalized economic forecasts. In the 1950s and 1960s, many firms hired in-house economists to do their forecasting. Today, almost none of the Fortune 500 companies directly employ economists. For example, IBM had 26 economists on their staff in the early 1970s, but today they have zero. Instead, they avoid relying on forecasts altogether; or at the very least, they rely on one of a small number of commercial economic forecasting firms to provide general macroeconomic forecasts at a relatively small price."

Recessions and Depressions: Understanding Business Cycles

Friedman's monetarism went out of style when Paul Volker crashed the economy in the early 1980s on Friedman's advice. The Volker Recession was the worst economic disaster since the Great Depression. Perhaps it was the snubbing by his fellow economists that made Friedman spill the beans on the FED.

The problem that cycles theory has in gaining a following is not in the theory but in the misrepresentation of the theory by its opponents and proponents. The Great Depression is often cited as an example of the down side of a Kondratieff cycle but this is not true. The Great Depression was caused by the same thing which caused the Volker recession: the manipulation of the money supply by the FED. In both cases the FED reduced the money supply when credit was needed the most causing the economy to crash. This can be seen in the quick recovery of the economy when the Federal government went into hock to the FED because of an increase in military spending during the Second World War and in the quick recovery from the Volker Recession during the Reagan military build up. In both cases, only when the FED got what it wanted, a massive increase in public debt, did it ease its strangle hold on the money supply.

There used to be a very well known business cycle in the rag market when paper was made out of rags. It can be called the beggars-bankers cycle. It goes something like this:

  • Rags make paper.
  • Paper makes money.
  • Money makes banks.
  • Banks make loans.
  • Loans make beggars.
  • Beggars make rags.

We can see here that the supply of money in this fiat-based currency system is dependent on the number of beggars which is in turn dependent on the number of banks. As banks make loans the supply of beggars decrease. As the supply of beggars decrease less and less money is made. As the money supply dries up the interest on the debts can not be paid causing bank failures and increasing the number of beggars. As the number of beggars increase the money supply starts back up again.

From the data collected on interest rates and public debt over the last century we can make the hypothesis that the money demand - public debt cycle is basically a beggars- bankers type of cycle but it is a little bit more complicated than the pun.

Increasing demand for goods and services results in increasing profits and increasing capital investment. This requires money so the demand for money and interest rates also increase. Real prices go up and debt is retired.

As demand becomes satiated, profits and interest rates increase more slowly, level off, and eventually begin to decrease. Debt mounts and real prices go down.

Demand may start back up again as the result of durable goods wearing out but what goods last 54 or 55 years?

Perhaps there is a generational component here. Waves of young people with unmet wants may be produced in 55 year intervals.

Goldstein has suggested that long waves may have something to do with wars but perhaps the 55 year cycle of war and peace which he has detected may only be the result of a 55 year cycle in population density followed by population dispersal.

As the population density increases fewer people want to have children. Instead of becoming monks or using traditional birth control methods the baby boomers of the 1950s slaughtered their progeny in abortion clinics. Abortion was made legal because of the increasing burden of welfare costs on the state.

States which have a low population density and rural areas tend to be more conservative and opposed to abortion and sexual behaviors which prevent pregnancy, while states which have a high population density and cities tend to be more liberal and more violent.

The baby boomers were produced during the down turn of the last 55 year cycle and they are reaching retirement age now. 55 years is about the working lifetime of a human being.

It could be argued that the inverse public debt - interest rate cycle represents only the interaction between government and the FED and is not a real Kondratieff cycle. Public debt was virtually non-existent before the FED was created. But the public debt figures before 1913 may not include private debt. Edward R.Dewey argues that the excessive government spending during wars only distort business cycles and that the cycles snap back into place after the wars are over. The decline in public debt after the Reagan military build up in the 1980s supports this point of view. World War II increased US public debt to 120% of GNP, the highest it has ever been, but according to Dewey it would have been high even if there was no war.

In any case, it is argued here that the inverse public debt - interest rate cycle of the 20th century is basically a demand driven phenomena and that real prices reflect supply and demand in a classical Adam Smith kind of way. Adam Smith is still the best economist who has ever lived; he can rightfully be said to be the founder of the science.

Adam Smith was a Scott. President Andrew Jackson was also of Scottish descent. Like Smith, Jackson had a very good grasp on economic principles.

"If the American people only understood the rank injustice of our money and banking system there would be a revolution before morning."

Andrew Jackson

Andrew Jackson on Central Banking

"When the charter for the Bank of the United States was obtained from Congress, it perfected the paper system, and gave to its advocates the position they have struggled to obtain from the commencement of the Federal Government down to the present hour. The immense capital and peculiar privileges bestowed upon it enabled it to exercise despotic sway over the other banks in every part of the country. From its superior strength it could seriously injure, if not destroy, the business of any one of them that would incur its resentment; and it openly claimed for itself the power of regulating the currency throughout the United States. In other words, it asserted (and undoubtedly possessed) the power to make money plenty or scarce, at its pleasure, at any time, and in any quarter of the Union, by controlling the issues of other banks, and in permitting an expansion, or compelling a general contraction of the circulating medium according to its own will.

The other banking institutions were sensible of its strength, and they soon became generally its obedient instruments, ready at all times to execute its mandates; and with the other banks necessarily went also that numerous class of persons in our commercial cities who depend altogether on bank credits for their solvency and means of business, and who are therefore obliged, for their safety, to propitiate the favor of the money power by distinguished zeal and devotion in its service. The result of the ill-advised legislation which established this great monopoly, was to concentrate the whole moneyed power of the Union, with its boundless means of corruption, and its numerous dependents, under the direction and command of one acknowledged head; thus organizing this particular interest as one body, and securing to it unity of action throughout the United States, and enabling it to bring forward, upon any occasion, its entire and undivided strength to support or defeat any measure of the government. In the hands of this formidable power, thus perfectly organized, was also placed unlimited dominion over the amount of circulating medium, giving it the power to regulate the value of property, and the fruits of labor in every quarter of the Union; and to bestow prosperity, or bring ruin upon any city or section of the country as might best comport with its own interests or policy.

We are not left to conjecture how the moneyed power, thus organized, and with such a weapon in its hands, would be likely to use it. The distress and alarm which pervaded and agitated the whole country, when the Bank of the United States waged war upon the people in order to compel them to submit to their demands, cannot yet be forgotten. The ruthless and unsparing temper with which whole cities and communities were oppressed, individuals impoverished and ruined, a scene of cheerful prosperity suddenly changed into one of gloom and despondency, ought to be indelibly impressed on the memory of the people of the United States.

If such were its power in a time of peace, what would it not have been in a season of war, with an enemy at your doors? No nation but the freeman of the United States could have come out victorious from such contest; yet, if you had not conquered, the Government would have passed from the hands of the many to the hands of the few; and this organized money power, from its secret conclave, would have dictated the choice of your highest officers, and compelled you to make peace or war, as best suited their own wishes. The form of your Government might for a time have remained, but its living spirit would have departed from it."

Andrew Jackson on Financial Reform

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank.

You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal God, I will rout you out!"

Suggested Reading:

Vile Acts of Evil

An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (downloadable from Project Gutenberg website)

Long cycles: Prosperity and War in the Modern Age (on line book)

Secrets of The Federal Reserve (on line book)

Cycles the Science of Prediction (downloadable as PDF file)

Monopoly: Parker Brothers Gets It Wrong






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