Liberty Maven

A hero of Liberty Maven, Thomas J. DiLorenzo wrote a fantasic article at the Ludwig Von Mises Institute discussing the detriments of central banking schemes that have put us into this economic crises.

Ask yourself this question: was the housing price bubble, which has burst, caused by (a) a Fed policy of too much liquidity, which caused artificially low interest rates, which in turn caused a great deal of malinvestment, or (b) a Fed policy of too little liquidity which caused high interest rates and a credit-starved economy? If you chose answer b, congratulations, you may have a future as a celebrated author, historian, and Wall Street Journal commentator.

Answer b is a theme of a truly ridiculous article by John Steele Gordon in the October 10 issue of the Wall Street Journal online entitled “A Short Banking History of the United States.” The article is an attempt to defend the Fed, its founding father, Alexander Hamilton, and the regime that it finances. (Gordon is the author of a book entitled Hamilton’s Blessing which sings the praises of a large public debt, something that Hamilton himself called a “public blessing.”)

Enjoy the rest of the article here.

Listening to the news every day, one of the biggest problems as I see it is the prevailing attitude that it’s a bad thing when housing prices fall or poorly-run businesses fail.  Why do they not see that housing prices have been far too high for years (thanks to artificially low interest rates), and that it’s a sign of a healthy market when good companies thrive and bad businesses fall?  Today’s article at the Ludwin von Mises Institute addresses the concept of bankruptcy:

Bankruptcy is a normal part of economic life, covered by laws that guarantee stockholders will be compensated as much as possible. More efficient firms move in to take over what is left of bankrupt firms, buying what can be put to productive use. There is no crime in bankruptcy and, if handled quickly, little economic harm. When the largest US energy company Enron went bankrupt a few years ago, there was not even a ripple in the energy markets, much less the economy. Bankruptcy is not criminal and should not be a surprise, but it can be unnerving if large, well-known firms go bankrupt.

Naturally, Big Government’s natural inclination is to intervene further into the private marketplace in attempt to stop necessary declines, which only makes the problem worse, distorts the market even more, and often rewards bad behavior.

One part of the evolving financial bailout is the government using taxpayer money to help people who have not been able to pay their mortgage. The government is taxing those who have paid their mortgages and transferring the money to those who have not. It is not a good idea to reward inefficiency.

The article goes on to discuss the detriments of the recent financial bailouts and the government scrambling to “fix” the problem it created by doing more of what cause the problems in the first place.

Read the article here.

It cannot be argued that the United States of America, once a free nation, is now clearly moving toward socialism.  Today’s article from the Ludwig von Mises Institute points out that we’re headed toward the same fate suffered by the Soviet Union: total economic collapse.

The recent financial crisis has renewed interest in old issues. The Bush administration has announced plans to buy $85 billion in preferred stock in what are (for the time being) private financial institutions, like Bank of America, J.P. Morgan, Wells Fargo, and Morgan Stanley. The total commitment by the Treasury is set at $250 billion. While this move by the Treasury Department into the financial industry is unique in American history, it has precedents elsewhere, and has been debated many times.

Karl Marx proposed “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.” Years later, so-called “market socialists” like Oscar Lange, Abba Lerner, and H.D. Dickinson proposed state control over credit and financial capital. While these market socialists accepted trade and the use of money with consumer goods, markets for capital goods would be simulated and markets for financial capital would be wholly replaced by central planning. Capital investment would therefore be determined by state officials, rather than by competition for funds in financial markets. Lange was particularly clear about how the state would determine the overall rate and pattern of capital investment. State officials would set the overall rate of capital accumulation, instead of interest rates. State officials would also determine the pattern of investment, instead of profit-seeking capitalists and entrepreneurs.

Finish reading the article here…

Today’s article at the Ludwig von Mises Institute, written by Lew Rockwell, discusses the current economic woes, and why we need a sound currency now more than ever.

For believers in liberty and sound economics, it has been a series of devastating weeks. The crisis of fiat money, long foretold by the Austrian school, finally came. But there turns out to be no great satisfaction in saying “I told you so.”

If it would do any good, it would be worth it. But Treasury officials and central bankers are proceeding as if they had nothing to do with actually causing the bubble and the bursting of the bubble — acting, in fact, as if the old tale about the need to support prices to fix the recession were true. It is the perfect storm: the big banks loot us through government, while the academic economists approve it as applied science.

Continue reading at Mises.org…

Today’s article at the Ludwig von Mises Institute discusses the sharp decrease in confidence in our fiat money system:

Were it not for ever-greater increases in central-bank money and the market expectation that governments are about to make taxpayers shoulder commercial banks’ huge losses, the fiat money systems would presumably collapse right away.

International interbank short-term lending rates say it all: the latest drastic increases in yield spreads between money-market rates and official central-bank rates are indicative of the growing reluctance among banks to extend loans to each other, for fear that borrowers could default on their payment obligations…

Continue the article…

Today’s article from the Ludwig von Mises Institute discusses the practice of “selling short”, which the SEC recently outlawed, and why it’s a critical component of how the market works:

The Securities and Exchange Commission took the very drastic step of outlawing the essential financial practice of short selling in an attempt to galvanize financial markets. (The SEC recently extended at least some portions of its initial ban through October 17.) But short selling provides essential information to market participants and helps us update our expectations accordingly. By outlawing short selling, the SEC has eliminated a crucial element of what makes markets work.

Basically, the federal government (in the form of the unconstitutional SEC) intervened in the market and ended up making it worse.

Excellent article. Read it here.

Government must grow.  It’s inherent by its very nature.  Today’s article from the Ludwig von Mises Institute discusses the disgusting backroom deals and the a few of the parties, both past and present, who are responsible for this mess.

When the bailout passed last week, no one was surprised. In fact, what looked like a principled opposition to massive legal theft on Monday was transformed into a done backroom deal by Friday once the bill ballooned from three to 400-plus pages, filled with crumbs that congressmen could throw to their districts. It may be that, 25 years from now, economic historians will note socialized credit markets came to America in exchange for production credits for “marine renewables” and new regulations for “residential top-load clothes washers,” which were among many of the riders added to the bailout legislation as the infamous week wore on.

Keep reading…

Today’s article at the Ludwig von Mises Institute discusses the financial crisis that they and other Austrian economist have been predicting all along, and the long, long road ahead of us.

The severe financial crisis and resulting worldwide economic recession we have been forecasting for years are finally unleashing their fury. In fact, the reckless policy of artificial credit expansion that central banks (led by the American Federal Reserve) have permitted and orchestrated over the last fifteen years could not have ended in any other way.

…

…the dilemma facing Ben Bernanke and his Federal Reserve Board, as well as the other central banks (beginning with the European Central Bank), is not at all comfortable. For years they have shirked their fiduciary responsibility, and now they find themselves in a blind alley. They can either allow the recessionary process to begin now, and with it the healthy and painful readjustment, or they can procrastinate with a “hair of the dog” cure. With the latter, the chances of even more severe stagflation in the not-too-distant future increase exponentially.

Read the article now.