Tuesday, September 28, 2010

The Anatomy of Inflation

From LewRockwell.com:

Ambrose Evans-Pritchard, who backed Bernanke shamelessly, is now ashamed. It’s time to end the Fed, he says — if there’s any time left.


“I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.

“Ben Bernanke has not only refused to abandon his idee fixe of an “inflation target”, a key cause of the global central banking catastrophe of the last twenty years (because it can and did allow asset booms to run amok, and let credit levels reach dangerous extremes).

“Worse still, he seems determined to print trillions of emergency stimulus without commensurate emergency justification to test his Princeton theories, which by the way are as old as the hills. Keynes ridiculed the “tyranny of the general price level” in the early 1930s, and quite rightly so. Bernanke is reviving a doctrine that was already shown to be bunk eighty years ago.

“So all those hillsmen in Idaho, with their Colt 45s and boxes of Krugerrands, who sent furious emails to the Telegraph accusing me of defending a hyperinflating establishment cabal, were right all along. The Fed is indeed out of control.”

...and from Steve Saville:

An article entitled "How Hyperinflation Will Happen" has garnered a lot of attention. According to this article:

"...hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same -- because in both cases, the currency loses its purchasing power -- but they are not the same.

Inflation is when the economy overheats: It's when an economy's consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It's not that they want more money -- they want less of the currency: So they will pay anything for a good which is not the currency."

Except for the part about hyperinflation encompassing a loss of faith in the currency, the above is almost completely wrong. In particular, economies don't "overheat", economic growth causes prices to fall rather than rise, and hyperinflation is very much an extension of inflation. The author of the article doesn't even mention money-supply growth. Trying to explain inflation or hyperinflation without reference to growth in the money supply is like trying to explain why the moon orbits the Earth without reference to gravity.

All historical episodes of hyperinflation that we know of -- and we know of many -- have been step-by-step processes set in motion by, and sustained by, increases in the supply of money. After the supply of money grows at a rapid rate for a period of at least a few years, some people conclude that the inflation will be endless. These people act today in anticipation of tomorrow's money-supply-induced price rises. As time goes by, more and more people come to the realisation that the inflation will most likely be endless and begin to act (meaning: buy stuff immediately) in anticipation of future price rises, which eventually leads to the situation where prices are rising much faster than the supply of money.

At this point it would still be possible for the central bank to clamp down on the inflationary trend by stopping, or even just slowing, the expansion of the money supply, because rapidly rising prices throughout the economy would result in a money shortage unless the supply of money were given a substantial boost. At the same time, however, the central bank could be under considerable political pressure to accelerate the monetary expansion given that doing otherwise would lead to extreme short-term economic pain. This, in effect, is what happened in Germany during the early-1920s: at every step along the multi-year path from inflation to hyperinflation to the complete collapse of the currency it was deemed by the central bank to be less economically damaging to maintain or accelerate the inflation than to suddenly bring it to an end.

The point we are trying to make is that hyperinflation doesn't just happen 'out of the blue' one day when nobody expects it. Instead, it requires persistently high money-supply growth and evolves over many years due to a gradual increase in the awareness of the population. It is part of a PROCESS and definitely is an extension of inflation, but most episodes of inflation don't lead to hyperinflation because the authorities stop the monetary expansion before it's too late.

Lastly, it should be noted that while most episodes of inflation don't extend to the point where the economy experiences hyperinflation, all paper currencies eventually get inflated to oblivion. The reason is that circumstances finally arise whereby the most politically expedient move is to risk hyperinflation by continuing the monetary inflation way beyond 'normal' limits. In this regard, today's paper currencies won't be exceptions.

Steve Saville


Tuesday, September 14, 2010

Cranfield on Romans 1:17

…to take ‘God’s righteousness’ as referring to the righteous status given by God agrees better with the structure of the argument of the epistle, in which 1.18-4.25 expounds the words ‘he who is righteous by faith’ and 5.1-8.39 the promise that the man who is righteous by faith ‘shall live’. If 2.13; 3.20;, 28; 4.2, 13; 5.1, 9, 19, are examined carefully, it will be seen that it is on the status resulting from God’s action and on the men on whom the status is conferred rather than on the actual actions of God that attention is focused.

The sense of the whole sentence, as we understand it, may be set out as follows: For in it (that is, in the gospel as it is being preached) a righteous status before God which is God’s gift is being revealed (and so offered to men), a righteous status which is altogether by faith. …by revealing and making available precisely this gift of a status of righteousness before Himself God is indeed acting mightily to save.

As used by [Paul], ‘faith’ has the same sense as it has in the earlier part of v. 17 and ‘shall live’ refers, not to political survival, but to the life of God, which alone is true life, the life which the believer begins to enjoy here and now, and will enjoy in its fullness hereafter.

Saturday, September 11, 2010

Why Do They Hate Us?

Jim Cox on the high costs of ignoring advice from George Washington’s farewell address.

President Obama in warning against the Florida pastor’s plan to burn the Koran stated,

"This is a recruitment bonanza for al Qaeda. You could have serious violence in places like Pakistan or Afghanistan. This could increase the recruitment of individuals who would be willing to blow themselves up in American cities or European cities."

It’s funny how Obama (or his predecessor) never cited past American government policies as being a recruitment bonanza for al Qaeda. Only a handful of misguided activists at the Florida church using their own property and their privately acquired copies of the Koran have such an effect in the President’s view.

Here is a partial list of the past as well as some on-going American foreign policy interventions that – by official standards – have had no influence in empowering al Qaeda:

1. The combined British/American overthrow of the democratically elected head of state in Iran in 1953, replacing him with the hated Shah and his secret police who the U.S. trained to murder thousands of Iranians.

2. In 1987 the U.S. militarily supported Saddam Hussein in the Iraqi war with Iran.

3. In 1988 the U.S. ship Vincennes, stationed in the Persian Gulf, shot down a commercial jetliner, killing 290 Iranian civilians.

4. After the Gulf War, the U.S. led an embargo against Iraq, allowing no humanitarian or medical aid. The results, according to UN estimates: 10,000 Iraqi deaths per month with the toll including more than 300,000 children. Then Secretary of State Madeleine Albright when asked said it was "worth it." Albright never retracted her statement nor was it ever repudiated by an American president.

5. In 1998 President Clinton bombed an aspirin factory in Sudan. A number of totally innocent civilians were killed.

6. European armies, rather than native peoples, drew many of the borders in North Africa, the Arabian Peninsula, and southwest Asia.

7. The Saudi government, the Kuwaiti government, and the Afghani government are actively supported with foreign aid by the U.S. despite the fact that they routinely oppress their people.

8. The war in Iraq since 2003 that has resulted in a minimum of 97,000 civilian deaths as well as the displacement of more than a million civilians.

9. The war in Afghanistan since 2001 that has resulted in a minimum of 6,000 civilian deaths.

10. Predator strikes in Yemen, Somalia, and Pakistan.

But, again according to the official bi-partisan view, none of these actions have caused blowback against Americans or Europeans.

Finally, we know what the CIA meant when it coined the term "blowback" – hostility over Koran burning. Also, we now know what Noam Chomsky, 9-11; Rick Maybury, The Thousand Year War; Robin Wright, Sacred Rage; and Chalmers Johnson, Blowback must have had in mind when the penned their works.

It’s refreshing to know that Koran burning is the provocation that incites the Islamic world and is the only thing we have to end to protect Americans from more terrorism – our imperialistic foreign policy, now under Barack Obama, can continue without any consequence whatsoever.

Jim Cox is a professor of economics and is the author of The Concise Guide to Economics and Minimum Wage, Maximum Damage.

Copyright © 2010 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

Wednesday, September 8, 2010

The Babel Syndrome

The judgment at the tower of Babel did not snuff out mankind’s instinct to embark on similar kinds of venture. Daniel saw four beasts rising out of the sea, each representing a major empire: Babylon, Persia, Greece and Rome. In Revelation 13 an apocalyptic beast rises out of the sea. Many commentators have agreed that “the sea” represents the masses of humanity. We might say that these beasts arise by the consent (or desire) of the masses. Israel tossed aside God’s direct, personal rule in order to have a king like the nations around it. The people democratically clamored for a monarch, and they got Saul for their just deserts.

It seems that fallen man has a proclivity toward a certain kind of idolatry that objectifies his thirst for control. Insidiously it comes under the guise of social cooperation. “Together we can achieve great things.” Invariably one man or a small cadre rises to the top; but these epitomize the desires of the masses. Man lives vicariously through power-brokers. So it is here in these United States. The two major political parties have their visions of order and collective welfare. The one of the Left is overtly socialistic and redistributive. It thrives by drawing innumerable clients from among the masses into its franchise. The one on the Right is more subtle: it appeals to the notion of individual rights, but rides populist sentiment to strengthen control over a corporate state bent on global domination. The Tea Partiers are increasingly falling for the latter form, hook, line and sinker. The lure of “national greatness” is irresistible. Upholding a common language, glorying in military prowess, waving the flag, etc. are powerful galvanizers.

Societal greatness, however, is comprised of the day-to-day small things. Being faithful to one’s church, doing the right thing when no one is looking, helping one’s neighbor, and fostering a productive environment all make for quality living. These things happen all the time, but they don’t seem to be enough. Paul’s words are lost on society at large: “…I have learned in whatever situation I am to be content.”

And so we fall, again and again, into the Babel syndrome. Hans-Hermann Hoppe is quite right: democracy is the god that failed. It has failed, is failing, and will fail.