Lux Lucet

President Barak Obama delivers his State of the Union address to Congress, January 12, 2016.

“Anyone claiming that America’s economy is in decline is peddling fiction,” or at least that’s what President Obama would have Americans believe based on his remarks in his State of the Union address last week. Yes, according to the president, everything is awesome. And anyone who thinks otherwise is simply, to quote a Vice President from a few decades back, a nattering nabob of negativism.

But is everything as rosy as Obama would have us believe? The following points would suggest otherwise:

• The New York Stock Exchange (NYSE) just experienced the worst opening week in its history. During the first two weeks of trading in 2016, the market has declined by 4%.
  
• The Labor Force Participation Rate – this the total number of people who are either employed or actively looking for work divided by the total working age population – is at lows not seen in nearly 40 years, going back to a time when women were just entering the workforce in large numbers.
  
• The Baltic Dry Index – a shipping and trade index measuring the changes in the cost to transport raw materials by – is at record low levels and continuing to sink rapidly. These low and rapidly declining readings – the index has dropped 19% just since the first of the year – indicate a sharp drop in international shipping, implying a significant drop in international trade and a global economic slow-down. According to this article, the index has hit new record lows for the past nine days straight.
  
• According to FactCheck.org, the number of Food Stamp recipients grew by 45% for the period from 1/9/2009 – 1/9/2015.
  
• Breitbart reports that, “American’s middle class has shrunk by almost 20% since the 1970s and is now a minority of the population in the United States.”
  
• In connection with a shrinking middle class, income distribution has become significantly skewed toward the top of society. This video give a good breakdown of just how unequal incomes have become in the US. Among its findings: 40% of the wealth of the country is held by 1% of the population, those in the top 1% own 50% of value of the stock and bonds markets. Taken together with a shrinking middle class, it appears that the US is coming to resemble more a feudal society than the healthy middle class nation most of us grew up in.
  
• US federal government debt has exploded in recent years. When Obama entered office in January 2009, the debt stood at a frightening $10.6 trillion. According to estimates by the Congressional Budget Office, the debt was $18.1 trillion in January 2015 and is projected to grow to $19.1 trillion a year from now when Obama leaves office. To put it another way, it took the US 236 years to amass $10.6 trillion of debt, but by the time he leaves office next year, Obama will have presided over a near doubling of this amount. According to Boston University economist Laurence Kotlikoff, “Our country is broke. It’s not broke in 75 years of 50 years or 25 years or 10 years. It’s broke today.”
  

Considering only the bullet points above, it would appear that precarious is about the kindest word one could use to describe the economic condition of the US. To say we’re headed off an economic cliff likely would be closer to the mark.

So how did we get here? How did a nation founded by the Puritans and committed to the principles of civil and economic liberty end up a bloated, socialist over extended empire suffocating under the largest debt edifice in the history of mankind? Although a full answer to that question is beyond the scope of a single blog post, the short answer is that the American people have, to borrow what Isaiah said about the people of Judah, turned away backwards from God and from his law. We have rejected the truth and embraced the lie, and now the chickens are coming how to roost.

In this post, I would like to look specifically at three economic lies that are held by nearly all academic economists, politicians and their enablers in the media: central banking, fiat currency and Keynesian economics. Any one of these by itself is dangerous to the health of a nation. Taken together, they are a sort of perfect storm, guaranteed to bring economic destruction to any nation whose leaders embrace them.

Central Banking

Created by the Federal Reserve Act of 1913, the Federal Reserve System (the Fed) is the central bank of the US. But despite the governmental sounding name, the Fed is not part of the government. It is actually a privately owned entity of the member banks, which has been granted the power by Congress to manage the monetary policy of the US. In short, the Fed is a government created bankers’ cartel.

The Eccles Building, headquarters of the Federal Reserve. 

Or to put it another way, the Fed is the result of the merger of state and corporate powers, which is the definition of fascism. In light of this, the Eccles Building, the Washington D.C. headquarters of the Fed, has always seemed a most appropriate home for the organization, looking, as it does, as if it could have been designed by the very hand of Albert Speer himself, the Third Reich’s favorite architect.

Central banking is was sold to the public based on the claim that a government banking cartel overseen by experts could ensure steady growth in the economy all the while avoiding the occasional banking panics that had occurred in the past.

But the Bible makes no provision for governments to establish monetary policy or to appoint a third party such as the Fed for this purpose. According to Scripture, governments have two and only two purposes: 1) punish those who do evil, 2) praise the good. Apart from this, the civil magistrate has no legitimate role in society.

But despite the fact that the Fed was sold to the American people as a public benefit, as with all government established cartels, including such entities as the American Medical Association (the doctors’ cartel) or the American Bar Association (the lawyers cartel), the main purpose of the Fed was to benefit the bankers themselves. Or to put it another way, the Fed is and has been since its creation the premier crony capitalist institution in the US. It was a way of allowing the bankers to privatize their profits while socializing their risks.

With a vote by Congress, the government would confer legal legitimacy on a cartel of the largest bankers and permit them to inflate the money supply at will, providing for themselves and the financial system liquidity in times of need, while insulating themselves against the consequences of bad loans and overextension of credit (Ron Paul, End the Fed, 23)

So, if the bankers mess up and pass out home loans to millions of people who have no business owing a home while reaping profits from them, and those loans go bust as they did during the 2008 financial crisis that nearly tipped the US and the world into a depression, no worries. The Fed has their back. The Fed just prints up hundreds of billions, and eventually trillions, of dollars, passes them out to banks deemed too-big-to-fail, and voilà, problem solved. Or at least that’s what Fed apologists would have you believe.

In the opinion of this writer, economist Hans Sennholz got it right when he described the creation of the Fed as, “the most tragic blunder ever committed by Congress. The day it [the Federal Reserve Act] was passed, old America died and a new era began A new institution was born that was to cause, or greatly contribute to, the unprecedented economic instability in the decades to come” (Hans F. Sennholz, Money and Freedom, quoted in End the Fed, 23).

Fiat Currency

Ivestopedia gives the following definition of fiat money:

[C]urrency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith. Fiat is the Latin word for “it shall be.”

There are two principle elements of this definition, both of which are in conflict with what the Bible teaches about money. First, fiat currency is something the government, not the free market, deems to be money. Second, it is based on people’s faith in the soundness of the issuing institution. This can be a serious problem if that faith is ever shaken. As the Investopedia article puts it, “Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation’s paper currency, like the dollar bill, the money will no longer hold any value.”

Regarding the idea of legal tender, consider the dollar bill in your wallet. On it you will notice the words, “This note is legal tender for all debts public and private.” What this means is that if someone owes you payment, you must accept the dollars they give you, even if your contract was in terms of something else, a certain weight of gold or silver for example. One way this is done is by the US federal government requiring all taxes to be paid in dollars. The court system also gives teeth to the legal tender laws by enforcing contracts only in terms of dollars.

But just as the civil magistrate has no legitimate business involving himself in monetary policy, neither is it proper for him to enforce legal tender laws. All such edicts are immoral and ought to be removed from the books.

Genesis 23 gives the account of Abraham purchasing the field of Machpelah from Ephron the Hittite, in order to bury Sarah. After some back and forth, they finally agreed upon a price, “four hundred shekels of silver, currency of the merchants” (Genesis 23:16). Note well, Abraham did not buy the field it was not the currency of pharaoh, or the currency of the king of the Hittites. It was the currency of the merchants. Or to put it another way, it was the market that supplied the money on the basis of voluntarily agreement among the people who used it. No government legal tender laws were in view.

Worth noting too is that the money Abraham used was a certain weight of silver. In fact, the Hebrew word “shekel” comes from the verb “to weigh.” A shekel was a weight of silver, presumably with a certain fineness. In light of the repeated statements in the Old Testament that dishonest weights and measures were an abomination to God, honest money was a very serious matter.

But fiat money suffers from the severe defect that it is inherently dishonest. Unlike commodity money such as silver or gold which take time and effort to produce, a government or central bank can create billions of currency units at the click of a mouse button, thus devaluing all existing units of that currency. It is this process that is the reason for the price inflation that we have all experienced.

It may seem odd that money can be created out of thin air, but combined with legal tender laws, this awesome power is what gives governments and central banks the ability to control the economies of nations. According to a now out of print publication by the Fed called Putting it Simply, the money creation process works this way, “When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.” In other words, the Fed is the world’s biggest counterfeiter.

The shocking truth is that mass fraud in the form of creating money out of nothing, money for which no one labored, is the very basis of the central banking/fiat money regimes that run the economies of every nation in the world. The ability to counterfeit a currency allows central banks and those closely connected to them to essentially strip mine the assets of a nation and concentrate wealth in the hands of a few very wealth, well connected individuals. After all, those hundreds of billions and trillions of dollars created by the Fed end up first in the hands of the too big to fail banks, who can then take that money and buy stocks, bonds and real estate before the price inflation created by all that new money kicks in.

As mentioned above, the wealth distribution is the US is significantly skewed toward the ultra wealthy. And the grossly immoral fiat money system we have is responsible for this. I do not profess to know what the “correct” wealth distribution should be, but were it not for central banking and fiat money, there would be far more even distribution of wealth than there is at present. Constitutional capitalism is not responsible for the extreme wealth inequality seen today. The fault lies with the monetary fascists at the Fed and their intellectual and political enablers.

One other detail about fiat monetary systems bears mentioning: they are debt based. Look again at that dollar bill in your wallet. You’ll notice at the top that it says “Federal Reserve Note.” A “Note” in the context of a monetary system is a debt. What we call money in the US and the West generally is not wealth, as we suppose it to be, but actually debt written against the government borrowing.

And a curious feature of debt-based monetary systems is that they require the issuing entity, not only to go into debt to create the currency in the first place, but to continue to go further into debt in order to issue the currency to make the interest payments to the original lenders. To put in another way, all fiat currency systems, including the world’s current dollar-based system, are Ponzi schemes. And Ponzi schemes, as Bernie Madoff could tell you, eventually come to less than satisfactory endings.

Keynesian Economics

Perhaps no economist in the last one hundred years has been as influential as John Maynard Keynes

John Maynard Keynes

(1883-1946), whose 1936 book The General Theory of Employment, Interest and Money provided intellectual justification for much of the growth in government that has taken place in the “capitalist” Western world since that time.

Keynes wrote at his General Theory during the Great Depression of the 1930s. At that time, Europe and the United States had been in an extended economic downturn, and Keynes sought to explain the reason the economies of the West were slow to recover their vitality. Keynes proposed that the problem was sticky wages.

Laissez faire economists, i.e. economists who advocated for free markets and limited government involvement in the economy, had argued that if wages were such that the money paid to workers was too high for businesses to operate at a profit, then unemployment would result. As the pool of unemployed labor grew more plentiful, the price of labor (the wages paid to workers) would drop until a new, lower market clearing wage rate was reached. To put in another way, free market economists believed that wages were subject to the laws of supply and demand as were other goods and services.

Because wages would not fall in response to lower demand from the marketplace, the economies of the industrialized nations were stuck in a vicious cycle of workers demanding more money than business were willing to pay. All the while, the economies of these nations were sinking in the mud. In order to break this cycle, Keynes proposed that governments needed to stimulate their economies by spending money that private business refused to spend. The public works projects of the Roosevelt’s New Deal were an example of this in the US. Keynes believed that government spending could be dialed back once te economy was back on its feet.

There have been many critiques of Keynes written over the years. But it seems to me that the simplest way of understanding where Keynes went wrong is to understand what the Bible has to say about economics and politics and compare that the Keynes’ ideas.

The Bible has a great deal to say about both economics and politics. It’s teachings may be summarized as follows,

Constitutional-capitalism – laissez faire capitalism – in which government has only two functions, the punishment of evildoers and the praise of the good, as Paul wrote in Romans 13, is the economic and political consequent and counterpart of Christian theology; it is the practice of which Christian theology is the theory (John Robbins, Ecclesiastical Megalomania, 23, 24).

By his advocating government involvement in the economy in ways the Bible prohibits, Keynes in essence said “let us do evil that good may come.” The looming world-wide economic crisis largely can be blamed on economic distortions and exploding debts that resulted from governmental attempts to put Lord Keynes ungodly advice into practice.

Conclusion

It was Murray Rothbard, I believe, who coined the term welfare-warfare state. That is an apt description of the politics of the 20th and early 21st centuries. What is often not appreciated is the degree to which the three factors outlined in this post – central banking, fiat currency and Keynesian economics – have enabled this tragic state of affairs.

Central banking combined with fiat currency created the necessary monetary apparatus for the creation of the welfare-warfare state. Keynesian economics provided its intellectual justification. For the past one hundred years, politicians and economists have pushed these fraudulent notions, what in more sane times would be called monetary quackery, on an unsuspecting public. They have told us savings in bad but deficit spending is good; private enterprise cannot be trusted, but government programs are the cure for what ails us; the gold standard is a barbarous relic, but debt-based fiat monetary Ponzi schemes overseen by unaccountable central bankers are the very height of wisdom.

The apostle Paul called the wisdom of this world foolishness (I Corinthians 3:19), and I can hardly think of a better example of this principle at work than the economics and politics that have been practiced in the West for the past century.

But these ideas did not spring up out of the ground in a vacuum. The nations of t he West first rejected Christ, and with him, they also rejected the system of limited government and private property that are the logical corollaries of the Gospel. This cleared the way for the current ungodly system of central banking, fiat currency and Keynesian economics that is killing our economy and killing our freedom.

The end result of a hundred years of this is massive government, a faltering economy, and a debt edifice the likes of which has never been seen in the history of the world. Economists and politicians alike to tell us not to worry about the debt, that it’s not the problem it appears to be.

But God has so constructed the universe that all debts must be paid. And the enormous debts rung up by the governments of the West are no different. They must and shall be paid. And this likely will involve the collapse of the Western standard of living to levels that most of us have not experienced.

This is not an attempt to be pessimistic. It is, however, an attempt to be realistic. As Christians, we must face things, not as we wish they were, but in light of what the Word of God says. But as bad as things are for the West, those in Christ have every reason to face the future with confidence. There is nothing, not even the smallest detail, that is outside God’s providence. However bad things may get, he has promised to care for his people. And in this we can put our trust.