Mike Krieger
Zero Hedge
April 23, 2010

In the end the Party would announce that two and two made five, and you would have to believe it.  It was inevitable that they should make that claim sooner or later: the logic of their position demanded it.  Not merely the validity of experience, but the very existence of external reality was tacitly denied by their philosophy.  The heresy of heresies was common sense.  And what was terrifying was not that they would kill you for thinking otherwise, but that they might be right.  For, after all how do we know that two and two make four?  Or that the force of gravity works?  Or that the past is unchangeable?  If both the past and the external world exist only in the mind, and if the mind itself is controllable – what then?

– Winston Smith in George Orwell’s 1984

A government big enough to give you everything you want is a government big enough to take from you everything you have.

– Thomas Jefferson

We Must Move to a Free Market and Shun the Welfare-Warfare State or all will be Lost

end fed
The Fed is a socialist organization that SETS the most important price in the economy, the price of money.

Unfortunately for all of us, the primary economic policy of the U.S. government as well as many others around the world is an extend and pretend strategy that is economic suicide primarily in that it keeps the irresponsible in their assets and it makes the responsible shudder and shun productive investments.  Whether it be a homeowner that is subsidized to stay in a home that he cannot afford or a bank that doesn’t want to come clean on the extent of its bad assets, the result is the same.  Complete economic inertia.  Now of course there has been a rebound in demand, but my argument has been and continues to be that this is the most unproductive rebound in aggregate demand that perhaps the world has ever seen.  Whether it be in the U.S. or China, the demand is taking away spare capacity in many areas indeed but we must question the methods.  This is where the whole idea of inflation comes into play.  The whole reason why printing a million dollars and giving it to everyone doesn’t work is because this “liquidity” is not created through a productive process.  It is purely an injection of new dollars into the economy.  The basic rule of supply/demand kicks in.  In the average person’s pocket, this money is unlikely to be “invested” in productive capital endeavors, rather the vast majority of it will simply be spent to consume the resources of that which can be supplied by the already existing capital stock.  So in many ways it isn’t that the creation of the money itself that is the biggest problem, it is the distribution channel of that money.  Only a small percentage of the population that receives the million dollars has the ability, drive and discipline to invest the money into something that will create economic value for the society at large rather than just blow it on a flat screen television.  This is the entire premise of why a free market economy works when it is allowed to work (which I would argue is not possible under the current Federal Reserve system).  The Fed is a socialist organization that SETS the most important price in the economy, the price of money.  Even worse, when they set that price at say 0% as is basically the case today that 0% or anything close to it is not offered to all the small businessmen or potential entrepreneurs out there.  It might not even be so bad if the low interest rates weren’t simply being used to gamble or play a carry trade with treasuries.  Of course, the banks or anyone else for that matter playing a spread by borrowing at near zero to buy long-term treasuries is doing irreparable harm to this nation.  They are complicit in the gross misallocation of capital to the government, capital that can then be doled out at will to favored interests.  So all we have today is essentially a creation of money and credit out of thin air that is allocated to two major constituents.  First, it has primarily been used to maintain the people of wealth, power and political connections (on both sides of the isle) before the crash entrenched in their socioeconomic roles.  Second, is to pay off political favors.  Those who supported the President in his campaign have been paid back handsomely and are today much more powerful and secure than before whether we are talking unions or the oligopoly banks.  If we wish to have any hope of a sustainable recovery preventing the inevitable social unrest to come from truly getting dangerous we must restore the free market and end the union of big business and government, which historically has presented an extremely dangerous situation.  For those that are in big business and think they have made a great move by joining forces with the state I suggest you go back and read your history.  You never will possess the ultimate power, you will be seduced into thinking you do and then when the time is right government can eliminate you and your fortune with the stroke of a pen.  Power is granted to you by this authority when you engage in this unholy union and it can be taken away on whim and your wealth confiscated. Selling out freedom and your fellow citizens for some extra money or government contracts will come back to haunt you.  Your legacy to the United States will be a neo-feudalistic, gulag casino economy that has already begun. Below is a link to an excellent interview with Bill Moyers on PBS about our financial oligarchy (I believe many industries here are becoming oligarchies but the financial one is the most powerful) and the need to stop its cancerous growth.

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