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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
April 19, 2011
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In preparation for writing this issue, we put the above phrase into Google to see what we could find. To our not very great surprise, we didn’t findthe case made. Instead, we found articles defending government debtagainst its so-called detractors. Many of these articles were, of course,inspired by the recent much-touted efforts of governments around theworld to implement “austerity programs”. And most were dead set againstsuch efforts, especially in the present “fragile” economic circumstances.

“After all”, went a common refrain, “‘everybody knows’ that government spending is absolutely vital for economic growth and for the functioning of a government in anything more than the most ‘rudimentary’ fashion. And besides, without government debt, where could anybody invest in safety?”

To assert that the global financial system is “credit-based” is to utter a truism with which few if any would argue. To assert that the piling of new debt on top of existing debt (which is how a credit-based system operates) is ultimately unsustainable is equally generally accepted. But to have the temerity to point out that merely reducing the annual deficit of a government does absolutely nothing to reduce the level of debt carried by that same government is to step on an economic land mine. In the case of the US Treasury’s approaching “debt limit”, any suggestion that it should NOT be raised is instantly put into the “unthinkable” basket.

In a political context, when something is labelled as “unthinkable”, one may know that it is something that the powers that be do NOT want you to think about. With that in mind, let us think about it. Most of our subscribers live in countries which are described as being “free”. If such was really the case, is there ANY good argument in favour of ANY level of government debt at all? Or is there not?

The great economic and political fallacy of the twentieth century - the one whose legacy threatens to envelop us all today - is the notion that there is a way to “split the difference” between a free and a totalitarian society. The idea is that the government will not control the “lives” of its people, it will merely control their actions in the marketplace. It will “intervene” in the economy.

As Ron Paul recently pointed out on “The Nanny State Can’t Last”. The reason it cannot last is because the cost of “intervening” in the economy always grows to the point where it cannot be supported by the dwindling productive sector of that same economy. If the growth of the “nanny” or “Welfare” state was constrained by the amount of money the government could directly take from the people in taxes and charges, it would never have reached anything like the size it is today. Economic interventionism eventually REQUIRES government borrowing. It cannot be sustained without it.

In 1913, the US government gave themselves the power to tax incomes and the power to cement banking lending practices in place by means of a “bank of issue” or central bank. What that central bank (the Fed) issued was legal tender. Nobody else was allowed to issue a medium of exchange. On top of that, only the Federal Reserve Note - the medium of exchange issued by the Fed - could be tendered in payment of debt. And the exclusive power to “emit” these notes resided, of course, with the Fed.
With those two provisions, the US ceased to be a (semi) free country. The now legal tender “money” issued by the Fed began to lose purchasing power. The banking system stepped up its practice of credit creation since it was now under the protective umbrella of the Fed. That led to the “Roaring ‘20s”. When that collapsed along with the stock market at the end of the decade, the borrowers collapsed and the banks collapsed under the weight of their “unfunded liabilities”. Again, the government had a choice. Go back to fully redeemable money substitutes or underpin them with the DIRECT power of government. Again, the government took the second choice.

The result, in the US, was the onslaught of the welfare state combined with a huge increase in government intervention in the economy and a plunge into government BORROWING. To nail down this huge increase in government power OVER the people, money was banned from the system by law. Federal Reserve Notes were no longer redeemable in Gold or anything else - except more Federal Reserve Notes. There was a new “reserve” behind the monetary system - the debt paper emitted by the US Treasury.


Ó 2009 – The Privateer

(reproduced with permission)


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