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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
October 5, 2010
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In all so-called “developed” nations, the welfare state is the mechanism which makes government depredations acceptable to the public. To establish and enhance the power of government, an ever larger portion of wages and salaries are sequestered through taxation and an avalanche of rules and regulations are enforced via government fees and charges. Some “compensation” must be found to make this bitter financial medicine go down without becoming dangerously unpalatable. This is where the welfare state comes in. The only way to ease a situation in which it is difficult, to the verge of being impossible, for an individual to take care of him or herself is to create a situation where the State takes over the role. Or at least the State promises to take over the role, should it become “necessary”.

This mechanism can “work” - for a while - but the result is that there are more people dependent on the State than there are people who are able to create the wealth on which the State depends. This situation is inherent in all welfare states, approaching in most of them, and already here in one. That state is Japan.

In Japan today, 23 percent of the population is over the age of 65. Forty years from now in 2050, given present Japanese birthrates, that will have blown out to 40 percent. At present, the ratio of retirees to working-age Japanese is 35.5 percent. In ten years that ratio will be 48 percent and in forty years (again given present Japanese birthrates), it will have blown out to the literally impossible ratio of 76.4 percent.

Saving the worst for last, today, more than half (56 percent) of Japanese workers rely on financial support from their parents or other sources to cover their living expenses. These are the same people who will, in future, be expected to perpetuate the ever more bloated Japanese welfare state. This stark and obvious impossibility is the current situation in Japan. It will soon be the situation right across the developed world. The “solution” will be a rapidly increasing sell-off of rapidly diminishing “assets”. Most of these assets will be paper claims to wealth which does not exist and never did.

Going Beyond The Possible - With Debt-Based Money:

In rational economic thinking, economic “growth” is only taking place when REAL wealth is being produced faster than it is being consumed. There is not one “developed” nation in the world today where that is taking place. Every one of them is now and has for some time in the past been in the process of capital CONSUMPTION. This is true even in nations like China where massive construction has given an impression of whole new cities springing up from the ground over the past two decades.

The real wealth used in this construction has been consumed, but the means to service, maintain, and eventually replace it has NOT been produced. The mechanism used in its creation is debt created out of thin air. A debt, any debt, is an UNFINISHED transaction to be completed when and ONLY when all capital and interest has been repaid in full. The repayment has been deferred indefinitely.
Take a look at any political program of “stimulus” undertaken anywhere in the world. What do you find? You find a government acquiring the required economic goods and services by issuing IOUs, known in more polite circles as government bonds. You find these governments selling these bonds for “money”.  This money, in all cases, must be accepted in “payment” for all debts, public and private. The money is “legal tender”. It is money because the government says it is and forbids the use of anything else.

The bonds and the “money” in which they are redeemable are DEBT-BASED. Since that is true, the activities governments “finance” with this paper are also debt-based. They cannot be anything else.  Government produces NOTHING in the form of REAL wealth. The point has long since been reached right around the world where the servicing of all this debt-based government activity has been eating up the existing store of real wealth. We are living in a global era of capital consumption on a massive scale.

This guarantees that these debts will NEVER be repaid in the wealth which was consumed by them.

Exploring The Possible - Sound Money:

First things first. Money is a medium of exchange. That is ALL it is. The other attributes popularly associated with money are secondary effects of its efficacy as a medium of exchange. In modern economic textbooks, money is defined as having three (sometimes four) “separate” functions. Besides being a medium of exchange, it is also said to be a unit of account, a store of value, and a standard of deferred payment. But two of these “functions” are inherent in money’s basic facility of being a medium by which goods and services can be exchanged. The other, the idea of a store of value, is true of any unconsumed economic good, not just money.

For almost all of recorded history, economies have worked by means of indirect exchange with money as the one item common to all exchanges. Without money, economic calculation is impossible. Indirect exchange in which units (defined by weight) of money are exchanged for goods and services brings forth prices expressed in terms of units of money. These prices are the raw material of economic calculation. Most economic goods, especially raw resources, can perform many different services or be a component in many different kinds of production. But how can we find the most economical use of the good in question? That is the role of economic calculation. It is not infallible, the future is uncertain. But as long as the money employed is SOUND, the prices formed by exchanges in the market give the means by which economic calculation can be made. Tamper with the money and all prices are falsified.

Exploring The Impossible - Debt Used As Money:

A sound money is a defined unit (gram, ounce, pound, kilogram, tonne) of the economic good which has proven (in exchanges between individuals) to be the most easily tradeable good. A government never has and never will CREATE a sound money. What they can and have done is to arrogate to themselves, by law, the ability to decree what will be used as money - or else! When a government does that (and sooner or later all governments in history have done it), the path to an UNSOUND money is assured.
There are two ways to acquire wealth. One can produce it or one can take it from those who have
produced it. The first method has often been called the economic method. The second method has many names. It has been called stealing, or usurpation, or expropriation, or “eminent domain”. Whatever, the description, there is one constant. It has always been called the political method. A government cannot produce but must consume in order to function. It must extract the means from the people it governs. That is true even of a government pared back to its essential services of the protection of life and property. But when government IS pared back to those limits, its costs are minute by modern standards and the burden of paying for it is easily bourne. A government which protects against criminal acts is cheap at twice the price. A government which indulges in them becomes, over time, impossible to afford.

And because it is impossible to afford, a new method must be found to “pay” for it. When taxes and charges prove insufficient, government can no longer live off the wealth its subjects have already created. It must live today off the wealth they are expected to create tomorrow. It must BORROW.

“Money” created in the act of incurring a debt is UNSOUND by definition. It cannot function as a medium of exchange because no exchange has taken place. It cannot cancel a debt because it is itself a debt. It is said to be based on the “full faith and credit” of the nation which issues it. But neither faith nor credit has ever brought an atom of REAL economic wealth into the world. What unsound money literally does is to put the future “in hock” to the present. Sooner or later, the present catches up. That is what is happening all over the world today. And it is unsound money which has done it.

Nobody would accept a promise of indentured servitude for themselves and their progeny in return for something of no value. Yet that is what unsound money promises, and nobody has any choice in the matter of taking it in exchange for their goods. That is bad enough in itself, but when prices become increasingly distorted as the amount of debt “money” increases, the “art of the possible” falls on its face. . .

The controller in the city of Los Angeles has recently released two audits of how
the stimulus money has been spent by the city and the state. According to the controller, the city’s departments of transport and public works together spent $111 million of Mr. Obama’s stimulus money. With it, they “created” or retained the grand total of 54 jobs. Yep, that’s just over $US 2 million for each job. The department of public works stands out. They received $71 million to fund 15 road-surfacing projects. The new jobs “created” totalled 8 (that’s eight).

Even more classic is the response to the audit from the LA controller: “I’m disappointed that we’ve only created or retained 54 jobs after receiving $111 million in funds. ...With our local unemployment rate over 12 percent, we need to do a better job of cutting the red tape and putting Angelinos back to work.”

If you want a perspective on how expensive government in the US has become, and how little of the money that is fed in at one end ever gets to the people doing the actual work, here it is. Let us, for the sake of argument, say that those 55 jobs paid $75,000 each (that’s probably high, but let’s be charitable). The wages bill would come to $4,125,000 - 3.7 percent of the money spent to create or retain the jobs.

Fuelling Wall Street:

Over the month between August 26 and September 24, the Dow rose almost 10 percent. Over the same period, the yield on Treasuries tumbled to lows last seen at the height of the financial crisis at the end of 2008. US Treasury auctions over the last full week of September have been drawing the highest demand since before the start of the GFC. The bulk of this surge in demand has come from US investors, most of them large institutional US investors.

The reasoning is simple. Almost every notable mainstream financial advisor in the US is certain that the Fed is going to MASSIVELY increase its recently announced second tranche of “quantitative easing” in the very near future. They are betting on this with almost unprecedented unanimity.

Equally, they are sure that this is a short-term bet, but that has not deterred them. They are all well aware of the political imperatives of the month leading up to the mid-term elections. They are not looking past those mid-term elections any more than are the politicians. They are making hay while the sun shines.


Ó 2009 – The Privateer

(reproduced with permission)


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