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Subsidies and the Destruction of Small Farms

By on March 8th, 2009

Since the Great Depression, the federal government has taken an increased stake in the farming industry. The Agricultural Adjustment Act, enacted in 1933, is considered to be the first modern farming bill. The Act provided subsidies to farmers who left some of their fields undeveloped in an effort to reduce the crop surplus and therefore raise crop prices, helping farmers. Yes, the federal government actually created an agency to raise food prices by destroying crops and livestock in the U.S.

The Agriculture Adjustment Act greatly helped large farmers through the subsidies. Smaller farmers were run out of business and hired by the larger landowners, while customers took on higher prices. Even though this initial legislation proved to be very unpopular with the people of the U.S., today the federal government is still heavily involved with farm subsidies, encouraging larger farms, and disregarding the laws of the free market.

Over the past several years ethanol subsidies have come into the public eye. The federal government has been pumping billions of dollars into ethanol for years, and all we’ve had to show for it are record high corn prices worldwide, a ballooned and inefficient corn production, and yet ethanol still has made no headway as a viable energy alternative. Corn is connected to countless key food products, whether it be cattle feed or a primary food staple, but this has been totally disregarded in an effort to promote an unsustainable, inefficient, and costly energy source. The government subsidizes this irresponsible ethanol program while heavily limiting foreign, and possibly more viable, ethanol sources from being imported into the country.

Recently a new bill has popped into view and generated some buzz with the farm community. H.R. 875, The Food Safety Modernization Act of 2009, was introduced on February 4, 2009. The bill aims to create a Food Safety Administration (FSA) within the Department of Health and Human Services. The bill is quite complex, but I’ll do my best to break it down a bit here.

The FSA would be responsible for creating a national food safety system and enforcing it on “food establishments” through all the stages of food production. To ensure that the new safety systems are being followed, the FSA would create and implement a national system of “regular unannounced inspections of food establishments”. The FSA would design new regulations in order to have “minimum standards related to fertilizer use, nutrients, hygiene, packaging, temperature controls, animal encroachment, and water” in “growing, harvesting, sorting, and storage operations.”

What’s especially vague in the bill is the definition of the “food production facilities” who would be subject to the new agency and regulations. From the bill: The term ‘food production facility’ means any farm, ranch, orchard, vineyard, aquaculture facility, or confined animal-feeding operation. The FSA would have the authority and ability to regulate state farms and commerce, areas previously largely out of reach of the federal government. Essentially all local, state, and inter-state food operations would be placed under the jurisdiction of the federal government, through the FSA. One thing that is clear about the bill is that it would greatly expand the regulatory powers of the federal government to unheard of levels in U.S. farming history.

You would think that the principles of the free market and individual responsibility would be respected a little bit more than this. The FSA would be able to enforce laws and bans that previously the FDA has not been able to, such as banning the sale of raw milk. Enacting national standards for all farms, large and small, would be disastrous for local farms. Local, smaller farms do not have the resources to go through such a regulated, bureaucratic, biased system. Just as the initial farm subsidies in the Great Depression eliminated many smaller farmers to the advantage of the larger ones, the FSA would create such a legal hoopla of new laws and regulations that it would be next to impossible for smaller farms to continue operations.

Whether it be through subsidies or increased regulations, these interventionist policies from the federal government always benefit the larger farms and their often unsustainable farming practices. Larger farms generally have a difficult time operating and surviving without using harmful pesticides and farming techniques that hurt the environment and decrease food quality. The FDA’s regulations and restrictions, as well as the subsidies from the federal government, promote larger farms, the unsustainable and inefficient farming practices they employ, while bogging down the local farmers who are often growing healthier food with more sustainable and environmentally-friendly farming methods.

I see farm subsidies as an attack on smaller, local farms. As the farms get larger, supported by subsidies and regulations that stifle the competition, the focus of the people drifts away from the local level. When this is done artificially through the support of the federal government, you get what we have today: large farms with unsustainable farming techniques, heavily processed food, and a system that would most likely be worthless were it not for harmful pesticides and preservatives. I would not argue against this nearly as much if it was a decision reached freely by the people through the free market. Food is one of the necessities of life, and when the government starts interfering with it and manipulating farms in favor of the larger businesses, the economy as a whole will be built on an artificial, unsustainable basis.

The consumer should be the most powerful regulator in a society, but that has been taken away first and foremost with the intervention in food industries. If we can’t make our own decisions about what we eat, can we seriously expect to make decisions about anything else in our personal lives? The federal government is not the regulator we need. Rather, we should be empowering people to make their own decisions through their local economy, community, and government. Local farms are the heart of local economies; discourage them and you build the foundation for nationalization, greater federal intervention into all industries, and a people who are no longer able to make their own decisions.

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Think Localization, Not Nationalization

By on March 6th, 2009

The main arguments against capitalism, that I’ve heard, include that it’s an unfair system primarily about greed and taking advantage of your fellow man. Arguments for government intervention and social planning can sound attractive. “Free” education, “free” health care; as the laundry list of “free” items stack up, it sometimes sounds too good to pass up.

The primary problems that I see with government intervention and central planning on all levels is that it assumes that those select few individuals know what’s best for the people, the economy, etc. Capitalism is the only system that “admits”, so to speak, that there is room for improvement outside the control of the government and central planners. Human nature to increase efficiency, get lower prices, and create sustainable living styles cannot be outdone by an interventionist government system.

What we’re going to realize is that a nationalized, subsidized, and fiat money economy is not sustainable. We’ve experienced and tinkered with it for nearly a century, and while the short-term results haven’t been too bad, it simply cannot last. With an inflationary monetary system like we’ve had since 1971, saving is discouraged because it makes no sense to hold dollars when they’re losing value every month. This is the largest fundamental problem with our economy today. It seems that we always have to be spending, that is at the heart of the bailouts and stimulus packages over the past year. Never has it been suggested that people save money and make their own decisions with their money. Whether it be banks or auto businesses, the U.S. has lost the core capitalist principle of individual responsibility and instead has gone the route of letting no one fail.

I’ve heard many times that we’ve had an economy of greed over the past several years. In many ways this is correct, but blaming it on capitalism is not. I believe that our paper money system controlled by the Federal Reserve has encouraged more greed than anything else. When you have a deceitful central bank with an unsound currency, I don’t think there’s a snowball’s chance in hell of that not stimulating greed. Central banks do not hold the citizens’ interest, that is the first thing to remember. With the Fed, we have a central bank who doesn’t even give out the names of the many banks it has loaned trillions of dollars to in a matter of months. With these special, unbalanced interests, it will not impact the economy in a good way. Couple this with a paper money currency enforced by the government which leads to higher prices and a stretched middle class, and you’ve got a recipe for greed and reckless spending to take off. I am not saying that the Fed is the only entity or factor to blame, but merely that it has contributed more than anything else to this unbalanced and unfair economy.

When the greed argument is used to blame capitalism, this often is aimed at “lack of regulation” on Wall Street. With the amount of bickering about too little regulation, you’d think we had a system of anarchy ten years ago. People forget about Enron and the Sarbanes-Oxley Act that came of that scandal. People forget that The Securities and Exchange Commission (SEC) was established in 1934 to prevent corporate abuse on reporting information. Laws and regulations have stacked up for 70+ years, yet bad and stupid things still happen in the world of business. Only now, when something goes wrong, the whole country accepts more regulations and the belief that more money poured into government intervention will suddenly make everything better.

Instead of shareholders being responsible for the business and its accounting practices, the SEC stepped in and essentially led people to believe that it has everything under control. It discourages investors from performing their own research and due diligence. Rather than the SEC, FDIC, and lord knows what other regulatory agencies try to take the place of personal research and responsibility, the destiny of a business must lie with the shareholders and consumers. As we can see from the past hundred years or so, when the government tries to take the place of the invisible hand of supply and demand, it does not solve the problems. It’s foolish to think that the government and central planners can perform a task in a more efficient, smart, and sustainable manner than the individuals of this country.

As the federal government and Federal Reserve have pulled in more responsibility for themselves, taking it from the people, we have embarked on the road to nationalization, big business, and big government. We’ve tried our hand at nationalized education, which has been a horrendous excuse for a public program. Ever since the 1970s the federal government has gotten much more involved with the health care industry and put more control into the drug companies, taking away from the pivotal patient/doctor relationship. In a broader sense, we are quickly moving toward nationalizing industries, both with government and through the government’s favoring of larger corporations.

What I see this as is an attack on localization. I find it silly to believe that we can solve our problems by putting them up on a larger scale, by “modernizing” industries which has always led to the destruction of smaller businesses at the hands of government intervention, and many other ways through government involvement. By discouraging local and community involvement, we have lost the key to what makes an economy great. Strong growth doesn’t mean a thing on its own in the short-term. Rather, it is strong, sustainable, honest growth that capitalism aims to create. I think the easiest, most efficient, and most sustainable way to achieve this is through local economies and community involvement. Whether it be with politics, economics, or business, it is the personal interaction that makes a strong system.

When we nearly force businesses and politics to be done at a national level, it tears away the personal touch that is so essential to a prosperous society. Individual responsibility is much more easily accomplished through a local economy, rather than through a government and corporate-controlled national economy, which is increasingly evident what we have in place today. With politics, it is much simpler and beneficial to bring about change on a local or state level than on the national scale. I think the same goes for a business and economy too. With a strong, involved community, next to nothing is impossible.

The Founding Fathers shared this ideal as they were writing the Constitution and envisioning America. They made it very clear in the Bill of Rights with the 10th Amendment; that issues not given to the federal government or prohibited to the states were to be put in the power of the states or the people:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The federal government was not created to solve every social, economic, and even political problem. The federal government was initially created to be as little involved as possible compared to the states, but today the opposite seems to be true. Rather than give more power to the people and states to make their own decisions and take their own responsibility, that power has been given, like never before, to the federal government. In other words, localization is near being destroyed due to nationalization and a huge federal government overstepping its bounds.

The sooner we realize that individuals, local communities, and states can solve their own problems far better than the federal government, the sooner we will be on the road to recovery, and a prosperous, sustainable economy and society.

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The Pain of Two Corrections

By on March 2nd, 2009

Today, for the first time since May 1, 1997, the Dow closed below 7,000, down 4.24% to 6763.29. It has been nearly twelve years since the market has seen these levels, and that was when the tech boom was going full throttle, well before the 2000 correction.

Did we even have a complete correction in 2000? With a central bank making the calls of monetary policy, I’ve realized that we cannot know whether the correction was actually sufficient enough to clear out all the malinvestment and bad management decisions. Think about it: interest rates were sharply lowered, credit was injected into the economy, and before too long the economy was back on its feet again (thanks in part to the new housing bubble). Just because the recession may have been weakened by the Federal Reserve’s intervention, it doesn’t mean that it wouldn’t have negative consequences later on. In a true free market where the market would control money and credit, this would be much easier to analyze. We do not have that convenience though, because we have to live with and analyze the actions of the select, unelected few who call the shots.

I bring this up because we obviously do still have market forces at work. Despite regulation, intervention, and manipulation on the part of the government and Federal Reserve, the underlying powers of the market do not disappear for good. Today the stock market has been sent to levels prior to the correction of 2000, and I can’t help but speculate that part of this is because investors are starting to understand more deeply the consequences of credit manipulation from the Fed, as well as an inflationary monetary system.

Over time, we as a nation have subscribed to the Keynesian belief in economics that you must spend and inflate your way out of economic hardships. This is the root of our largest problems today. Some of the key principles of capitalism are saving and investment, but over the past century we have gotten the mindset that it is the government’s responsibility to manage and influence the economy. It is this belief in inflation and debt financing that has caused us to get so overwhelmed by a correction that is beyond the hands of government and central planners.

What if, by lowering interest rates to artificial lows in 2000, Greenspan prevented, or rather delayed, areas of the market that didn’t fully correct? What if providing such cheap money was one of the primary reasons for the largest and most irresponsible bubbles this nation has ever seen? A small group of central planners, if they worked 24/7, could not get close to controlling the marketplace in a more efficient and responsible manner than a capitalist free market. With the key influence of money and credit out of the hands of the consumers and investors, I find it very hard to believe when people blame our problems today on the “free market”.

No matter what political, economic, or social systems are in place, the forces of the free market are always at work. This is why every nation that has tried its way with a fiat monetary system has not lived to see its lasting success. No piece of paper guaranteed by a government and central bank can take the place of gold and silver, the only items consistently and universally accepted as currency in all of human history.

Every attempt at government and central planning is an effort to go against human nature. Capitalism is not about “greed” as many have made it out to be. Capitalism is the only economic system that supports, rather than discourages, the profit motive. Capitalism is a consumer driven economy, which leads to lower prices and higher quality products. In a true free market capitalist society the regulation of the market, not the government, is unleashed in full force. The ability of free choice and individual responsibility will outweigh any government bureaucracy’s ability to regulate.

The government and Federal Reserve do their best to limit individual responsibility and ability. Over the past year we have been forced to bailout massive corporations and essentially the whole government-managed banking industry. If these were such pressing matters, why not leave it up to the people to decide whether or not these corporations were “too important to fail” and deserved money of which they had earned not one penny? If it was such a pressing matter, there was nothing stopping people from sitting down and writing a check for the Treasury to distribute to its banking buddies.

We have lost the ability to make our own decisions with our money. Talk about taxation without representation: over the past year, the Treasury Secretary and Federal Reserve Chairman (formerly Hank Paulson, now Tim Geithner and Ben Bernanke), two unelected officials, have handed out trillions of taxpayer dollars. This past December, former president George W. Bush ordered an “emergency” bailout of the auto industry. Rather than let these mismanaged auto businesses fail, reorganize, and come back as a stronger entities, the taxpayers are being forced to pay the bill for stupid mistakes made by the businesses. In other words, if we decide to not buy their crappy vehicles, we’re forced to bail them out with our taxpayer dollars.

The regulatory abilities of the free market are starting to rev their engines. The monetary dictatorship of the Federal Reserve cannot manipulate credit and destroy the value of the currency without serious repercussions. Bailing out failed and irresponsible business decisions won’t eliminate the problems of mismanagement and malinvestment. Nationalizing industries will not lessen the pain felt by the consumer during this economic crisis, nor will increased regulations.

Countless times our officials have gone with short-term solutions that ignore the laws and history of economics. They go for the route of more government intervention and involvement in the economy. Many people today can’t comprehend a system where the government wasn’t responsible for getting the economy out of a recession. Somehow people fail to see that this is not a problem caused by lack of spending, but lack of saving. It’s pretty simple: Congress encouraged businesses to hand out irresponsible mortgages that they knew people couldn’t afford, people took these irresponsible mortgages they knew they couldn’t afford, and both sides of the party went deeply into debt. But rather than take the signals of the recession that we need to cut back on spending and increase our savings, the government has gone on a spending rampage in the past year, the likes of which the world has never seen. Not to mention that this is money we do not have, which only means it will come through more borrowing and inflation of the dollar.

The free market has been put off and suppressed for a good amount of time now. However, like I said, its forces can and will never completely disappear. Human nature, common sense, and the yearning for individual responsibility will eventually outwit and overpower all regulatory and deceitful agencies keen on destroying those very principles and natural laws. History shows there are no exceptions.

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Ignorance of the Federal Reserve System

By on March 1st, 2009

The Federal Reserve is, without a doubt, one of the most difficult entities to understand and grasp today. Legally we do not have the right to know what goes on behind the closed doors of the Fed. Yet, we place in them the overwhelming power, control, and ability of a monopoly over money and credit. Regardless of your personal opinions on the Fed, you would have to agree that it makes no sense to give this much concentrated power to just a few people without any oversight from Congress whatsoever.

I cannot pretend to understand everything about the Federal Reserve; far from it. One may wonder if such a complex system was purposefully put into place to confuse and discourage people from fully understanding the system. When Woodrow Wilson signed the Federal Reserve Act into law in 1913, the U.S. was still on a gold standard. The currency was backed by a physical commodity, rather than a plain faith-based system like we have today.

The Founding Fathers greatly understood the dangers of paper, or fiat, money systems. They dealt with it firsthand during the Revolutionary War with the Continental Dollar. The Continental Dollar was established by the Continental Congress in 1775, and it was nothing more than worthless paper and collapsed in a matter of years after runaway inflation. This was the primary reason why these words were put in Article 1, Section 10 of the Constitution of the United States:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; [...]

The gold standard was not put in the most important document of the U.S. by accident or coincidence. The gold standard was and still is necessary for the same reasons: it holds the powers-that-be back from the incredible power of wildly expanding the money supply (monetary inflation that leads to a worthless currency and a wiped out middle class), gold and silver have been accepted as currencies worldwide for thousands of years, whereas fiat money systems have been tried countless times throughout history and failed every time.

In short, after the Fed was created, the gold standard was attacked bit by bit through 1971. Franklin Roosevelt issued executive orders confiscating many forms of privately owned gold, greatly expanded the Federal Reserve’s scope and power over money and the economy, and devalued the relation of gold to the dollar from $21.67 to $35.00 per ounce. All of these acts were in the name of stopping the Great Depression, but they only led to handing more secrecy and sheer power to central planners.

The gold standard was phased out over the next 30 years, and the power given to the Federal Reserve continued at a consistent pace. Legal tender laws were enacted, making Federal Reserve Notes the only legal currency in the U.S. In 1971, the dollar became a complete fiat monetary currency and lost all ties with gold. This is the system that we have today.

What’s interesting is seeing what’s happened with the dollar through all of these changes. Let’s start with the 100 years before the creation of the Federal Reserve (these are inflation numbers as reported by the Historical Statistics of the United States and Statistical Abstracts of the United States):

Between 1813 and 1913, the purchasing power of $1.00 actually increased to $1.76.

From 1913 to 2007, the purchasing power of $1.00 decreased to $0.05.

Do you think that these facts are merely coincidence? Let’s break these statistics down a little more.

From 1913 to 1971, when we had the Federal Reserve and at least some connection to a gold standard, the purchasing power of $1.00 decreased to $0.25.

From 1971 to 2007, with a fiat monetary system under the Federal Reserve, the purchasing power of $1.00 decreased to $0.19.

This means the purchasing power of the dollar actually decreased more than twice as quickly under a fiat monetary system, than with the minimal gold standard the U.S. had between 1913 and 1971. The Federal Reserve has managed to delay corrections by artificially lowering interest rates, but all of this comes at a price. How big? We can’t say. Tinkering with interest rates and credit cannot solve a crisis, and this will be a difficult lesson we’ll have to learn due to the incompetence of a select few who secretly control every aspect of money and credit in this nation.

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The Frustration of Taxes

By on February 8th, 2009

Over the past couple weeks in my school we’ve had the nice opportunity to have a small class on personal accounting, budgets, banking, taxes, etc. Everyone made a rough budget estimate for necessities they would have to provide for themselves once they were out on their own in the real world. Basics like rent, food, utilities, clothes, and so forth were all covered.

Then our guest teacher (who is a local accountant) got into taxes. And goodness gracious, that really made an impact on all the students. Now, I am lucky enough to go to a very small private school where the students are well informed on current events and have a very realistic and balanced approach to life. I think for all of us in the class, though, taxes for that one instant didn’t make any sense at all. The IRS never made sense to me, but this really hit it home. Now, for the people reading this, I’m sure it isn’t anything new. I’ve had more experience and exposure to taxes than most of my friends, but still this class managed to smack us all in the face with reality a little bit. The amount set aside for taxes in our de facto budget outdid any of the other categories.

I’ve said it before and I’ll say it again, basic common sense is something that is lacking right now, especially when it comes to government, but even with individuals and businesses as well. This will be the first year that I have to file taxes, and even though what I pay (roughly 12%) is a relatively small amount, it doesn’t keep me from already getting frustrated in this system we’re forced to tolerate and comply with. Most of my taxes go to Social Security, a flawed government program that will most likely be bankrupt within 15-20 years. (That and probably many other areas of our government.) Just the rules that people come up with for this sort of stuff is pretty funny. Everyone in the class started cracking up when our teacher started to explain 401(k)’s, because none of us could see how such absurd rules and regulations could be justified. And our teacher was explaining it in all seriousness; the whole philosophy of taxes and the rules that come with them are what really got to the students. Taxes make saving and investing so much more difficult than they should be; any exchange of money is basically penalized. Basic common sense says this is not a system the Founding Fathers would have appreciated.

I think young people, both teens and young adults, are picking up on the ideas that it would be nice to just live their own lives without so much intrusion from the government. I’ve been constantly discussing politics and policies from the perspective of Austrian economics for more than a year, and the ideas simply make sense to them. Education is the number one way to spread the ideas of liberty, personal responsibility, and a non-intrusive government. I think all of us in the class started to realize that the IRS gives the notion that the government owns your labor and your property. This is not a good way to motivate young people to go out and get a job. Heck, it’s already hard enough to get a consistent job with the strict labor laws in the U.S. Now that we get a chance to go out and get a real job, we have a relatively massive tax burden to deal with.

When you analyze the IRS and Federal Reserve, both of which were created in 1913, you start to realize that this country is a lot less free than politicians would have you believe. The way I see it, the U.S. is becoming hostage to a huge national debt, over regulation, and central power. I honestly don’t think the young people of this country will want to sit back as they start to feel the accelerated impacts from these socialist, centrist policies. There is no way in hell that our current policies are paving the way for a more prosperous future. Debt, inflation, regulation have all been tried countless times throughout history in many different shapes and forms, and they never work. Logic says they can’t and won’t work, and as much as politicians in Washington might hope they can, the market cannot be suppressed forever. Luckily, more and more people are picking up on this across the country and starting to ask questions. The movement for liberty, responsibility, and a simple return to the Constitution can only go up from here.

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Stocks and Monetary Policy

By on February 7th, 2009

I’ve been investing in individual stocks since 2005, when I was just 12 years old. The idea of owning part of a business fascinated me. Over the past several years probably 95% of all the money I earned doing odd-jobs around my community went into individual stocks that I researched and analyzed on my own time. Unfortunately for me, I started investing in a very inflationary, bubble environment. At the time it didn’t get much attention and I thought I would easily ride out any downturn. I subscribed to the belief that bubbles and recessions are the “side effects”, or something of that sort, to a capitalist free market. I even consistently wrote that there’s always something to complain about and used that as an excuse to avoid thinking about the possibility of a serious downturn. Certainly, I’m not saying optimism is a bad or dumb thing. I consider myself a skeptical optimist. Today I believe a lot of “optimism” is really just ignorance or avoiding looking at all of the facts because they are a nuisance to one’s beliefs.

My stock portfolio has never really made money. I can remember only a couple times in the past four years that I was worth more money than what I put in. However, this isn’t something that frustrates me, because now is the time when I can afford to make mistakes and (hopefully) learn from them. I made mistakes and really I think I got careless, and I take responsibility for a losing effort so far with my investments. I’ve always believed and written about long-term investing with individual stocks, and there is good evidence from past investing legends such as Warren Buffett and Peter Lynch to show that this is a very worthwhile method. I still strongly believe that the philosophy of finding businesses you know, love, and understand is the way to go if you want to invest in businesses through stocks.

In early 2007 I watched an online video of the 2008 Republican presidential debates. Ron Paul was among the candidates, and at first I wrote him off as a loon who was simply being overly pessimistic about foreign policy and the U.S. economy and didn’t really know what he was talking about. After months of job growth in the economy and jumps in U.S. production and exports, it sounded crazy when he talked about a major recession being not too far off. However, he just wouldn’t go away! He stuck in the presidential race, and in October of 2007 I decided to take a closer look at what he was saying. I watched his speeches, read his articles, and researched his voting record. He was not simply a pessimistic looking to get attention. He analyzed everything, and that’s something that drew me in to research him further. And most impressive of all, his objections to both foreign and domestic policy weren’t based on only his personal opinions, but rather on the Rule of Law and what the Constitution says on every issue. It wasn’t long before I was a full fledged Ron Paul supporter, but I still couldn’t help but wonder if his predictions and constant warnings of a deep recession were a bit far fetched and overdone.

“We are at the verge of bankruptcy; we are moving into a New Era, believe it or not, with the dollar and our economy and the world economy. This is a New Era.” — Ron Paul; January 24, 2008

The economy seemed strong. Unemployment was dropping, exports were rising thanks to a lower dollar, and companies were reporting strong earnings. But over time I started to realize that his reasoning actually made a lot of sense to me and, evidently, a lot of other people around the U.S. and the world.

The Federal Reserve was something that got me scratching my head once I looked into it more myself. How could we call the U.S. a “free market” economy when we have a couple dozen people at the Federal Reserve controlling money and credit with no oversight from Congress? Under the Constitution, money is Congress’s reponsibility and only gold and silver can be legal tender. Yet somehow in 1913, Congress passed its monetary duties onto a central bank. Today, the Federal Reserve prints and hands out trillions of dollars, even though none of its members are elected nor is the Fed regulated and overseen by Congress. A central bank has no place in a free market and there is no way to call a market free when a massive central bank has a monopoly over money and credit enforced by the government through Legal Tender laws.

On top of the central bank, we have a fiat monetary system. The only thing that makes our dollars not worthless paper is because the government says it is legal tender. The credibility of the government is really the only thing that backs the dollars we use every day. I find it very questionable and discouraging that people, especially economists, don’t know the full story of the Federal Reserve and monetary history in general. No country has had a fiat monetary policy that lasted. Every time throughout history, paper money has failed miserably and crashed and burned. Even the Founding Fathers got to experience it firsthand with the failure of the Continental Dollar, which was a paper money started by the Colonies in an effort to pay off debts from the Revolutionary War. The painful and quick collapse of the system prompted the Continental Congress to put in the Constitution that only gold and silver could be legal tender. They knew that paper money failed and they surely did not want to experience that pain again.

One of the things that many people have lacked when it comes to economics is basic common sense. How can a fiat monetary system survive? Federal Reserve Notes are nothing but worthless paper, and sooner or later we, and all other countries with fiat monetary systems, will have to come to the realization that a paper currency is not a sound foundation for a sustainable economy to be built upon. We’re lead to believe that too much growth is bad for the economy and that recessions are just a natural trend of the free market to correct too much production and growth. This is such an absolutely bizarre, absurd belief in economics. It isn’t high growth that hurts the economy and creates bubbles; rather it’s cheap credit and inflating the money supply that are to blame. When people can borrow money for next to nothing like they have been able to, especially over the past twenty years or so, they will take risks that they ordinarily wouldn’t have. The Fed controls money and credit, and through the process of lowering interest rates to unsustainable, artificial levels, cheap money abounds through the economy as the printing presses work at full speed churning out new money to hand out. This inflates the money supply dramatically, encourages businesses to take risks that inevitably lead to malinvestment and failure, and creates the inflationary, bubble environment. This is what we saw in the 1990′s with the tech boom, and we’re seeing the major side effects of such policies today. One must act why the people, the free market, can’t handle adjusting interest rates on their own and why the Federal Reserve makes such crucial decisions regarding monetary policy without Congress raising a finger.

As I’ve studied the Federal Reserve in great detail, I’ve started to come to the conclusion that long-term investing isn’t nearly as simple as it used to be or could be. When you have artificially created bubbles come about through irrational monetary policy controlled by a few central bankers, you have to sit back and wonder. Had you invested in the S&P 500 10 years ago you would not be making money today, especially when you factor in inflation. 10 years is a long investment horizon, but when you have an unstable and unbacked currency and really an unsound economic system, long-term investing isn’t nearly as simple as it should be. I think the long-term investment philosophy is fantastic, but I don’t believe people realize just how damaging the Federal Reserve and government are to what’s left of the market. Every time the economy goes through the booms and busts created by the Federal Reserve, the same solutions are suggested: print more money (lower interest rates), borrow more money, and spend more money. Over the past year, these interventionist, central planning policies have expanded at a scary rate. We are told by both sides of Congress that if the government doesn’t intervene we’ll have another Great Depression. We are told that capitalism failed. Considering that we’ve essentially had worthless paper money shoved down our throats, considering that we have a ridiculous tax system that completely contradicts what a free society is all about, and considering that we’ve tried government intervention for nearly a century in economic affairs to no avail, I find it sickening when capitalism is blamed for this mess and government is said to be the only solution.

I haven’t given up on stocks. I don’t invest nearly as much in stocks now as I do in hard silver, but I think it will be an interesting thing to watch how individual businesses cope with such a massive intervention by the government into the market. I have no doubt that there are quality businesses out there that will ride this out and make investors money even through these tough times. There were quite a few stocks that tripled and quadrupled during the Great Depression (such as Coca-Cola) and I believe there will be some of those opportunities over the next few years. But, I am taking a much more cautious approach and highly encourage others to do the same. However much the government and Federal Reserve try to prop up this faulty system, a day of reckoning must come. The more money that’s pumped in to this mess by the government in an effort to stall a seroius recession, the more deadly the recession will be later on. Delaying the inevitable does not help a thing, and when looking for investments in any area I think people will have to be much more careful and consider many more factors than they used to. I may be wrong; I hope I’m wrong. Ron Paul said the same thing in 2003 when he warned about the mess we are in today.

Above all, it is time for people to analyze everything. Business, economics, public policy. The more involved and informed people are about these things, the more we can learn from our mistakes and really get a better idea of why and how things are happening in the economic and political world. I’m hoping to create a new web site built on a community of people determined to stay involved and interactive in an effort to become better informed about all these things. Above all, I want to create an environment that encourages people to have smart skepticism, analysis, and discussion on current events and policies on all levels. Please comment here or e-mail me at [email protected] if you would like to help get this started or if you have ideas, criticisms, or suggestions for this effort.

In Liberty,

David Kretzmann

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