The Great Depression Online




Great Depression Online Archive Issue:

Fertile Soils of Lunacy

Great Depression Online
Sacramento, CA
December 16, 2008

Inside This Issue You Will Discover…

*** Quantitative Easing
*** Making History
*** Fertile Soils of Lunacy
*** And More

Quantitative Easing

Academic theories are often nothing more than elaborate obfuscations.  They serve to convolute and excuse actions that would otherwise be reckless or preposterous.  By complicating things with statistical models based on whimsical assumptions, almost anything is justifiable…no matter how spurious, foolish, or dangerous it may be.

If you’re ignorant of the monetary policy system of quantitative easing, we apologize…for we must forever end your bliss.  The ‘quantitative’ part applies to the money supply.  And the ‘easing’ part indicates increasing.  In essence, it’s a convoluted way for central banks to increase the money supply by effectively printing new money.

On the first of this month Federal Reserve Chairman Ben Bernanke gave a speech at the Austin, Texas, Chamber of Commerce, where he addressed what his central bank could do to support the deflating economy given the federal funds rate is already at one percent.

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“Although conventional interest rate policy is constrained by the fact that nominal interest rates cannot fall below zero,” Bernanke said, “the second arrow in the Federal Reserve's quiver--the provision of liquidity--remains effective.”

And to provide liquidity, “the Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities.”

Quantitative easing, in other words.

Making History

This Monday and Tuesday, when Bernanke and his cohorts meet to price fix the federal funds rate, it is likely that they’ll make history.  For anything less than its current one percent would be unprecedented. 

In fact, by this afternoon the world as we’ve always known it may be subtly altered.  And as the federal funds rate approaches zero the degree of quantitative easing – printing money – will likely intensify.

Naturally, all this monetary monkey business wouldn’t be possible if Richard Nixon hadn’t severed the dollar’s gold backing in 1971.  Of course Nixon was just doing what Henry David Thoreau said governments, at best, do…the expedient. 

Lyndon Johnson had already increased the money supply beyond what the economy produced to pay for his policies of guns and butter, resulting in a widening trade deficit.  Properly reckoning the nation’s budget books would have meant redeeming foreign creditors with the nation’s gold.  Nixon wouldn’t allow it.   

Fertile Soils of Lunacy

Appropriately, we have Richard Nixon on the mind.  For we attended a Holiday Party at the Richard Nixon Presidential Library and Birthplace in Yorba Linda over the weekend.  What a venue.  Posh, elegant, and historic. 

We toured the museum before dinner and admired the remarkable life of the Nation’s 37th President.  We also got a good chuckle over the fact that Tricky Dick came of age in the pre-WWII Los Angeles Basin.  What a magical place it must have been before the mania to splatter every square foot of its surface with concrete took hold of the local spirits.

To this day, the place is a magnet for eccentrics, delusionals, and hucksters galore…but prior to WWII it had an utter profusion of lunatics too.  Madcaps like Howard Hughes, who’d dream up his latest flying machine invention and then crash it into Beverly Hills.

Or Italian immigrant Simon Rodia, who for no good reason spent 33 years chicken wiring steel pipes and rods together, erecting numerous towering eyesores in his backyard in the Watts district of Los Angeles.  Ironically, these monstrosities known as the Watts Towers are now a National Historic Landmark.

And there was Griffith J. Griffith, who amassed a fortune in the mining industry…before he shot his wife in a Santa Monica Hotel.  To make good for his transgressions – and to commute his time in San Quentin to just two years – Griffith donated the land for Griffith Park to Los Angeles and funded the city’s observatory.

It was from these fertile soils of lunacy that Nixon sprouted to Presidential office.  And it was in these fertile soils of lunacy that the seeds of the paper money based financial system were sown.  Likewise, it is from these fertile soils of lunacy that the bitterly poisonous fruits of today’s economic ruin have blossomed. 

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  We’re in the State Capital most of the week, where we have our nose to the grindstone, milling out work product in mass.  In the meantime, have a read – or reread – of the Free White Paper – Why Gold is True and Honest Money: Why Gold is True and Honest Money.

 

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