The Federal Reserve: “A God That Has Failed”

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Why does Wall Street keep recovering after recessions but the economy seemingly never does?

The reason, as I document in my book, “The Scandal of Money: Why Wall Street Recovers but the Economy Never Does” is that Washington and the Federal Reserve together have created a closed loop economy where the Fed creates money for the government and the S&P 500 and Main Street is left out.

The Fed decides what money is worth and who receives it and how much. The Fed prices it at zero interest rates, allegedly to stimulate economic growth. But whenever something is free, it’s distributed by queue, and only the privileged, connected people in the front of the line get any, not the innovators who create growth and opportunity for Main Street. Trump voters are wrong if they blame Mexico and China, but they are right about one big thing: The economy is rigged against them.

The Fed takeover of the economy has turned Main Street into Mean Street; it has gelded Silicon Valley, reducing our most creative entrepreneurs to climate cranks obsequiously petitioning in Washington.

Almost two-thirds of jobs created between 2002 and 2010 came from 23 million small businesses, according to the Small Business Administration. But venture capital investment in 2014 of $48 billion is just one-third of the 2000 total (in 2015 dollars), according to the National Venture Capital Association. There were half as many IPOs in 2015 as in 2000, and they were mostly focused on a few large deals.

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The Government Can’t Print Its Way to Economic Growth

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Trump baffles conservative elites: how with such a talented field of candidates we could we end up with an isolationist, big-government, trade-war nominee?

But give the American people this much credit: they understand the economic game has been rigged: that while the crony capitalists are still getting richer, ordinary Americans and their children face a bleak economic future.

Give Trump credit for flagging the problem in an interview with The Hill last October accusing Federal Reserve Chairwoman Janet Yellen, of keeping interest rates low in order to shield Obama from having to leave office during a recession.

“She’s keeping the economy going, barely,” Trump said.

“You know who gets hurt the most?” he pointed out, “People who practice the American dream and … worked all their lives to save and now what happens is they’re being forced into an inflated stock market and at some point they’ll get wiped out.”

Trump makes an important point. But his answer suggests a belief in the power of the Fed to keep the economy going. After the slowest recovery in a hundred years, the Fed’s power has been discredited.

Trump’s explanations — it’s China’s fault and Mexican immigrants’ fault — are false. Likewise Bernie Sanders and Hillary Clinton blame Chinese “currency manipulators” and U.S. multinational corporations or Congress’ failure to give even more money to the government to spend. All these provide alibis for the extended failure of Obamanomics and the continuing failure of the Fed and its manipulations of monopoly money.

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“The Scandal of Money” Interview

My book, The Scandal of Money: Why Wall Street Recovers But the Economy Never Does, launches today:

The Fed creates money for the government and for the Fortune 500 corporations and nobody else gets it. . . this has starved Main Street — turned Main Street into Mean Street; it’s kind of gelded Silicon Valley made them into petitioners in Washington and it has turned Wall Street into a kind of servant of Washington; Wall Street has been effectively nationalized by the Obama administration. So we have covert socialist coup in America accomplished through the Federal Reserve and this has to be reversed.

I appeared recently on a podcast for the Conservative Book Club to talk about the book. You can listen below:

George Gilder is a bestselling writer and author of, most recently, The Scandal of Money: Why Wall Street Recovers But the Economy Never Does. Continue Reading

The Real Myth Lies With Gold Standard Critics

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The real deep myth at the heart of criticism of the gold standard is that it’s value stems from its use as a commodity. The fact is that gold is valuable because its scarcity is founded in the scarcity of time (the time to extract it, which has hardly changed in centuries).

Commodity prices change; time is changeless and irreversible. That is the source of gold’s immemorial power as the monetary element, and it will be the source of the value of the digital forms of gold that are emerging around the globe. The present system — the global ocean of currency trading — has no secure reference of any kind. Thus it is a sea of speculation rather than a metric for value. The world economy is currently drowning in it.

George Gilder is a bestselling writer and author of, most recently, The 21st Century Case for Gold: A New Information Theory of Money. Continue Reading

Cruz Is Right About Gold

Sen. Ted Cruz (R-TX) (photo credit: Gage Skidmore)

Ted Cruz grasped the nettle in the debate and explicitly upheld gold as the “ideal” monetary foundation. Perhaps he understands the scandal of money: that gold currency is now effectively illegal in the U.S.; that the murky $5.3 trillion a day churning of currencies now muddles rather than defines all value in the global economy.

The next step from the nettle is an actual program for the net, which should include digital currencies such as bitcoin as well as the cancellation of capital gains taxes on the alternatives to the dollar.

As Hayek wrote: “The source of all monetary evil is the government monopoly on money.”

George Gilder is a bestselling writer and author of, most recently, The 21st Century Case for Gold: A New Information Theory of Money. Continue Reading

Fiorina Triumphs While Bush Makes the Case for Growth

Hey, don’t tell anyone, but Carly Fiorina is my new heart throb, breaking through the maginot lines of poll-driven mediocrity, where candidates carefully tell the audience what they already think, and establishing a new standard of leadership for the Republican tribe. From a lackluster Senate candidate in California, she has transformed herself into a consummate communicator. Last night, Carly Fiorina looked as if she were born to wield both the scales of judgment and the sword of justice for our party.

But she never really engaged the economic issues. I was struck how little a role economics played in the debate, given the ongoing debauchery of both Main Street and Silicon Valley by government policies from the new monetary state, with the Federal Reserve as a new Fourth Branch of Government usurpation, ruled by elite bankers and their political cronies. Zero interest rate policies zero out the future, raid the pensions and savings of American workers and entrepreneurs, and bid up King Canute climate companies and fashion plate political favorites for today’s pols.

Wall Street and Washington relish monetary manipulation, arbitrage, and leverage, with the downsides protected by government.

Main Street and Silicon Valley relish monetary stability for long term investments, with the upsides protected by the rule of law.

Republican candidates should ring the alarm against the massive raid on the future by the Obama Administration and the Federal Reserve, with its “one to zero” policies, bidding up Potemkin assets today at the cost of the long term prospects of our children. Continue Reading

Greece and Gold

Megan McArdle, a smart journalist, is dead wrong in arguing that the moral of the Greek story is bad for gold.  The reason for Greece’s troubles is the failure of the global fiat money regime that McArdle supports as the remedy.

With nearly meaningless money, all economies will eventually slump and stagnate and marginal ones will collapse. All enterprise depends on the guidance of reliable money.

Money must serve as a measuring stick for enterprise, not as a magic wand for governments. Central banks waving magic wands stultify commerce by reducing most of it to currency speculation and arbitrage. With $5.4 trillion a day of currency trading—for a metric more volatile than the economic activity it supposedly measures–we are already there. A stultified global economy can no longer provide enough jobs or wealth to sustain beachfront outliers like Greece.

That’s the problem of Europe, not a failure of the Germans to inflate enough Euros or find enough greater fools to buy Greek bonds—not the refusal of the Greek government to impose austerity on itself (austerity in Europe means higher taxes to support government waste). We are rapidly approaching the moment when the only recognizable monetary element will be gold and its cryptographic cousins, with value based on the time it takes to extract it. Time is the ultimate irreversible measure of monetary value.

Zeroing out the time value of money in interest rates, the central banks of the world are waging a war against time. Greece is only the first victim. Continue Reading

Ramesh is Wrong

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My short book presents a new information theory of money. Only in passing did I cite Ramesh Ponnuru and National Review as influential representatives of a monetarist faith curiously shared with Paul Krugman and most Democrats. With colleague David Beckwith, Ponnuru is a savvy and sophisticated monetarist who, like virtually all of his faith, wants us to attend to all the refinements of the recherche views that distinguish him from his unwonted allies.

My book, however, regards centralized monetary policy itself, regardless of refinements, as a socialist temptation. Controlled by central banks with floating currencies, and oriented toward the needs of obsolescent world financial institutions such as hypertrophic banks and governments, centralized money is the most fundamental cause of the current doldrums of the world economy. Channeling funds to government affiliated banks and other political favorites, it also demoralizes and discredits capitalism.

Foreign exchange trading is now 100 times more voluminous than all the world’s stock market trading put together, 25 times more voluminous than trade in goods and services, and more volatile than either. While shortening the time horizons of investment from decades to seconds and minutes, it provides an increasing share of financial profits without conferring stability, mitigating crises, or promoting trade. This is a scandal of money. I believe that new Internet technologies enable a new monetary regime that will be dominated by gold and alternative currencies such as bitcoin. I explain this exciting prospect in my book. Continue Reading