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“Thank
Heaven for little Keynesian Nobel laureates… without them what would
little Keynesian Treasury secretaries do?...”
At
the long last we got the official explanation how we got into this mess. In
his March 2, 2009, column in The New York Times under the banner title
Revenge of the Glut Paul Krugman tells us that it is all the fault of
the Asians. They save damn too much. They test the endurance of unhappy
Americans’ who bankrupt themselves in trying to work off all that
darned excess saving fast enough. Even though they do their best, they could
not keep up with the prodigious output of the Asians and “global
savings glut” is the result. It was the cause of the U.S. current account deficits in the first place; now it is causing more mischief by creating
turmoil in the financial markets and in the banking system. In this scenario,
the good guys are the Americans. They are heroically trying to stave off
disaster through their unselfish consumption. The bad guys are the Asians,
tormenting their American victims in force-feeding them with overdoses of
consumer goods all the way to the bankruptcy court.
Although
Krugman does not say it, the implication is all too clear: there is one
especially pernicious form of saving, namely, saving in the form of gold.
Keynesians, through half a century of hard work, ably assisted by their
Friedmanite comrades, have developed a highly efficient system to embezzle
superfluous savings in an antiseptic way. Their sophisticated contra-saving
devices through currency debasement anesthetize those bastard savers so that
they can be pilfered and plundered without touching a raw nerve. It is a
clean job, causing a minimum of commotion.
Unfortunately,
these methods do not work on those who do their vicious anti-social saving in
the form of gold. These guys will have to be taken care of by other methods,
such as threats of central bank gold sales, bubble-bursting and price-busting
techniques in the paper gold markets, and other similar tactics. If
everything else fails, the guillotine could be reactivated as an instrument
of monetary policy, last used in this way during the French Revolution. At
that time, if you were found in possession of undocumented gold, your head
would be chopped off in summary justice.
*
* *
It
is very doubtful that in the long and checkered history of science there is
another episode comparable to this deliberate misuse and abuse of knowledge
for the exploitation of those who do not have a full measure of it. What
makes it particularly odious is that Keynesian obscurantism and
anti-scientific propaganda is put in the service of a hidden agenda: to cover
up the mismanagement of the economy through Keynesian precepts, the
sabotaging of human cooperation under the system of division of labor, and the
destruction of capital through the corruption of the monetary system.
The
monetary system was developed to serve and protect society as a whole: savers
as well as consumers. After all, at some point during our lives we are (or
ought to be) savers, so that later, in our harvest years, we could be
consumers. If it does not work in the opposite order, Mother Nature is to be
blamed for that. Saving always had to precede consumption. Saving has always
been primary and consumption secondary, like it or not.
But
Keynesians have overthrown Mother Nature. They say that it is possible to
have consumption without prior saving. Having corrupted our monetary system
and having destroyed society’s capital, Keynesians have rendered people
unable to fend for themselves. They treat them as they would treat livestock
in the feedlot. In exchange for fattening them (in preparation for the
slaughterhouse) livestock is being relieved from the need to gather feed in
the summer for winter consumption. Keynesians, self-styled directors of the
national economy, reserve the job of the feedlot operator to themselves. They
declare savings and capital obsolete. Synthetic credit manufactured at the
central bank in the service of collectivism is used as a substitute.
*
* *
Apparently
it never has never occurred to Krugman that his imaginary savings glut may
have something to do with the imperfections of the monetary system. Why
can’t we have a monetary system that allows people to save to their
hearts’ content? Why do we have to have one that sets up the Treasury
and the Federal Reserve as partners in the crime of check-kiting? Maybe the idea
of delegating unlimited power to these agencies was not such a good idea
after all. Maybe the U.S. Constitution imposed a wise limitation on the power
of government in refusing to sanction irredeemable currency. Maybe no one
should have the privilege of issuing liabilities without countervailing
responsibilities. Maybe our corrupt monetary system carries the seeds of
self-destruction in allowing structures like the quadrillion-dollar strong
derivatives tower to get conceived and to grow beyond all limits until it
topples on the people of Babel. Questioning the efficacy of our monetary
system in particular is taboo. All these questions are neatly side-stepped by
Krugman as he trots out that old Keynesian war-horse, the theory of
oversaving.
*
* *
There
is just one disturbing element in Krugman’s centrally planned economy.
It is the golden thorn in the Keynesian flesh. It is gold, the barbarous
relic. Man’s greedy little palm is itching to touch the stuff. Visual
contact in museums, churches and art galleries will not suffice. Keynesians
have a job here cut out for them: they have to ‘educate’ people
that wanting gold is like wanting the moon. They can’t have that; at
any rate, green cheese is just as good, and the government has an efficient
green cheese factory, the central bank, that can manufacture it in unlimited
quantities. Those who like gold had better learn to like green cheese.
By
the way, this is vintage Keynes. It is in the Bible, the green cheese factory
and all, entitled The General Theory, written by the Prophet in 1936.
Go look it up, and see it for yourself. It shows the endless cynicism and
contempt for the intelligence of others by the author.
We
are anxiously waiting to see how the pupils of the Prophet will deal with
this piece of unfinished business: to cure man of auri sacra fames,
“the accursed hunger for gold” (Virgil, Aeneid, III. 57.)
*
* *
Krugman
ends his piece on an alarmist note. The savings glut is still out there,
ready to gobble us all up. In fact, it is bigger than ever, now that suddenly
impoverished consumers have rediscovered the virtues of thrift; now that the
worldwide boom which provided an outlet for all those excess savings has
turned into a worldwide bust.
One
way to look at the international situation right now, Krugman says, is that
we’re suffering from the “global paradox of thrift”: around
the world savings exceed the amount that businesses are willing to invest.
And the result is a global slump that leaves everyone worse off. We are being
prepared to swallow the conclusion, one that may be coming in the form of
future Krugman pearls of wisdom, that we need a savior. One to save us from
ourselves and our own destructive saving habits. The government is our
savior. It can tax savings up to 100 percent if need be.
*
* *
It
is hard to imagine a worse way of standing facts upside down upon their head.
The exact opposite is true what Krugman has the cheek to suggest. The falling
interest-rate regimen inspired by Keynes has destroyed capital across the
board. The only way to replace or to replenish it is through saving. Krugman
adds insult to injury in suggesting that there is too much saving in the
world, instead of too little, with the result that businesses will stop
investing. So it falls upon the government to take up the slack and start
spending ourselves into prosperity. Krugman’s is a recipe for the
ruination of what is left of the world economy. The trouble is that he and
his cohorts at the Treasury and the Federal Reserve have all the means of
coercion at their disposal to finish off the job. They control the monetary
system, they control taxation, they control the White House. They also
control the guillotine that is being dusted off just in case it may be needed
again as an instrument of monetary policy.
*
* *
There
you have it: Krugman’s theory of the saving glut, and my theory of
wholesale capital destruction in the world as a result of serial halving of
the rate of interest by Keynesian monetary policy. I am ready to
submit my thesis to a public debate that it was Keynesian measures that
started capital destruction that I warned about eight years ago. If they had
any decency, Keynesians should admit that they were wrong and let others come
in with the new Obama administration and repair the damage. After all,
Keynesians have amassed unprecedented power in Washington with their savings
glut fable once before. There is absolutely no reason why they should be
given a second chance to try their hare-brained schemes of oversaving
on innocent people. But the idea of giving up power has never crossed their
mind. They just won’t, even if blood is flowing on the streets of Detroit and Los Angeles. That’s the nature of the so-called Keynesian revolution. It
is not a branch of economic science; it is a branch of Leninism, a blend of
collectivist ideology with unmatched expertise on conspiracy, street fighting
and barricades.
*
* *
In
a nutshell, here is my theory of wholesale destruction of capital as a result
of Keynesian monetary policy of serial halving of the rate of interest. The
regime of falling interest rates is lethal to businesses, whether financial
or producing, as it clandestinely wipes out capital through increasing the
liquidation value of debt on past borrowings. Lower rates are not helping
business as the issue is not the cost of future borrowing.
Chartered
accountants and bank examiners ignore the erosion of capital due to falling
interest rates, most likely with the connivance of governments if not on
direct order from them. So there is no advance warning, and the destruction
of capital presents a surprise fait accompli when it is already too
late to do anything about it.
The
wholesale destruction of capital is a social disaster of the first magnitude,
in many ways worse than the destruction of physical capital due to war,
precisely because wartime damage is expected and preparations are made to
cushion it. Capital accumulation is the result of decades or even centuries
of arduous saving by hundreds of millions of individuals that, nevertheless,
can be frittered away in a matter of a few years. To rebuild the capital base
of society will take a concentrated effort to save for decades to come. This
great task of reconstruction is certainly not being helped, rather, it is
being retarded, by the vicious Keynesian agitation about a mythical savings
glut.
*
* *
Gold
offers a ray of hope in an otherwise thoroughly gloomy picture. Gold
represents that hard core of capital that cannot be destroyed by the credit
collapse. Gold is the only asset that survives any consolidation of balance
sheets. Other bank assets are canceled out upon nationalization of the banks.
At any rate, they are subject to counter-party performance that cannot be taken
for granted in a credit collapse. If civilization survived, it would have a
head start in rebuilding capital through enlisting gold in the reconstruction
effort. One ounce of gold would go farther than all the make-belief credits
created out of the thin air by all the defunct central banks of the world.
This is the triumph of gold: it can be bad-mouthed all the Keynesians want.
But gold and those who control it will have the last laugh.
Antal E. Fekete
www.professorfekete.com
Professor,
Intermountain Institute of Science and Applied Mathematics
Missoula, MT 59806, U.S.A.
DISCLAIMER AND CONFLICTS
THE PUBLICATION OF THIS LETTER IS FOR YOUR INFORMATION AND AMUSEMENT ONLY.
THE AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON IT, NOR IS HE SUGGESTING
THAT IT REPRESENTS, UNDER ANY CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL
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SOURCES BELIEVED TO BE RELIABLE, BUT THE AUTHOR MAKES NO REPRESENTATION THAT
IT IS COMPLETE OR ERROR-FREE, AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS
TO BE TAKEN AS THE AUTHORS OPINION AS SHAPED BY HIS EXPERIENCE, RATHER THAN A
STATEMENT OF FACTS. THE AUTHOR MAY HAVE INVESTMENT POSITIONS, LONG OR SHORT,
IN ANY SECURITIES MENTIONED, WHICH MAY BE CHANGED AT ANY TIME FOR ANY REASON.
Copyright © 2002-2008 by Antal E. Fekete - All rights reserved
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