A response to an article in The Straits Times

I wrote an e-mail to the author of a straits times article:

Dear Hui Yee,

I refer to your article "When Free Markets Fail" on The Straits Times dated May 25, 2011. The article argues that free markets are not fail-safe, and active government intervention can forestall a global economic collapse.

In fact, from the Austrian School of Economics' point of view, it is totally the opposite.

The US hasn't had free markets for decades. How can one call the US a free market when the Federal Reserve is manipulating the interest rates, and the governments intervene whenever they have the chance to do so?

The 2007 sub-prime crisis has its roots in around 2000. Back then, the dot-com bubble has just burst, and President Bush and Greenspan, not wanting a recession which will cure the imbalances, injected tons of paper money into the system. Interest rates were lowered to 1%. The market is flooded with cheap money. The result is that people used this money for speculative purposes, such as the housing market. 

An economy can only be healthy if sound money is being used. And sound money means letting market forces determine the all-so-important interest rate. Sound money does not mean having a central bank and a small group of men trying to set interest rate for the whole economy.

Concurrently, Freddie and Fannie were created. These government organisations backed the mortgages. With these government guarantees, who wouldn't want a piece of the action in the housing market? 

Free market capitalism only works if greed is being balanced by fear. The government removes all these fear with those institutions that they created. Without these institutions, the population wouldn't have allowed such wild speculations to go on! The bankers won't dare to bet so heavily on housing. The depositors won't allow bankers to gamble with their money. But the government created this moral hazard, which effectively removes the natural checks and balances that the market provides. Nowadays, I bet people spend more time researching on the camera that they are buying, instead of the balance sheets of the banks that they are going to put their live savings in. Why? Because government guarantees the deposits. But where do government get their resources from? By printing money, in most cases.

I hope that some of these arguments can dispel the myth that free market has been at work in our world. We haven't have free markets at all - far from it.

Thank you for your time. I would be glad to get a reply from you.

Have a nice day.

Regards,

Jin

Some musings

I started studying monetary history after graduating from NUS (I'm sorry to say this but I wasted 4 yrs of my time and money there learning nonsense). What I learnt is something profound, something distasteful and disgusting.

When I first started, I could see right away the MAIN source of the illnesses in our world today. Smaller and smaller families, dual-income families, rising poverty, rising income-gap, rising education and healthcare costs, rising costs of living, rising housing costs, wars..... And the souce of all these is the Central Banking System. The Fractional Reserve Banking System complements the Central Banking System nicely. They are both good friends to each other.

I couldn't keep this knowledge to myself, hence I started this blog. I knew not many will read it, and I didn't actively promote it, but heck, I just need to vent my thoughts somewhere. Some good friends of mine bothered to read my humble opinions though, and I am grateful for that.

While I think gold and silver and commodities are the best protection against the craziness of the world right now, I am by no means advocating it as a get-rich scheme (although you can get rich investing in commodities :D ). Some of my friends thought that I am too free, too conspiracist in my thinking, but I am glad that some of them bothered to do some research, and came to the same conclusions.

We live in this world thinking that things are always the way it is, but it is most certainly not! Do not believe what the economics professors teach in school! The current fiat monetary system is only 40 years old, and I think the end is near. I am not saying the world is DOOMED. Just saying this current monetary system will end somehow.

ANYWAY, here are some nice quotes I have gathered through the course of my study:


"A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank." — Ron Paul, the only politician in the world whom I support

“I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank…You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, I will rout you out.” - Andrew Jackson,  the first and only President in U.S. history to pay off the National Debt. He fought valiantly to close down the 2nd Central Bank of the USA.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." - Henry Ford, founder of the Ford Motor Company

“Those few who can understand the system (check book money and credit) will either be so interested in its profits, or so dependent on it favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” - The Rothschilds of London

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." - Thomas Jefferson, third President of the United States, and one of the Founding Fathers of the USA

The Source of Inflation

This is an excellent article, with ample examples and statistics:

http://www.theburningplatform.com/?p=15246

US debt bomb