American Education is so Poor only 7% in Survey can Name the First Four Presidents in Order

Posted by PITHOCRATES - April 13th, 2014

Week in Review

All you hear from Democrats is that we need to spend more on education.  They call it investing in our future.  Which is a lie.  For ‘investing in our future’ is code for shoring up teachers’ pensions.  And keeping higher education doing what those in control of higher education want it to do.  Produce Democrat voters.  Which actually starts in our public schools.  Where they teach our kids to come home and tell their parents that they are ashamed of them.  For all the global warming they’ve caused.  And bringing them into the world in the evil, rotten United States.

These are the things our kids seem to know about.  Global warming.  Slavery.  Stealing land from the Native Americans.  American imperialism.  But ask them to name the first four presidents of the United States?  Four of the greatest Americans ever to live?  Those in control of our public education don’t think knowing anything about them is important.  Apparently (see Rolling Stone, Groupon Show The Viral Benefits of Historical Inaccuracy by Nathan Raab posted 4/11/2014 on Forbes).

In 2007, a US Mint poll showed that only 7 percent of those surveyed could name the first four Presidents in order. A later poll by Marist was not more encouraging.

George Washington (#1) kept the Continental Army together for 8 years under circumstances few could imagine today.  Near the end of the Revolutionary War his character alone put down a mutiny in the officer corps.  He turned down the offer to make him king.  An unprecedented act at the time.  King George of Britain had said if he turned down absolute power “he will be the greatest man in the world.”  And Washington did.  Twice.  His presence was the only thing that got the states to ratify the Constitution.  And his two terms in office was the only thing that gave the United States of America a chance of succeeding.  This is why there is only one man we call the Father of his Country.  And only one man we call the Indispensible Man.  George Washington.

John Adams (#2) was a driving force for American independence.  So much so that King George could not forgive him.  Had they reconciled with the mother country the king would have pardoned many patriots.  But not Adams.  He would hang.  Adams nominated George Washington to command the Continental Army.  He chose Thomas Jefferson to write the Declaration of Independence.  He worked with Benjamin Franklin to negotiate the peace treaty that ended the Revolutionary War.  And negotiated America’s first loan from Amsterdam bankers.  The first nation to recognize and do business with the new nation (other than France).  And he averted war with France following the French Revolution.  Giving the fledgling nation a chance to survive.

Thomas Jefferson (#3) was the author of Declaration of Independence.  The author of the Statute of Virginia for Religious Freedom.  And the Father of the University of Virginia.  The three things Jefferson was most proud of and appear on his tombstone.  As president his administration bought the Louisiana Territory from the French.  More than doubling the size of the United States.  And sent out Lewis and Clark to explore these vast new territories.  And he slashed government spending wherever he could.  A true believer in limited government.

James Madison (#4) is the Father of the Constitution.  He wrote the Federalist Papers with Alexander Hamilton and John Jay to encourage ratification of the Constitution.  The Federalist Papers are still referenced today in Constitutional law.  He also helped the effort to ratify the Constitution in Virginia where he battled the great patriot Patrick Henry.  Who feared a large central government.  Madison served in the first Congress.  Where he championed the Bill of Rights.  And, later, supervised the Louisiana Purchase as President Jefferson’s Secretary of State.

It is indeed a sad commentary on our educational system that only 7% of those questioned could identify these great Americans.  And it’s not a lack of money causing this.  It’s a lacking in the curriculum.  Choosing global warming, slavery, stealing land from the Native Americans, American imperialism, etc.  Instead of teaching our kids why the United States is the greatest country in the world.  Because of men like these.  Who put the individual before the state.  Who made freedom and liberty things we take for granted.  Instead of things people can only dream of.  Which is the case in much of the world today.  And has been the norm throughout history.

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Byzantine Empire, Bosporus, Silk Road, Dutch East India Company, English East India Company, Tea Act and Opium Wars

Posted by PITHOCRATES - March 11th, 2014

History 101

(Originally published May 15th, 2012)

To encourage Risk Takers to Travel Halfway around the World Mercantile States granted Monopoly Charters

The modern world began because Europeans had a penchant for silk and spices.  Something they enjoyed during Roman times.  When the Romans ruled the world.  And the Mediterranean Sea was nothing more than a Roman lake.  But when the empire stopped conquering new lands and sending the spoils of war home they had to turn to other means to pay for the cost of empire.  Taxes.  To pay for the Roman government and their public spending.  And the Roman legions.  This excessive government spending led to the fall of the western half of the empire.  But the eastern half lived on for another 1,000 years or so.  Why?  Because the capital of the Byzantine Empire was Constantinople.  On the Bosporus.  Trade crossroads of the world.

This city was so rich everybody wanted to conquer it.  So they could have all those riches.  For everything that came along the Silk Road from China crossed into Europe at the Bosporus.  Soon Muslims fought Christians in the Holy lands.  Then more Christians came.  The Crusaders.  Those who didn’t die went back to Europe with some of those Chinese luxuries.  Spices.  Silk.  Porcelain.  Etc.  Sparking a renewed interest in these finer things in Europe.  Especially the spices.  For European cooking was horribly bland at the time.  The Ottoman Turks eventually took Constantinople.  Renamed it Istanbul.  And controlled that lucrative trade.  Making those much sought after Asian goods rather expensive in Europe.  Which they had no choice but to pay.  Because if you wanted those luxuries you had to go through Istanbul.  Until the Portuguese sailed around Africa and found a direct route to those cherished goods, that is.

It was the Commercial Revolution.  A new age of international trade.  A trade even more profitable than what the Ottoman Turks controlled.  Because big ocean-going vessels can carry more cargo than anything coming over land on the Silk Road.  And these new European maritime powers wanted that wealth.  And the power it would provide.  To encourage risk takers to get into those wooden ships and travel halfway around the world they granted monopoly charters.  The Dutch East India Company (VOC) was one of the largest.  And one of the wealthiest.  But this was not your typical company.  The VOC established overseas colonies.  It waged war.  Established treaties.  Even coined its own money.  Because of this thousands of VOC ships stuffed full of valuable cargoes sailed to Antwerp and Amsterdam, making the Dutch very wealthy.  And powerful.

The Tea Act allowed the Company to Ship their Tea Directly to America and exempted them from any Duties

Of course the Dutch weren’t the only ones doing this.  They had competition.  Portugal.  Spain.  France.  And England.  Who would bump into each other numerous times fighting for control of this trade.  And those colonies.  The English and the Dutch would fight 4 wars.  Which is how Dutch-founded Manhattan became part of the British Empire and, subsequently, one of America’s greatest cities.  The English East India Company gave the VOC a run for its money.  Parliament even passed legislation to give the English a monopoly on all trade with their American colonies.  The Navigation Acts.  Which stated that all trade to and from America had to be on English ships.  And all trade had to go through an English port.  Where the ships were unloaded and the cargoes inspected.  And taxed.  Then they could reload their cargoes and continue on their journey.  All tenets of mercantilism.  This kept the lower-priced Dutch goods out of America.  And prevented the Americans from selling to the Dutch directly for higher prices.  So it shut down the Dutch from all American trade (except for a prosperous black market). And brought in some lucrative tax revenue for England.  While extending shipping times and increasing prices for the Americans.  Which they were not happy about in the least.

The English East India Company (the Company) was similar in structure to the VOC.  And soon made the Indian subcontinent a wholly owned subsidiary of the Company.  But it wasn’t cheap.  Waging war was costly.  As was managing those conquered territories (something the Romans had also learned).  Then a famine in Bengal in 1770 claimed about one-third of the local population.  Making laborers more scarce.  And more expensive.  All at a time when the sales of their imported goods were falling in Europe.  There were warehouses full of unsold Chinese tea that they couldn’t sell.  Making for a bad time for the Company.

Higher costs and lower sales spelled trouble.  And that’s what the Company had a lot of.  Trouble.  So the Company turned to Parliament for help.  And Parliament helped.  By allowing the Company to ship their tea directly to America without having to unload it in a British port.  Or pay a duty on that tea.  Which would greatly reduce their costs.  And allow them to sell it in America cheaper than they did before.  So Parliament passed the Tea Act in 1773.  Making life better for all involved.  But the Tea Act left in place another tax in the previous Townshend Acts.  Which was a bigger problem than getting cheaper tea (which they could get on the black market from the Dutch).  These taxes on the British subjects in America were unconstitutional.  Because there were no Americans sitting in Parliament.  This was taxation without representation.  A much bigger issue than cheap tea.  So they threw that first ‘cheap’ tea into Boston Harbor.  The Boston Tea Party being a major step towards war with the mother country.  And American independence.

Britain became the Lone Superpower after Abandoning their Protectionist Mercantile Policies and Adopting Free Trade

The American Revolutionary War was not the only headache the British got from their mercantile policies.  Part of those policies required maintaining a positive balance of trade.  So there was always a net inflow of bullion into the mother country.  That’s why raw materials shipped into Britain from America.  And finished goods shipped out to America.  Finished goods are more valuable than raw materials.  So the Americans had to make up for this balance of trade in bullion.  Resulting in a net inflow of bullion into the mother country.  Very simple.  As long as you can manufacture higher valued goods that other people want to buy.

And this is the problem they ran into with the Chinese.  For though the British wanted those Chinese spices, silk and porcelain the Chinese didn’t want anything the British manufactured.  Which meant Britain had to pay for those luxuries with bullion.  Including all that Chinese tea they craved.  Which resulted in a net outflow of bullion to the Chinese.  The British fixed this problem by finding the one thing that the Chinese people wanted.  Indian opium.  Grown in Bengal.  Of course, this turned a lot of Chinese into opium addicts.  The addiction problem was so bad that the Chinese banned opium.  But the British were able to smuggle it in.  They sold so much of it that they used the proceeds to buy their tea.  Thus reversing the bullion flow.

Not the finest hour in the British Empire.  The Chinese and the British would go on to fight a couple of wars over this opium trade.  The Opium Wars.  Which the British did all right in.  Even gaining Hong Kong in the bargain.  They didn’t build any long-lasting love with the Chinese people.  But Hong Kong turned out pretty nice under the British.  Especially after they abandoned their protectionist mercantile policies and adopted free trade.  Which made the British the lone superpower for about a century as they modernized the world by leading the way in the Industrial Revolution.  And the Chinese in Hong Kong were very happy indeed to be there when the communists took over the mainland.  And caused a famine or two.  For they lived comfortably.  In a state founded on mercantilism.  That achieved its greatest prosperity during the free trade of capitalism that followed Britain’s mercantile ways.

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Abortion and Tax Revenue

Posted by PITHOCRATES - January 27th, 2014

Economics 101

(Originally published January 21st, 2013)

The Population Growth Rate fell during the Sixties and Seventies from 19% to 11% due to Birth Control and Abortion

Taxpayers are born.  Yes, immigration helped populate America.  But it was really the children of immigrants that made the country grow.  For a large population having babies will increase the population far more than immigration can.  Why?  Where do immigrants come from?  Babies.  Having babies is like compounding interest.  For babies grow up and have babies of their own.  So babies are good.  Especially for a government that wants to spend money.  Because the more babies we have the more taxpayers we will have.  So high-spending governments need a growing population growth rate.  To provide ever more taxpayers.  Who provide ever more tax revenue.  But sometimes the population growth rate doesn’t always increase.  Sometimes it even falls.  (See Population, Housing Units, Area Measurements, and Density: 1790 to 1990.  The population numbers are from the decennial census numbers.  The population growth rate is the percentage of population growth from one decade to the next.)

Although the population has always grown the population growth rate has not always grown.  In fact, the rate of growth has been falling over time.  Taking steep declines during war.  During the American Civil War the growth rate fell from 36% down to 23% by the time of the next census.  The census before and after World War I saw a decline from 21% to 15%.  The rate plummeted from 16% to 7% before and after the Great Depression.  With so many people out of work and struggling to survive the last thing families needed was another baby to feed.  The rate actually increased during World War II.  But that had more to do with people not having babies during the Great Depression for economic reasons.  After World War II the rate rose to 14%.  Which was still a point less than after World War I.

The following table shows the decrease in population due to war.  (Raw numbers are pulled from United States military casualties of war.)

Note that the most devastating of American wars was the American Civil War.  Where approximately 2% of the population died.  In terms of percentage loss of population the next costliest war was the Revolutionary War.  Then World War II.  Then World War I.  These wars saw millions of men in uniform (except for the Revolutionary War).  Away from their wives for years.  Which put a crimp in baby making.  And the large number of wounded and dead compounded that problem.  Resulting in large dips in the population growth rate during these wars.  Despite the large loss of life in numbers of America’s other wars those losses were all less than 0.10% of the population.  Making the impact on the population growth rate negligible.  One thing these numbers don’t explain, though, is the decline in the population growth rate after 1960.  During the Sixties and the Seventies the growth rate fell from 19% down to 11%.    But it wasn’t the Vietnam War that caused that decline.  So what did?  Birth control.  And abortion.

Couples having only 2 Children can’t Support an Expanding Welfare State but Couples having 3 Children Can

The U.S. approved the sale of the birth control pill in 1960.  Which corresponded with the era of free love and the sexual revolution.  People were having more sex.  While having fewer babies.  Then Roe v. Wade made abortion legal in 1973.  Since then there have been on average about 1.4 million abortions a year.  Dwarfing the 156,250 killed a year in America’s most devastating war.  The American Civil War.  Which has brought the population growth rate to its smallest numbers that weren’t due to war or depression.  Because of that compounding nature of babies (growing up to have babies of their own).  And because babies become taxpayers this has a big impact on future tax revenue.  We can see this by looking at how 100 abortions ripple through the population.

Let’s assume those 100 abortions happen in Year 1 (Y1).  Had these abortions not happened these babies would have grown up and entered the workforce about 20 years later (Y1+20).  And split off into pairs to have babies of their own.  (If each couple has one baby they have a total of 50 babies.  If each couple has two babies they have a total of 100 babies.  Etc.)  Who would grow up and enter the workforce about 20 years later (Y1+40).  And so on.  The above graph adds up all the people for each 20-year period produced by the Y1 babies (children, grandchildren, great grand children, etc.) divided by 100 (those original babies not aborted).

If the Y1 people only have one baby they and their descendants disappear from the world in about 2 centuries.  If they have 2 children the population never grows larger than 4 times the original Y1 people.  Two children to replace two parents.  It’s not until you get to three children that you see an increase in population.  As well as an increase in tax revenue.

Assume each of the people, or taxpayers, at 20-year intervals earn a median income of $50,000.  They pay an effective federal income tax rate of 18%.  In addition to 12.4% for Social Security taxes (both employer and employee).  And 2.9% for Medicare.  Added together they total 33.3%.  This tax rate on total income at each 20-year interval produces the tax revenue in the above graph.  Note the revenue graphs are the same shape as the population graphs.  Showing a direct correlation between tax revenue and the population growth rate.  The tax revenue provided by couples having only one child disappears within two centuries.  Revenue provided by couples having only two children peaks out at $6,660,000.  As couples only have enough children to replace themselves.  Maintaining a constant of 4 taxpayers (2 parents and 2 children) after 80 years.  Showing that couples having 2, 1 or 0 children cannot support an expanding welfare state.  But a couple having 3 children can.  As long as it’s not too big of a welfare state.

You just can’t have an Expanding Welfare State with a Falling Population Growth Rate

The more children a couple has the greater the tax revenue.  For the more children they have the more people enter the workforce and become taxpayers.  If 50 couples have 3 kids each (as do their descendants) they will add $30.4 million in federal tax revenue in one century.  If they have 4 kids they will add $99.9 million in revenue.  If they have 5 kids they will add $264 million.  And if they have 6 kids they will add $599.4 million.

In two centuries these numbers are even more profound.  Couples having 4 kids will provide $3.2 billion in federal tax revenue.  While couples having 5 kids will provide $25.8 billion.  And couples having 6 kids will provide $145.6 billion.  If, that is, 100 pregnancies weren’t aborted 2 centuries earlier.

In the long-term revenue would soar if people simply started having babies again.  For birth control and abortion have greatly reduced the number of babies we’re having.  Causing tax revenue to fall.  We can bring revenue back up by having more babies.  But after some 30 years this baby dearth has pushed us into the flat part of these graphs.  Requiring up to a century or more to make large population gains.  And large gains in tax revenue.   And without these gains in revenue we simply cannot afford an expanding welfare state.

It is rather ironic that two tenets of liberalism clash here.  Liberals believe in both a welfare state.  And free birth control and abortion on demand.  They believe in one thing that requires women to have a lot of babies.  And another that helps women to have as few babies as possible.  Which is another reason liberalism will ultimately fail.  Paradoxes like this.  For you just can’t have an expanding welfare state with a falling population growth rate.  If you try you get trillion dollar deficits.  And $16.4 trillion in accumulated debt.

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How Christianity gave us the United States and made the World a Better Place

Posted by PITHOCRATES - December 31st, 2013

History 101

The Pope kept European Rulers from Oppressing their People lest they get Excommunicated from the Church

In 39 AD the Romans crucified Jesus of Nazareth.  Because they said he called himself the King of the Jews.  Or rather those with political power who felt threatened by Jesus’ popularity said this.  His death was to protect power and privilege of those who had it.  Ultimately, though, His death would do more to destroy power and privilege.  For the Golden Rule allowed people to live together in peace.  To build communities.  And to help one another.

Emperor Diocletian split up the vast Roman Empire into four parts.  The tetrarchy.  The rulership by four.  Each of the four parts had its own emperor.  When Diocletian stepped down from power those emperors began vying for power.  By 312 two emperors were in open war with each other.  Constantine.  And Maxentius.  On October 28, 312, they met in battle near the Milvian Bridge over the Tiber.  On the eve of battle Constantine had a vision.  The Christian God would help him win the upcoming battle if he placed the Christian symbol on his soldiers’ shields (accounts differ it was either the Chi-Rho sign or the Latin cross).  He did.  He won.  And became Constantine the Great.  Sole ruler of the Roman Empire.  And because of his victory in the Battle of the Milvian Bridge he began his conversion to Christianity.  Making the Roman Empire Christian.

Christianity spread throughout and united Europe.  And the Pope kept European rulers from oppressing their people.  Lest they get excommunicated from the Church.  In time, though, some resented rule from Rome.  In particular when Pope Leo X sold indulgences (a way to help purify one from sin) to fund the rebuilding of St. Peter’s Basilica in Rome.  This was one of many problems that had many calling for a reform of the Church.  One in particular, Martin Luther, published his The Ninety-Five Theses in 1517.  Kicking off the Protestant Reformation.

Plymouth Colony succeeded when Communal Property became Private Property

Henry VIII, King of England, was a good Catholic.  But his wife wasn’t giving him any sons.  And he wanted a male heir.  So he asked the Pope for an annulment from his wife.  Catherine.  So he could marry Anne Boleyn.  The Pope refused.  So Henry left the Catholic Church.  And initiated the English Reformation.  Making England Protestant.  England would swing back and forth between Catholicism and Protestantism without being either but something in between.  Making a group of Protestants very unhappy.  As they felt the English Reformation did not go far enough.  A group referred to derisively as Puritans.  They were so hated that they were being persecuted along with the Catholics.  So they left England.  Landing in the Netherlands first.  Then they sailed across the Atlantic.  They sighted land on November 9, 1620.  They eventually came ashore and established Plymouth Colony.

About half of Plymouth Colony died within the first few years.  From disease.  And hunger.  The economic system they were using was killing them.  Communal property.  Everything the colonists produced belonged to everyone.  People produced according to their ability and took from the common store according to their needs.  A sort of Marxism.  Before there was even a Karl Marx.  To save the colony Governor William Bradford abandoned the idea of communal property in 1623.  Communal property became private property.  And the colony was saved.  As people worked twice as hard to produce more on their land than they did on communal land.  And because they did they replaced famines with bumper crops.  So instead of dying off the American colonies became the prosperous New World.

The Seven Years’ War (1756–1763) came to the New World.  By the time it ended Catholic France lost its North American possessions to Protestant Great Britain.  To pay off the enormous debt of that war Parliament decided to tax their British American colonists.  Who made out very well in the conflict without the costs the British incurred.  But they did this without discussing it with the colonists.  Treating them as second-class citizens in the British Empire.  Who had no representation in Parliament.  Which led to anger over taxation without representation.  Leading to the Boston Tea Party (December 16, 1773).  Which led to the Intolerable Acts and the Quebec Act (1774-1775).  Which led to the shot heard ’round the world.  The Battles of Lexington and Concord (April 19, 1775).  Which ultimately led to July 2, 1776.  When the Continental Congress voted to adopt the Declaration of Independence.  After a few revisions it was formally passed 2 days later.  On July 4, 1776.  Known forever after as Independence Day in the United States.

In the United States your Last Name does not Determine the Quality of your Life

The American Revolutionary War did not start out well.  As the British pushed them back with little effort.  Until Benedict Arnold (future traitor) did some superb soldiering.  Impeding the advance of General Burgoyne.  The Americans met him in battle for the last time on October 7, 1777.  On the second day of fighting in the Battle of Saratoga.  And won.  Forcing an army in the mightiest empire in the world to surrender.  Shocking the world.  And getting the French to take notice.  Who then entered the American War of Independence.  The turning point of the war.  And world history.  For France was anxious to get back what they had lost to the British.  As was Spain.  Who joined the conflict as France’s ally.  Turning the American War of Independence into a world war.  And a war of attrition.  As their new foes forced them to send British forces all around the globe.  Leaving fewer to fight in North America.  With a British public growing weary of the war in North America.

America won.  Eventually.  Taking 8 years until the Treaty of Paris officially ended the conflict (September 3, 1783).  And peace and prosperity followed.  Thanks in large part to Jay’s Treaty (ratified by the Senate in November 1794).  Which improved relations between Great Britain and the new United States of America.  And began a Special Relationship between two nations of a common people, culture, religion and tradition.  When the treaty expired there was a minor hiccup in that Special Relationship that resulted in war.  The War of 1812 (1812-1815).  But peace and prosperity soon resumed.  With the South having a larger say in the national direction thanks to the Three-Fifths Compromise in the United States Constitution (1787).  Giving the South greater representation in the House of Representatives as they counted 3/5 of each slave to determine their number of representatives.  As the North industrialized and immigration filled their factories and swelled her population the South was losing that larger say.  One thing led to another that eventually resulted in the American Civil War (1861-1865).

The agrarian South had more in common with feudal England than they did with the industrial North.  Rich landowners (the planter elite) comprised an aristocracy that controlled politics.  While peasants/slaves worked the land.  The South was holding onto the Old World.  Where there was power and privilege.  While the North was building the New World.  Though the South talked about states’ rights they used the power of the federal government wherever they could.  Such as the Fugitive Slave Act (1850).  When war broke out the South won most battles.  Until General Grant started his great advance down the Mississippi River.  With the Vicksburg Campaign (May 18 – July 4, 1863) culminating in the capture of Vicksburg.  And control of the Mississippi River.  Severing the Confederacy into two.  Pretty much guaranteeing a Union victory.  It was just a matter of time.  In the east the Battle of Gettysburg (July 1–3, 1863) also ended in a Union victory.  President Lincoln went to the Gettysburg battlefield for the dedication of the Soldiers’ National Cemetery there.  Where he gave his Gettysburg’s Address (November 19, 1863).  Which ended with “we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.”  And so far it hasn’t.  Remaining that shining city upon a hill.  The destination of people everywhere yearning liberty.  And a better life.  Where all men are created equal.  And your last name does not determine the quality of your life.

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Counterfeiting in the Revolutionary War, the American Civil War and World War II

Posted by PITHOCRATES - September 24th, 2013

History 101

Governments often turn to Printing Money to Pay for War

It takes money to wage war.  A lot of it.  War spending is always a country’s greatest expenditure.  Because fighting wars is costly.  And the longer they last the more costly they become.  Pushing countries that are waging war to the brink of financial collapse.  Opening the door for another means of waging war.  Counterfeiting.

How do you wage war with counterfeiting?  By pushing a country’s economy into a financial collapse.  If you can’t defeat your enemy with bullets and bombs you destroy their ability to make bullets and bombs.  And everything else.  Including food.  And you do this by devaluing a country’s currency by flooding the money supply with counterfeit bills.  Increasing the money supply causes inflation by having more dollars available to buy the same amount of goods.  Requiring more and more dollars to buy those same goods.  Thus raising prices.

As people struggle with rising prices they buy less.  Because they lose purchasing power.  Businesses see their sales revenue fall.  As people have less disposable income to buy their goods.  With falling sales they lay off workers.  All of this causes a dramatic fall in tax revenue.  Just when they need more to pay the costs of waging war.  As well as providing relief for those no longer able to afford food and housing because they lost their jobs.  Which is why governments print money during wars.  As it is the only choice they have to pay for the high costs of a nation at war.

By the End of the American Civil War about Half of all Money in Circulation was Counterfeit

One of the problems the British had during the American Revolutionary War was that it turned into a world war.  The British were also fighting the French and the Spanish.  Their entering the conflict stretched the British resources thin.  So they turned to counterfeiting.  The Americans were already suffering a terrible inflation as the Continental Congress had little choice but to turn to printing money to pay for the war.  They printed so many continental dollars that people began to refuse to accept it in payment.  Making the continental dollar more and more worthless.  Hence the expression ‘not worth a continental’.  The British tried to push the American economy into collapse by adding to that currency devaluation.  It was so destructive to the American cause that General Washington hanged counterfeiters.

During the early years of the American Civil War the North was running through her gold reserves.  So Congress passed the Legal Tender Act (2/24/1862).  Authorizing the printing of paper money to pay for war.  Just like they did during the Revolutionary War.  A new national currency was a counterfeiter’s dream.  Instead of different banks issuing different banknotes across the country there was now only one.  Counterfeits were easy to pass as few could tell a real one from a fake one.  And with the Confederate dollar worthless even the Confederates wanted these new dollars.  To buy things the Confederate dollar no longer could.  The new counterfeits were even easier to pass in the South as there was no official currency trading hands there.  Counterfeiting was so bad (by the end of the Civil War about half of all the money in circulation was counterfeit) that the Lincoln administration created the Secret Service to combat it.

The Nazis tried to bomb Britain into submission during World War II.  Or at least to weaken it enough for a cross-channel invasion.  The only problem with their plan was that the British had the Supermarine Spitfire.  One of the greatest fighter planes of the war.  And some of the finest pilots ever to fly.  Who had an able assist from the new radar.  Allowing these few to defeat the Luftwaffe in the Battle of Britain.  And made the cross-channel invasion impossible.  It’s these few Winston Churchill’s “Never in the field of human conflict was so much owed by so many to so few” refer to.

Counterfeiting is a very Effective Way to Wage War while being Cheaper and Less Risky than Conventional War

The Nazis took a beating in the Battle of Britain.  So Hitler turned his war machine eastward.  And invaded the Soviet Union instead.  But he did not give up on Britain.  For Britain was a great thorn in Hitler’s side.  They were in the Mediterranean and North Africa.  And they were producing oil in Iran.  They had the shipping lanes.  As well as the United States as an ally.  Who was feeding food and war material to Britain.  And using that island nation to base their bombers out of.  As well as building up an invasion force there that would one day open up a second front in the West.  Enter Operation Bernhard.

Operation Bernhard was a Nazi plan to flood the British economy with counterfeit money.  To destabilize the British economy.  And push it into collapse.  They set up operations in concentration camps.  And were printing about 1 million counterfeit banknotes a month.  The Nazis then laundered the money.  And used it to buy the war material they needed.  The counterfeits were so good that they were still turning up in Britain a decade after the war.  Forcing the British to withdraw all notes (larger than £5) from circulation and replacing them with a more counterfeit-proof money.

The Nazis turned to the American dollar in 1945.  They set up printing presses in February.  But they cancelled their plans.  The war ended later that year.  Allowing the Americans to escape the economic damage the British suffered at the hands of the Nazi counterfeiting program.  But the idea lives on.  We see ‘superdollars’ (counterfeits so good that their quality is higher than the original) all over the world.  The U.S. suspects the source of these counterfeits are criminal gangs in Iran, Russia, China or Syria.  While suspecting the government of North Korea producing a share of these superdollars.  We don’t know for certain who is creating this counterfeit money but there is a lot of it out there.  Some may be doing it for financial gain.  While others may be doing it to damage the United States economically.  Whatever the reason the result is the same.  Resulting in the scourge of paper money.  Higher inflation.  Currency devaluation.  Higher prices.  And less economic activity.  Possibly even sending the economy into a deep recession.  Everything an enemy of the United States wants to do to the United States.  Making counterfeiting a very effective way to wage war while being cheaper and less risky than conventional war.

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Quantitative Easing, Inflation and Gold

Posted by PITHOCRATES - September 23rd, 2013

Economics 101

The FOMC makes Money out of Nothing to Buy the Bonds for their Quantitative Easing

The Federal Open Market Committee (FOMC) decided to keep their quantitative easing.  Their monthly $85 billion purchase of Treasury Securities and mortgage bonds.  To stimulate the economy.  Which hasn’t stimulated the economy.  But it has greatly expanded the money supply.

When people buy Treasury Securities and mortgage bonds they have to first work and save up the money.  Then when they buy these investments they no longer have that money.  It’s how we buy things.  We exchange money for things.  So we can have the money or the things.  But never both.

Unless you’re the federal government.  That has the power to print money.  When they make these monthly $85 million purchases of Treasury Securities and mortgage bonds they pay for them with an electronic transfer of money.  They add money to the account of the holders of the Treasury Securities and mortgage bonds.  And that’s it.  They subtract no money from their ledgers.  Because they ‘printed’ that money.  Just made it out of nothing.  Literally.

The Danger of a highly Inflated and Devalued Currency is that it loses its Purchasing Power and People lose Faith in It

The Secret Service protects our presidents.  Ironically, the president that created the Secret Service was assassinated.  Abraham Lincoln.  Who created it not to protect presidents.  But to combat a great threat to the country.  Counterfeiting.  The scourge of paper money.

During the American Revolutionary War the Continental Congress had no hard money (i.e., precious metals) to pay the Continental Army.  So they resorted to printing paper money.  Igniting massive inflation.  The more money they printed the greater the inflation.  And the greater they devalued the dollar.  Requiring more and more of them to buy what they once did.  Until no one would accept them in payment anymore.  Forcing the army to take what they needed from the people.  Leaving behind IOUs for the Congress to honor.  Once they figured out how to do that.

This is the danger of a highly inflated and devalued currency.  It loses its purchasing power.  Until it gets so weak that the people lose faith in it.  And refuse to accept it anymore.  Returning to the barter system instead.  Trading things that hold their value for other valuable things.  But the barter system has high search costs.  It takes a lot of time for people to find each other that can trade with each other.  Greatly reducing economic activity.  And crashing a nation’s economy.  Which is what Abraham Lincoln wanted to prevent.  And why a lot of America’s enemies have tried to flood the American economy with counterfeit bills.

The Hard-Money Prices remained Relatively Constant during the Inflationary Periods of the Revolutionary War

With the FOMC’s decision to continue their quantitative easing the stock market soared.  As investors were instead expecting a ‘tapering’.  A reduction in their purchases of Treasury Securities and mortgage bonds.  And if the government stopped creating this money out of nothing to buy bonds from these investors these investors could not continue to buy and sell in the market like they were doing.  Pocketing handsome profits in the process.  Which is why they were so happy to hear the FOMC would continue their currency devaluation to continue buying like they had been.

But this continued currency devaluation has a down side.  For it can’t go on forever.  There will come a point when it ignites inflation.  Causing prices to soar.  Requiring more and more dollars to buy what they once bought before.  So with this possibility on the horizon and with continued currency devaluation some people were taking steps to protect their assets.  Especially their cash.  For there is nothing worse than having a lot of cash when it’s losing its purchasing power at an alarming rate.  So they convert that cash into something that holds it value better.  Such as precious metals.  Which is why when the dollar tanked (after the FOMC decision) the price of gold surged.

So what’s the difference between gold and paper money?  Well, the government can’t print gold.  They can’t create gold out of nothing and add it to someone’s account.  So they can’t devalue gold.  And because of this gold will hold its value during inflationary periods.  Which was why during the Revolutionary War people sold things with two prices.  One was in paper Continental Dollars.  With these prices increasing sometimes daily.  And one in hard money (i.e., precious metals).  The hard money prices remained relatively constant.  Even during the inflationary periods of the Revolutionary War.

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The British have a New Heir to the Throne and we in America say God Save the King

Posted by PITHOCRATES - July 27th, 2013

Week in Review

Before the Americans declared their independence from Great Britain they tried to reconcile their differences with Great Britain.  For many believed Great Britain had the greatest form of government in the world.  A constitutional monarchy.  The form of government that vaulted the British Empire into a superpower.  And gave her people more rights and liberties than any nation in the world.

The Americans, rather, the British Americans, were proud to be British.  And would have remained proud members of the British Crown had it not been for the immense cost of the Seven Years’ War.  That the Parliament tried to pay for by taxing the American colonists.  For all the British Crown did to protect the Americans from the French and their Indian allies.  Not asking for much, really.  But the British taxpayers in Great Britain had representation in Parliament.  And had a say in that taxation.  But the British living in North America were not given that British right.  Which was the source of all the friction between the British Americans and Great Britain.  And what brought them to war.

Some of the fighting in the American Revolutionary War was brutal.  But the worst of it was between Patriot and Loyalist.  American against American.  In the civil war that raged in the South.  Which is why the United States and Great Britain resumed relations following the war.  There had plenty of issues but the post-war relationship was far better than any other nation that fought a civil war.  Why?  Because there is a Special Relationship between the British and the Americans.  We come from the same stock.  We share the same values.  And traditions.  The countries around the world that were once part of the British Empire are some of the most advanced nations in the world.  And their people have some of the greatest rights and liberties in the world today.  All because of our British past.

We may never bow to British Royalty again.  Because of our history.  But we can embrace the Royal Family.  Just as the British do.  For it is their tradition.  And a deep part of their glorious history.  As it is ours.  So we welcome the future king into the world.  We wish the best for him and the Royal Family.  And the British people.  Joining them in spirit when they shout God Save the King (see America’s embrace of the Royal Family demonstrates the enduring strength of the Special Relationship by Nile Gardiner posted 7/23/2013 on The Telegraph).

Despite the lukewarm and often insulting approach of the Obama administration towards Britain over the past four and a half years, the Special Relationship between the United States and Great Britain remains extraordinarily strong in terms of defence, intelligence, cultural and trade ties, and is uniquely important to the American people. No other nation in the world holds a place in American hearts as special as Great Britain. And Americans hold an overwhelmingly positive view of the British Royal Family. The most recent poll conducted in the United States on the British Monarchy – a CBS/New York Times poll back in April 2011 – showed that 71 percent of Americans believe the Royal family “is a good thing” for the British people, with only 15 percent against. In the same poll, the Queen held a 61 percent approval rating, at the time about 15 points higher than that of the US president.

There are defeatists who argue that Britain hardly matters anymore to the world’s superpower, and that the UK can only maintain influence in Washington through the lens of the EU. The huge US interest today in events thousands of miles away in London, and the tremendous support for the Royal Family suggests that the Special Relationship is far from dead. With good reason Americans admire the British for their uncompromising defence of tradition, their warrior spirit, and their willingness to uphold national sovereignty.

Britain matters.  And if the Eurozone collapsed as well as the EU they will matter more. Thanks to Margaret Thatcher.  Who reversed their slide into Socialism.  Unlike other European nations.  And of late, the United States.  Sadly.

President Obama insults our greatest friend and ally because Britain bucks the socializing of Europe.  Britain is often the lone rational voice in the European Parliament.  Currently that voice belongs to Daniel Hannan.  Who knows the history of Britain.  The United States.  And our Special Relationship.  Which is conservative.  Not liberal.  Which is why the Special Relationship is anathema to a liberal like President Obama.

God save the future king.  The queen.  The United States of America.  And our Special Relationship.

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FT177: “For democracy to work you need responsible citizens who will temper their wants with knowledge and experience.” —Old Pithy

Posted by PITHOCRATES - July 5th, 2013

Fundamental Truth

The British Subjects were bothered by their Protestant King having a French Catholic Wife

King Henry VIII had a falling out with the Pope.  And broke away from the Catholic Church.  Putting England on the path to becoming Protestant.  Now, for those of you unfamiliar with the Protestant Reformation the resulting conflicts between Catholics and Protestants were really horrible.  And bloody.  Some of England’s greatest enemies during that time were Spain and France.  Both Catholic.  But this Catholic-Protestant animosity was not limited to her foreign enemies.

Religion played a large part in the English Civil War (1642–1651).  In fact, it started it.  When King Charles I tried to impose an English prayer book on Presbyterian Scotland.  To have a singular religion in England and Scotland.  Which the Scottish didn’t embrace.  And pushed back on King Charles.  Who then wanted to teach the Scottish a lesson.  With an army.  But to raise an army he needed money.  Which meant he had to call Parliament.  And when he did they weren’t all that keen on spending money for another war.  Then one thing led to another.  Resulting in a war between supporters of the king.  Cavaliers.  And supporters of Parliament.  Roundheads.

But there was another religious element.  The king’s wife.  Henrietta Maria.  Of France.  Who was a proud practicing Catholic.  This bothered a lot of people.  The king having a French Catholic wife in a Protestant country where they were still executing Catholics.  For practicing religion wrong.  And now the king had a Catholic wife.  Who they believed was turning the Protestant king Catholic.  In fact, they thought that English churches even looked too Catholic for their liking.  And they did something about it.  They smashed idols.  Altars.  Vestments.  Stained glass.  Etc.  Anything that you might find in a Catholic Church they destroyed.  Believing their churches should be properly Protestant.  Plain, boring and dull.

When Hostilities broke out the Anti-Catholic Sentiments among these British Americans were as Strong as Ever

About a hundred years later we come to the American Revolutionary War.  Another war between the British people.  Great Britain.  And the American colonists.  Who had grown into their own people.  And did not like the mother country treating them as second class citizens in the British Empire.  They didn’t like the taxation without representation.  Or their mercantile economic policies.  Which limited the colonists to raw material suppliers.  That they had to sell to Britain.  Ship on British ships.  Then buy only British goods.  Shipped on those same British ships.  Goods often manufactured from their own raw materials.

When George Washington settled his accounts with his British agent he didn’t like what he saw.  The British mercantile house was profiting more from his labors than he was.  And it pissed him off.  For George Washington was an astute businessman.  One of the few planters that actually made a profit in Virginia.  And the current system with Great Britain was just bad business.  So when talk of independence came around he was quick to sign on.  Both for principle.  And for business.  For he was an old man.  Who knew a lot.  And experienced even more.  One of the privileges of being an old man.

When hostilities broke out the anti-Catholic sentiments among these British Americans were as strong as ever.  And when General Washington’s soldiers expressed those sentiments publically the general quickly put an end to it.  For the memories of the English Civil War were not that distant.  He did not need to make his task more difficult by adding in that Catholic-Protestant animosity to the current struggle.  Especially when there was an attempt to get Canada to join their cause.  Which was recently French Canada.  A colony of Catholic France.  Before the British defeated the French in the Seven Years’ War.  Making French Canada British.  So the Americans were counting on cashing in on Canada’s anti-British sentiments.  And hopefully France’s anti-British sentiments.

Americans were able to Win the Peace because they didn’t Need Government to tell them how to Live

The Canadians didn’t join the Americans.  But the French did.  And General Washington avoided defeat for 8 years.  And won the American Revolutionary War.  Against the mightiest empire in the world.  A remarkable feat.  Then Washington won the peace.  Which was even more remarkable.  For revolutions rarely end in peace.  Because these conflicts are typically civil wars.  Where brother fights brother.  And when brother fights brother the fighting gets especially brutal.  With bitter feelings of animosity.  Like those between Catholics and Protestants.  Which they often just can’t shut off after the fighting is over.  But the Americans could.  And did.  Which is why their democracy worked.  When so many others have failed.

America’s experiment in self-government worked because of men like George Washington.  Responsible citizens who tempered their wants with knowledge and experience.  Who saw the bigger picture.  Who knew when to stand on principle.  When to compromise.  And when to leave things the hell alone.  Not acting on passions.  Or emotions.  Not acting like children.  But adults.  Who knew they couldn’t have everything they wanted.  And went without a lot of the things they really wanted.  For with liberty came personal responsibility.  You were free to do pretty much whatever you wanted to do.  But that personal responsibility kept you from doing a lot of the things you shouldn’t do.  By exercising restraint.  Which our Founding Fathers exercised after winning the Revolutionary War.  There were no reprisals.  No vengeance.  Only law.  Where justice was blind.  Something that didn’t happen during the French Revolution.  Fought but 5 years from the close of the American Revolution.  But unlike the American Revolution the streets of France ran with blood.  Where vengeance ruled the day.  And justice wasn’t blind.

This is what makes the American Revolution different.  It was the character of the men fighting it.  Men of the Enlightenment.  Selfless men.  Who put the country first.  Instead of settling old scores.  Helped in part by a short history in the New World.  And a long history in the Old World.  As they were able to learn the lessons of history.  Without having centuries of wrongs to right inflaming their passions.  Exceptional men.  And exceptional circumstances.  Something the French just didn’t have.  Which is why the streets of France ran with blood.  And why there were many fits and starts to their republic.  While the Americans were able to make theirs work from the beginning.  Because of the character of its people.  Who were not used to a ruling power subjecting them.  Who expected no one to take care of them.  And just wanted their government to leave them the hell alone.  So they could work hard.  And provide for their families.  And their ideal form of government was one that let them do just that.  Not one that was a big part of their life.  Or one that provided for them.  Made them dependent on it.  The Americans were able to win the peace because they didn’t need government to tell them how to live.  They chose to live harmoniously together.  Thanks to a character honed by their religious beliefs.  And having exemplary men to emulate.  The Founding Fathers.  This is why the Americans were able to win the peace.  Why the French were unable to win theirs.  And why the Egyptians are struggling to win theirs.

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FT172: “Damn the truth, promises and the Constitution,” said the politician. “I’m trying to get reelected.” —Old Pithy

Posted by PITHOCRATES - May 31st, 2013

Fundamental Truth

The People ratified the Constitution only because George Washington would be the First President

George Washington did not want to be president.  After winning the American Revolutionary War his place in history was set.  If the first government following the Constitutional Convention failed he didn’t want history to remember him for that.  Also, Washington was an old man.  Most Washington men were already dead at his age.  Something he was very conscious of.  And he wanted to live out his remaining days, however few he had, at Mount Vernon.  With Martha.  But America’s Cincinnatus would, reluctantly, answer the call of duty again.

The new Constitution was not very popular.  The old patriots of 1776 hated it.  With a passion.  While Washington, Alexander Hamilton and others who served in the Continental Army were generally for it.  Because they saw how the weak Continental Congress had almost lost the war.  Starving the Continental Army of the supplies they needed.  Unable even to provide it with shoes and clothing during the long cold winters at Valley Forge and Morristown.  And then there was the inflation.  Worthless Continental paper dollars that forced the Army to take what they needed to survive.  Giving the people they took from IOUs for the Continental Congress to honor later.

With the British defeated the Americans lost the common enemy that held the states together.  And they were soon back to looking after their own interests.  Charging tariffs to other states.  Even sending militias to fight over disputed land.  The nation was falling apart before it even became a nation.  The Philadelphia Convention addressed these problems.  And over a long, hot, humid and horsefly invested convention they wrote a new Constitution.  Few loved it.  But understood that it was probably the best they would ever get.  Ratifying it was another brutal battle.  And all throughout this process people reluctantly got on board.  Basically because of one thing.  The first president would be someone that all the people could trust with such great powers.  The man who gave up power when he could have been king.  George Washington.  So Cincinnatus laid down his plow once more.  And went to serve his nation.  Again.

The most Important Precedent Washington set was not Exceeding the Limits of the Constitution

This is how it used to be.  When our politicians were men of the enlightenment.  Disinterested men who went out of their way NOT to profit from the offices they held.  Men who would rather have been back home.  But reluctantly served.  Because the nation needed the best leaders during that formidable time.  That’s why Washington served a second term.  Not because he wanted to.  But if he didn’t Thomas Jefferson and Alexander Hamilton would have paralyzed the government with their constant fighting and seething hatred of each other.  So Washington stayed on.  Father to these children that couldn’t get along.  And father to a nation.

Washington was never happier than when he left office.  This man who could have been king.  Sacrificing all of his wants and desires.  And putting the nation first.  This old man that was cheating death.  Living beyond his years.  Who was used to giving orders in the army and having subordinates dutifully following them.  He hated the political process.  The deal making.  The special interests.  Those things modern politicians live for.  Because it is the pathway to wealth and power.  Which is why people serve today.  Who do not understand the meaning of selfless disinterest.  For they’re in it for number one.  And when they leave office they want to have more wealth than they know what to do with it.

Whereas Washington kept true to the Constitution.  And didn’t make arguments about it being a living document.  Or questioned the intent of the Founding Fathers.  For he was one of them.  He was there in Philadelphia in 1787.  He sat in the chair with that sun on it.  The one Benjamin Franklin studied for so long while sitting in that stuffy hall.  Wondering if the sun was rising.  Or setting.  After they signed the Constitution Franklin was certain the sun was rising for the new nation.  A nation of laws.  Where no man was above the law.  And the supreme law of the land was there in the Constitution.  Washington was the first president.  Setting the precedent for all that would follow.  And the most important precedent was not exceeding the limits of the Constitution.  For he knew a strong central government was necessary for the nation to have any hopes of surviving.  But he feared that once anyone exceeded the limits of the Constitution the whole experiment in self-government would come crashing down.

Life is so Good in an Aristocracy that Politicians will do Anything it takes to Win Reelection

What Thomas Jefferson feared most was consolidation.  Fears of a strong central government turning independent states into federal districts of the new government.  With growing powers to administer these lands from afar.  Turning the people living on these lands once again into subjects of a distant ruling power.  Who are there to serve.  To be obedient.  And revere this distant power.  Giving the duly elected president king-like powers.  Who would further consolidate his power.  This was Jefferson’s fear.  A fear Alexander Hamilton did not share.  Because he assumed all men in the government would be disinterested men of the enlightenment.  Like the Founding Fathers were.  But Jefferson knew you could not trust men to refrain from using power given to them.  So it was best not to give them that power in the first place.

Today you can see all of Jefferson’s fears come to pass.  A federal government larger and more powerful than even Alexander Hamilton could have imagined.  And a new fourth branch of government.  The IRS.  Powerful.  And fearsome.  Which appears to be helping the current administration to suppress the political opposition.  By harassing anyone espousing Jeffersonian principles.  Limited government.  States’ rights.  Constitutional limits.  Etc.  Which are also Tea Party principles.  That set of principles that launched a great grassroots movement that helped the Republicans win back the House of Representatives in 2010.  Something the Democrats were very conscious of.  And have since pilloried the Tea Party with every invective under the sun.  To delegitimize the Tea Party.  To prevent another 2010 from happening again.

President Obama is the most liberal president to ever occupy the White House.  And he won reelection.  Which isn’t easy for a liberal to do on a national stage.  Because only about 21% of the people call themselves liberal.  While 35% call themselves moderate.  And 40% call themselves conservative (see Conservatives Remain the Largest Ideological Group in U.S. posted 1/12/2012 on Gallup).  So liberals are in the minority.  Yet they hold majority power.  Which begs the question.  How do they win elections when the majority opposes their ideology?   Well, you don’t do it by acting like George Washington.  You know, with integrity.  But, instead, with rascality.  You don’t exactly tell the truth.  You make a lot of promises.  Even if you have no intention of keeping them.  And you use the awesome power of your office to attack your political enemies.  For it’s a different mindset today.  Whereas the Founding Fathers were trying to destroy an aristocracy today’s politicians are trying to build and maintain one.   And life is so good in an aristocracy that once you get in you never want to leave.  Which is why politicians will do anything it takes to win reelection.  Anything.  And if they were honest you’d hear them say so.  “Damn the truth, promises and the Constitution.  I’m trying to get reelected.”  But they’re not honest.  So you will never hear them say this.  You’ll just have to see it in their deeds.  And how unlike the Founding Fathers they are.

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The First Bank of the United States, the Second Bank of the United States and the Federal Reserve System

Posted by PITHOCRATES - April 2nd, 2013

History 101

Merchants raise their Prices when the Monetary Authority depreciates the Currency

What is inflation?  A depreciation of the currency.  By adding more money into the money supply each piece of currency becomes less valuable.  Let’s assume our currency is whiskey.  In bottles.  Whiskey has value because people are willing to pay for it.  And because we are willing to pay for it we are willing to accept it as legal tender.  Because we can always trade it to others.  Who can drink it.  Or they can trade it with others.

Now let’s say the monetary authority wants to stimulate economic activity.  Which they try to do by expanding the money supply.  So there is more money available to borrow.  And because there is more money available to borrow interest rates are lower.  Hence making it easy for people to borrow money.  But the monetary authority doesn’t want to make more whiskey.  Because that is costly to do.  Instead, they choose an easier way of expanding the money supply.  By watering down the bottles of whiskey.

Now pretend you are a merchant.  And people are coming in with the new watered-down whiskey.  What do you do?  You know the whiskey is watered down.  And that if you go and try to resell it you’re not going to get what you once did.  For people typically drink whiskey for that happy feeling of being drunk.  But with this water-downed whiskey it will take more drinks than it used to take to get drunk.  So what do you as a merchant do when the money is worth less?  You raise your prices.  For it will take more bottles of lesser-valued whiskey to equal the purchasing power of full-valued whiskey.   And if they water down that whiskey too much?  You just won’t accept it as legal tender.  Because it will be little different from water.  And you can get that for free from any well or creek.  Yes, water is necessary to sustain life.  But no one will pay ‘whiskey’ prices for it when they can drink it from a well or a creek for free.

It was while in the Continental Army that Alexander Hamilton began thinking about a Central Bank

During the American Revolutionary War we had a very weak central government.  The Continental Congress.  Which had no taxing authority.  Which posed a problem in fighting the Revolutionary War.  Because wars are expensive.  You need to buy arms and supplies for your army.  You have to feed your army.  And you have to pay your army.  The Continental Congress paid for the Revolution by asking states to contribute to the cause.  Those that did never gave as much as the Congress asked for.  They got a lot of money from France.  As we were fighting their long-time enemy.  And we borrowed some money from other European nations.  But it wasn’t enough.  So they turned to printing paper money.

This unleashed a brutal inflation.  Because everyone was printing money.  The central government.  And the states.  Prices soared.  Merchants didn’t want to accept it as legal tender.  Preferring specie instead.  Because you can’t print gold and silver.  So you can’t depreciate specie like you can paper money.  All of this just made life in the Continental Army worse.  For they were hungry, half-naked and unpaid.  And frustrating for men like Alexander Hamilton.  Who served on General Washington’s staff.  Hamilton, and many other officers in the Continental Army, saw how the weakness of the central government almost lost the war for them.

It was while in the army that Hamilton began thinking about a central bank.  But that’s all he did.  For there was not much support for a central government let alone a central bank.  That would change, though, after the Constitutional Convention of 1787 created the United States of America.  And America’s first president, George Washington, chose his old aide de camp as his treasury secretary.  Alexander Hamilton.  A capitalist who understood finance.

Despite the Carnage from the Subprime Mortgage Crisis the Fed is still Printing Money

At the time the new nation’s finances were in a mess.  Few could make any sense of them.  But Hamilton could.  He began by assuming the states’ war debts.  Added them to the national war debt.  Which he planned on paying off by issuing new debt.  That he planned on servicing with new excise taxes.  And he would use his bank to facilitate all of this.  The First Bank of the United States.  Which faced fierce opposition from Thomas Jefferson and James Madison.  Who opposed it for a couple of reasons.  For one they argued it wasn’t constitutional.  There was no central bank enumerated in the Constitution.  And the Tenth Amendment of the Constitution stated that any power not enumerated to the new federal government belonged to the states.  And that included banking.  A central bank would only further consolidate power in the new federal government.  By consolidating the money.  Transferring it from the local banks.  Which they feared would benefit the merchants, manufacturers and speculators in the north.  By making cheap money available for them to make money with money.  Which is the last thing people who believed America’s future was an agrarian one of yeoman farmers wanted to do.

They fought against the establishment of the bank.  But failed.  The bank got a 20 year charter.  Jefferson and Madison would later have a change of heart on a central bank.  For it helped Jefferson with the Louisiana Purchase.  And like it or not the country was changing.  It wasn’t going to be an agrarian one.  America’s future was an industrial one.  And that required credit.  Just as Alexander Hamilton thought.  So after the War of 1812, after the charter of the First Bank of the United States had expired, James Madison signed into law a 20-year charter for the Second Bank of the United States.  Which actually did some of the things Jefferson and Madison feared.  It concentrated a lot of money and power into a few hands. Allowing speculators easy access to cheap money.  Which they borrowed and invested.  Creating great asset bubbles.  And when they burst, great depressions.  Because of that paper money.  Which they printed so much of that it depreciated the dollar.  And caused asset prices to soar to artificial heights.

Andrew Jackson did not like the bank.  For he saw it creating a new noble class.  A select few were getting rich and powerful.  Something the Americans fought to get away from.  When the charter for the Second Bank of the United States was set to expire Congress renewed the charter.  Because of their friends at the bank.  And their friends who profited from the bank.  But when they sent it to Andrew Jackson for his signature he vetoed the bill.  And Congress could not override it.  Sensing some blowback from the bank Jackson directed that they transfer the government’s money out of the Second Bank of the United States.  And deposited it into some state banks.  The president of the bank, Nicholas Biddle, did not give up, though.  For he could hurt those state banks.  Such as calling in loans.  Which he did. Among other things.  To try and throw the country into a depression.  So he could blame it on the president’s anti-bank policies.  And get his charter renewed.  But it didn’t work.  And the Second Bank of the United States was no more.

National banks versus local banks.  Hard money (specie) versus paper money.  Nobility versus the common people.  They’ve argued the same arguments throughout the history of the United States.  But we never learn anything.  We never learn the ultimate price of too much easy money.  Even now.  For here we are.  Suffering through the worst recession since the Great Depression.  Because our current central bank, the Federal Reserve System, likes to print paper money.  And create asset bubbles.  Their last being the one that burst into the subprime mortgage crisis.  And despite the carnage from that they’re still printing money.  Money that the rich few are borrowing to invest in the stock market.  Speculators.  Who are making a lot of money.  Buying and selling assets.  Thanks to the central bank’s inflationary policies that keep increasing prices.

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