Cryptocurrency: Replacing Keynesian Abuse of Humanity with Freedom

grarpamp grarpamp at
Thu Sep 8 14:43:02 PDT 2022

Inflation Is State-Sponsored Terrorism

Americans have been laboring under the burden of inflation for well
over a year. We feel the pain everywhere, from the gas pump to the
grocery store. Once it became impossible to sell the “inflation is
transitory” narrative any longer, the Federal Reserve began raising
interest rates to fight inflation. As a result, the bubble economy is
getting shaky. But even some people at the Fed seem to realize this is
a fight they can’t win.

In a talk at the Ron Paul Institute, Mises Institute president Jeff
Deist called inflation “state-sponsored terrorism.”

    Inflationism is both a fiscal and monetary regime, but its
consequences go far beyond economics. It has profound social, moral,
and even civilizational effects. And understanding how it terrorizes
us is the task today.”

Following is a transcript of Deist’s talk.

The following article was originally published by the Mises Wire. The
opinions expressed are the author’s and don’t necessarily reflect
those of Peter Schiff or SchiffGold.
I. Introduction

Remember the quaint old days of 2019? We were told the US economy was
in great shape. Inflation was low, jobs were plentiful, GDP was
growing. And frankly, if covid had not come along, there is a pretty
good chance Donald Trump would have been reelected.

At an event in 2019, my friend and economist Dr. Bob Murphy said
something very interesting about the political schism in this country.
He said: If you think America is divided now, what would things look
like if the economy was terrible? If we had another crash like 2008?

Well, we might not have to imagine such a scenario much longer.

If you think Americans are divided today, and at each other’s
throats—metaphorically, but more and more literally—imagine if they
were cold and hungry!

Imagine if we had to live through something like Weimer Germany,
Argentina in the 1980s, Zimbabwe in the 2000s, or Venezuela and Turkey
today? What would our political and social divisions look like then?

Ladies and gentlemen, we live under the tyranny of inflationism. It
terrorizes us, either softly or loudly. I suspect it will get a lot
louder soon.

As the late Bill Peterson explained, “Inflationism, in today’s terms,
is deficit-spending, deliberate credit expansion on a national scale,
a public policy fallacy of monumental proportions, of creating too
much money that chases too few goods. It rests on the ‘money
illusion,’ a widespread confusion between in­come as a flow of money
and income as a flow of goods and services—a confusion between ‘money’
and wealth.”

Inflationism is both a fiscal and monetary regime, but its
consequences go far beyond economics. It has profound social, moral,
and even civilizational effects. And understanding how it terrorizes
us is the task today.
II. Understanding Inflationism

I’ll ask you to consider three things.

First, inflation is a policy. We should make them own it. Inflation is
not something beyond our control that comes along periodically like
the weather. Our monetary and fiscal regimes actually set out to
create it and consider it a good thing. Let’s not forget—both Trump
and Biden signed off on covid stimulus bills which combined injected
roughly $7 TRILLION dollars directly into the economy—even as actual
goods and services were dramatically reduced due to lockdowns.
Deflation was the natural order of things in response to a crisis, a
bullshit crisis in my view, but still a crisis. So of course Uncle Sam
actively attempted to undo the natural desire to spend less and hold
more cash during a time of uncertainty.

This $7 trillion was created on the fiscal side of things. It was not
new Fed bank reserves exchanged for commercial bank assets as a
roundabout monetization of Treasury debt, as we saw with quantitative
easing. This was direct stimulus from the Treasury via Congress as
express fiscal policy. Free money. This money went straight into the
accounts of individuals (stimulus checks), state and local
governments, millions of small businesses (PPP [Paycheck Protection
Program] loans), the airline industry, and untold earmarks. This was
actual cash, and it is being spent. So any economist who tells you
today’s inflation is somehow a surprise is either charitably
misinformed or gaslighting.

This is a policy. Inflation is engineered. The difference between
supposedly desirable 2 percent CPI [Consumer Price Index] and very
bad, awful, no good 9 percent CPI is only one of degree. The same
mindset produces both. But the inflationists insist a little bit of
virus is good for us, like a vaccine … So an express policy of some
inflation is the mechanism to forestall too much inflation. This is a
curious position.

Second, inflation is nothing less than sanctioned state terror, and we
ought to treat it as such. It’s criminal. It makes us live in fear.
Inflation is not just an economic issue, but in fact, produces deep
cultural and social sickness in any society it touches. It makes
business planning and entrepreneurship—which rely on profit and loss
calculations using money prices—far more difficult and risky, which
means we get less of both. How do you measure money profits when the
unit of measurement keeps falling in value? It erodes capital
accumulation, the driver of greater productivity and material
progress. So inflation destroys both existing wealth and future
wealth, which never comes into being and thus diminishes the world our
children and grandchildren inhabit. And it makes us poor and
vulnerable in our senior years.

After all, saving is for chumps. Current one-year CD rates are below 3
percent, while inflation is at least 9 percent. So you’re losing 6
points just by standing still! By the way, the last time official CPI
approached double digits, in the early ’80s, a one-year CD earned 15
percent. I’d like to hear Jerome Powell explain that. By the way, ever
since Alan Greenspan began this great experiment of four decades of
lower and lower interest rates, guess who hasn’t benefited? Poor
people and subprime borrowers, who still pay well over 20 percent for
their car loans and credit cards.

But here is an unspoken truth: inflation also makes us worse people.
It degrades us morally. It almost forces us to choose current
consumption over thrift. Economists call this high time preference,
preferring material things today at the expense of saving or
investing. It makes us live for the present at the expense of the
future, the opposite of what all healthy societies do. Capital
accumulation over time, the result of profit, saving, and investing,
is how we all got here today—a world with almost unimaginable material
wealth all around us. Inflationism reverses this.

So this very human impulse, to save for a rainy day and perhaps leave
something for your children, is upended. Inflationism is inescapably
an antihuman policy.

Third, hyperinflation can happen here. It may not happen, and it may
not happen soon. But it might well happen. And even steady 10 percent
inflation means prices double roughly every seven years. We can
pretend the laws of economics don’t apply to the world’s leading
superpower, or that the world’s reserve currency is safe from the
problems experienced by lesser countries. And it’s certainly true our
reserve currency status insulates us and makes the world need dollars.
Governments and industry mostly use US dollars to buy oil from OPEC
countries, hence the term “petrodollar.” It’s certainly true
governments, central banks, large multinational companies, worldwide
investment funds, sovereign wealth funds, and pension funds all hold
plenty of US dollars—and thus in a perverse way share our interest in
maintaining King Dollar. It’s true we don’t have easy historical
examples of a world reserve currency, like gold, suffering a rapid
devaluation across the world (even the Spanish silver devaluation of
the 1500 and 1600s was not necessarily caused by a glut in circulating
currency). So we’re in uncharted territory, especially given the
fiscal and monetary excesses of the last twenty-five years and
especially the last two years. But this only means the potential
contagion is greater and more dangerous. The whole world can be
sickened at once.
III. A Story: When Money Dies

But as most of you surely know by now, we don’t turn the ship around
or win hearts and minds simply with logic and facts and airtight
arguments. We need stories, or narratives, in today’s awful media
parlance, to gain influence. We need emotional reactions. So I will
suggest a story with plenty of pathos to shake people out of their
complacency and sound the warning.

That story is When Money Dies, Adam Fergusson’s brilliant cautionary
account of hyperinflation in Weimar-era Germany. It is the story
Americans desperately need to hear today.

Fergusson’s book should be assigned to central bankers stat (we wonder
how many of them know of it). It’s not a book about economic policy
per se—it’s a story, a historical account of folly and hubris on the
part of German politicians and bureaucrats. It’s the story of a
disaster created by humans who imagined they could overcome markets by
monetary fiat. It’s a reminder that war and inflation are inextricably
linked, that war finance leads nations to economic disaster and sets
the stage for authoritarian bellicosity. We think Versailles and
reparations created the conditions for Hitler’s rise, but without the
Reichbank’s earlier suspension of its one-third gold reserve
requirement in 1914, it seems unlikely Germany would have become a
dominant European military power. Without inflationism, Hitler might
have been a footnote.

Most of all, When Money Dies is a tale of privation and degradation.
Not only for Germans, but also Austrians and Hungarians grappling with
their own political upheavals and currency crises in the 1910s and
’20s. In a particularly poignant chapter, Fergusson describes the
travails of a Viennese widow named Anna Eisenmenger. A friend of mine,
@popeofcapitalism on Twitter, sent me her diary from Amazon.

The story starts with her comfortable life as the wife of a doctor and
mother to a wonderful daughter and three sons. They are talented and
cultured and musical and upper middle class. They even socialize with
Archduke Franz Ferdinand and his wife, the Duchess of Hohenberg.

But in May 1914 their happy life is shattered. Ferdinand is
assassinated at Sarajevo, and war breaks out. Wars cost money, and the
gold standard wisely adopted by Austria-Hungary in 1892 is almost
immediately seen as an impediment. So the government predictably
begins to issue war bonds in huge numbers, and the central bank fires
up the printing presses. This results in a sixteenfold increase in
prices just during the war years.

But the human effects are catastrophic, even apart from the war itself.

Frau Eisenmenger is luckier than most Viennese women. She owns small
investments which produce modest income—fixed in kronen. Her banker
quietly urges her to immediately exchange any funds for Swiss francs.
She demurs, as dealing in foreign currency has been made illegal. But
soon she realizes he was right. There is probably a lesson here for
all of us!

As the war unfolds, she is forced into black markets and pawning
assets to procure food for her war-damaged children. Her currency and
Austrian bonds become almost worthless. She exchanges her husband’s
gold watch for potatoes and coal. The downward spiral of her life,
marked by hunger and hoarding anything with real value, happens so
quickly she barely has time to adjust.

But her misery doesn’t stop with the end of the war. On the contrary,
the Saint-Germain Treaty in 1919 gives way to a period of
hyperinflation: the money supply increases from 12 to 30 billion
kronen in 1920, and to about 147 billion kronen at the end of 1921
(does this sound like America 2020, by the way?). By August 1922,
consumer prices are fourteen thousand times greater than before the
start of the war eight years earlier.

In just a few short years she endures countless tragedies, all made
worse by privation, cold, and hunger. Her husband dies. Her daughter
contracts tuberculosis and dies, leaving Frau Eisenmenger to take care
of her infant daughter and young son. One son goes missing in the war,
one son is blinded, and her son-in-law becomes crippled following the
loss of both legs. Food and coal are rationed, so her apartment is a
miserable hovel—and she is forced to dodge searches by the “Food
Police” looking for illegal hoarding. Ultimately, she is shot in the
lung by her own Communist son, Karl, in a fit of rage.

There is a haunting and historically accurate silent film about
conditions in Vienna during this era called The Joyless Street,
starring a young Greta Garbo. Her character sees everything
deteriorate around her; even her father beats her with his cane for
returning home without food. Once friendly neighbors become suspicious
of each other’s stores of bread and cheese, while prostitution becomes
rampant. Angry people jostle in line, waiting for the butcher to open;
when he does, only the most attractive women receive the scraps of
meat available that day. Fistfights become common. Starving children
beg for food in front of restaurants and cafes like stray dogs.
Everything familiar and beautiful in society becomes degraded and
cheapened seemingly overnight.

Like a Stephen King horror movie, something very familiar changes into
a strange and menacing place. Your neighborhood takes on a different
light. People you thought you knew became malevolent strangers.
Scapegoating, blame, and snitching become commonplace.

Is this beginning to sound familiar, especially after Biden’s sick
speech the other night?

So, next time one of these sociopaths in our political class wants to
spend a few trillion more to pay for a green new deal or a war with
China or free college, remember Frau Eisenmenger’s story.
IV. The Lessons for Today

How do we apply this grim historical lesson from the Weimar period to
America today? How do we tell this story?

First, we explain inflationism in human terms, to personalize it and
de-bamboozle it. Make monetary policy vital and immediate, not boring
and dry and technocratic. Again, there are enormous moral and
civilization components to monetary policy. Inflation not only harms
our economy, it makes us worse people: profligate, shortsighted, lazy,
and unconcerned with future generations. Professor Guido Hülsmann
literally wrote the book on this. It’s called The Ethics of Money
Production. This is maybe the greatest untold story in America today:
the story of not only how the Fed fundamentally shifted our economy
from one of production to consumption, but what it did to us as
people. Don’t let them hide behind complex Fed speak the simple
reality: monetary policy is nothing less than criminal theft from
future generations, from savers, and from the poorest Americans, who
are furthest from the money spigot. The idea that reasonably
intelligent laypeople cannot understand monetary policy, that it is
too important and complex for anyone but experts, is nonsense. We
should expose it.

Second, ridicule the absurd idea that “policy” can make us richer.
More goods and services, produced more and more efficiently, thanks to
capital—and thereby creating price deflation—make us richer. That’s
the only way. Not by legislative or monetary fiat.

So we should attack any notion of “public policy” and especially
“monetary policy.” Inflationism creates a fake economy, a
“make-believe” economy, as Axios recently put it. A fake economy
depends on enormous levels of ongoing fiscal and monetary
intervention. We call this “financialization,” but we all have a sense
that our prosperity is borrowed. We all feel it. Capital markets are
degraded: a lot of money moves around without creating any value for
anyone. Companies don’t necessarily make profits or pay dividends; all
that matters to shareholders is selling their stock for capital gains.
It always requires a new Ponzi buyer. But we know intuitively this
isn’t right: consider a restaurant or dry cleaner which operated
without profit for years in the hope of selling for a gain years or
decades later. Only the distorted incentives created by inflationism
make this mindset possible. So down with “policy”—what we need is
sound money!

Finally, let us not fear being accused of hyperbole or alarmism. Let
me ask you this: what happens if we’re wrong, and what happens if
they’re wrong? What they are doing, meaning central bankers and
national treasuries, is unprecedented. Fake money is infinite, real
resources are not. Hyperinflation may not be around the corner or even
years away; no one can predict such a thing. But at some point the US
economy must create real organic growth if we hope to maintain living
standards and avoid an ugly inflationary reality. No amount of
monetary or fiscal engineering can take the place of capital
accumulation and higher productivity. More money and credit is no
substitute for more, better, and cheaper goods and services. Political
money can’t work, and we should never be afraid to attack it root and
branch. We need private money, the only money immune from the
inescapable political incentive to vote for things now and pay for
them later. If this is radical, so be it.

History shows us how money dies. Yes, it can happen here. Only a fool
thinks otherwise.

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