Changing the music today – b’coz I’m on FIRE, like Mr. Crazy Diamond pictured alongside.
Just read a “Tribute to Milton Friedman” in Mint – more like a tribute to QE3. The co-author of Free to Choose – which was also a 10-part television documentary on the US Public Broadcasting System – never ever advocated the most essential of all economic freedoms, which is the “freedom to choose the medium of exchange.”
Further, it is only because of his pseudo-scientific (or scientistic) “positivism” – all the delusional nonsense that measures various parameters of the fictional “national economy” – with which each and every 24x7 “Business News” on television brain-kills the public with NUMBERS: inflation rate, growth rate, unemployment rate and, most important of all, stock market indices worldwide, which are portrayed as a sign of “national economic health.”
With QE3 – from the US Fed, ECB, BoJ, BoE, et. al. – these indices are moving up. Just as our BSE Sensex is, in tandem. Hence, I must presume, this “Tribute to Milton Friedman” in Mint today.
The Reserve Bank of India just reduced the “cash reserve ratio” all its member banks have to keep with it in their “fractional reserve system,” thereby releasing some Rs.20,000 crores to all of them to lend. (1 crore equals 10 million.) Obviously, a goodly portion of this sum will go into stocks – and the BSE Sensex will rise, while interest rates will fall. Is this a sign of “economic health”?
If you compare mutual fund “net asset values” over the last ten years – which includes the 2008 “stimulus” during QE2 – with GOLD, what do you see?
So, who is really “manipulating” the stock market?
And what is SEBI – but a “hoodwink” designed to fool the public into thinking that a completely unregulated market requires “government watchdogs.” How can wolves ever turn into watchdogs?
Let us leave aside the US Fed, BoE, ECB, BoJ and the rest of the world – and look at the picture alongside, of a young Pranab Mukherjee as Indira Gandhi’s finance minister. Remember all the “deficit financing” that went on then, year after year after year? What happened? Inflation – or growth?
So, I once again quote the opening lines of my old column “Funny Money”:
Inflation is not new. In my teens, Coca-Cola was 40 paise, a pack of Wills cost a buck and petrol sold at three rupees a litre. A beer was five bucks.
This inflation has nothing to do with either the demand or the supply of the articles of everyday consumption.
Rather, inflation is a disease that afflicts money, being but a gradual and continuous erosion of currency value.
Since the government is the monopoly issuer of our money, we know who the culprit is.
Note that I am speaking of cola, cigarette, petrol and beer prices in the mid-70s - precisely the time when the above photo was taken.
You can go even further back – to Professor BR Shenoy’s “Note of Dissent” to Nehru’s Second Five-Year Plan (1956); in particular, to that portion of his dissent pertaining to “deficit financing.” As Shenoy predicted – and as Peter Bauer subsequently noted – not only did inflationary pressures rise, the rupee had to be devalued!
Anyway, what is the precise word for our economic situation right now – zero or even negative growth along with high inflation – but STAGFLATION.
The precise meaning of this word is:
Keynesian “solutions” have FAILED!
Why? Because they do NOT know the true source of market demand. The source of market demand does NOT lie in paper money expansion; indeed, not even in expanding the supply of gold. Rather, it lies in production of goods and services (for which purpose private savings and investments are required). When these get sold, the producers are all immediately possessed of the means to demand all non-competing goods and services on the market. For more, do read the posts under the "Say's Law" label on the right-hand bar.
What is The Market?
The Market is the “pith of civilisation” – and is therefore much, much older than the “stock market.”
The Market is older than any kingdom. Older than any “city-state.”
Indeed, without The Market, kingdoms and city-states, which represent the rise of civilisation, would never have happened.
The happy Athenian Symposium good ol’ Socrates attended – the “epitome of civilisation” according to Clive Bell – would never have occurred had there not been a “market for wine”; and copious quantities were drunk by all who attended, since all of them passed out one-by-one, leaving only good ol’ Socrates vertical, with nothing to do but ponder his fallen comrades, and regretfully depart.
This is why “The Market” is the LONGEST CHAPTER in Ludwig “King” Mises’ Human Action: A Treatise on Economics. And there is not one word in this chapter on the stock market.
Let us now look at the LOGIC of those who parade the rise of the BSE Sensex in these inflationary times as a sign of “economic health.”
First: There are 100 “corporates” whose share values figure in this index number – and all of them are very heavy on DEBT, and NOT EQUITY, which is what stock exchanges are all about.
That is, they are all “borrowers” from member banks of this “fractional reserve” central banking cartel.
They gain by borrowing – while all savers lose.
This is CAPITAL CONSUMPTION – of the vast masses.
Second: These member banks themselves are heavily loaded with “non-performing assets” – or BAD LOANS.
More CAPITAL CONSUMPTION.
Third: Add to these all the accumulated as well as continuing losses of the State-owned PSUs – from State Electricity Boards to Air India and the banks themselves – and we see nothing but more and more CAPITAL CONSUMPTION.
Fourth: Now add all the WELFARE – and especially note the hefty “salary and pension bill” of their vast army of bureaucRATS.
What is really happening – but DE-CIVILISATION?
And the masthead of HT Business yesterday carried a photo and quote from C Rangarajan, former Governor of the Reserve Bank of India, and currently head of the Prime Minister’s Economic Advisory Council, to the effect that with economic recovery gold imports would fall, and OUR balance of trade will improve! Why don't THEY "balance their BUDGET" first?
WE stop importing gold and THEY import paper US$ “assets” instead!
Below are the closing lines from my column advocating a “Return to the Gold Standard” – for INDIA:
Any nation can unilaterally revert to the gold standard whenever it chooses. If we do so, our rupee, now pegged to gold, will always appreciate against the rest of the world’s fiat papers. This will help us become big importers. And cheap imports, including of capital goods and components, will make our manufactured exports competitive in terms of technology, quality and price. Our banks will attract the world’s savings, and we will possess capital, the vital ingredient of “capitalism”. All prices will steadily fall and the consumption of the poor will rise in leaps and bounds. This is the power of “sound money”.
What is Money?
As the picture alongside indicates, Ludwig “King” Mises became an economist only after studying Carl Menger’s Principles (1871). Menger is thus the acknowledged founder of the Misesian branch of the “Austrian School of Economics,” and what follows the conclusion from that section in Menger’s Principles on his “Theory of the Origin of Money”:
Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence.
How did cowries become money in Ancient India - and in many parts of Africa as well?
Thus, it becomes clear that money originated within The Market – long, long before any kingdom, any city-state, or any civilisation.
Hence, the most essential economic freedom we need today is the “freedom to choose media of exchange.”
So let’s have a TRIBUTE TO CARL MENGER, what?
What do People-Like-Us do?
My most pathetic read of the morning was a lead editorial in Mint today that asks the reader: “Will the Manmohan Singh government survive?”
The Market is NOT about how governments survive.
On the contrary, it deals with how human beings not only survive – but actually FLOURISH, one one condition: NO STATE INTERVENTION IN MARKETS.
Who the hell cares which tweedledum comes after this tweedledee goes?
They are all the same – everywhere?
It was David Hume who said that all governments rest on “public opinion” – and he went on to add that not only governments, but also the affairs of men in general are governed by “opinions” they themselves hold about what is “good” for them and what is “bad.”
And it was Frederic Bastiat who declared: “There is but one solution: The progressive enlightenment of mankind.”
So, what else can people-like-me do but go on and on “shining like crazy diamonds”?
Hoping for the best; expecting the worst.
In a world headed towards DE-CIVILISATION.
Must hear that track many, many times tonight.