Keynes Never Knew, Hayek Was Confusing

Capital Theory is of the utmost important paradigms Austrians can elaborate on theoretically without having to rely on mainstream descriptions that are much less detailed. The Keynesians (Monetarists included--as they are considered New Keynesians) always tend to give a multitude of labels and further rigamarole which rely heavily on math theory to try to create the market. This desire for conduction is an illusion, as math theory is better left in the private sector.

The Keynesians would attempt to explain market processes with what is known as the circular flow model. This simplistic narrative would clinically explain how consumer expenditures flow from houses to firms, while the inverse would allow wages, rents and dividends as well as goods and services to then flow toward the households.

The reason that this process is so utterly simplistic and lacking in any sort of structured vigor, is that Keynes and those whom adhere to his fallacious methods were too stuck on the mathematics and less desiring of itemizing the process theoretically. What is included in this process are the wages and other monies government entities extort and then parcel out to the rest of the economy.

The Keynesians' suited measurement of economic value is GDP. The GDP assumption is so comical, the Keynesian's negligence of how inflation can cause this number to seem higher than what is the true measure of real wealth makes them heedless to the business cycle in general. GDP also measures nominally all value in an economy, accounting for the incorrect assumption of the CPI average, plus a further presumed measure of value (hedonic adjustment) that does not exist.

The larger the scale of which one attempts to measure the value, the more difficult the resulting factors arrived to. The valuing of components should only occur within the private level of the economy, especially since the government owns nothing! A value of an economy assumes that the government owns those things. GDP therefore is an excuse to perpetuate government money as well as to provide a pretense for the perpetuation of their public goods.

As one may be aware, government credit expansion causes inflation and misallocation of resources. Typically in order to expand credit the government needs to lower the rate of interest, and for this reason the introduction of a central bank arose.

As Keynes and his followers were confused on how economies functioned, the Austrians were able to elaborate properly the system of a free economy. Including all theoretical aspects of our method, the primitive method of Keynesianism is obviously vanquished.

As mentioned previously in another blog post, Eugen Bohm Von Bawerk not only laid the foundation for the destruction of Marx's theory of exploitation, but also mortified Keynesianism altogether. Rothbard took on the role of simplifying every aspect of Austrian Economics to the core of their theoretical purpose.

It is true indeed that Friederich Hayek elaborately described what is a reiteration of Bohm Bawerk's Capital Theory with his Hayekian triangle. The one difficulty of ever reading Hayek and attempting to convince neophytes to the theories of a movement attempting to attain freedom of government intervention is that his haughty syntax confuses many readers. Rothbard lured in newcomers and to this day convinces those whom even think they can disprove the theories of how fundamental and very realistic they actually are.

To state that Hayek was the proper founder of Capital Theory by labeling it the Hayekian triangle, simply because he received a Swedish central bank prize for his introduction of meaningless mathematics for the academician in his research, would be to cede ground to the state. Rothbard had none of this and basically simplified Bohm Bawerk enough to have Hayek at one point practically embrace anarchism.

It was so fundamental to the Rothbardian movement to have Man, Economy and State be released, as Hayek continued on the path of confounding minutiae. Many of Hayek's works were lost in the annals of his later academic employers, i.e. LSE.

Rothbard on the other hand is now leading a movement whilst deceased. His itemization of the structure of production is at the core of the Austrian Economics movement. It is elaborate yet concise. His cursory method demonstrated that rotating the triangle 90 degrees confuses the neophyte, and adding supply and demand curves is completely unnecessary overall.

Rothbard showed with one beautiful visual in his book how the structure of production begins with land and labor, travels through higher order goods toward lower order goods, finally arriving at the lowest order which is the consumer stage. At every stage of the structure of production quantities of funds revert back to land and labor. Factors are advanced to each stage of the structure of production, and in accordance with the mark up, the capitalist-entrepreneur will earn a speculative return--a rate of return or agio.

In so understanding this diagram, and as well the more purified description I gave in a previous post, an aspiring Rothbardian can come to understand that the IS-LM curve analysis is completely irrelevant. I shall further elaborate in my next post how Rothbard's depiction can be applied to the business cycle itself.

Austrians Advocate Savings

The going assumption of the mainstream economists is that all schools of economic thought require the usage of the IS-LM curve abstraction. Some call this the Keynesian cross. To set the record straight, Monetarists fall into this paradigm, they are considered New Keynesians.

Carl Menger, the founding economist of the Austrian School, arose during the Marginal Revolution as the creator of the Subjective Theory of Value. This unique and solely applicable approach of using ordinal value scales to elucidate the subjective valuation of individual actors, is strictly and only of the Austrian School of Economics.

Some supposed Austrians (GMU and other conventional academic institutions) attempt to amalgamate schools of thought or even distinct theories, with what is the pure Mises-Rothbard method. Certain economists lacking in the knowledge of free-market economics may, through misapprehension, label this as completely purist. Rothbardians take this as a necessary compliment.

As is commonly the case, schools of economics are associated with political parties. This is an entire misunderstanding of the purpose of economics in general. Because of this, Austrians are not politically affiliated. Economics is a theoretical system that assists people in better comprehending the world, as is the case with any other theory (Math theory, Physics theory, Science theory and so forth).

The world exists, and later theoreticians elucidate what they may perceive as having occurred (a priori) so that others can then garner the confidence necessary so as to make better choices. The positivists use historical data and observations (a posteriori) to attempt to contrive future predictions.

The latter method is constructed many times on mere presumption, and becomes deceptive as the supposed predictions believe historical scenarios will occur once again given certain factors. Statistics are then found through sortition and sample sizes, and the prediction is erected within a certain confidence interval.

As I reiterate the aforesaid from previous posts, it is important for us to decipher the nebulous aspects of mathematics, most specifically, in economics. Indeed math tools become the means by which we can gauge more precise ends, yet we must remember it is not always what many innumerates may consider it to be. Math, and other theories, are not absolutes, they are ideologies which synoptically conjecture what life's mysteries may contain. These mysteries are observed and thence axiomatic.

As these axioms became embraced by the erudites of the learned theories, people then moved away from the more traditional thoroughgoing value system. Some may hearken to natural law and natural rights--the Golden Rule and for others the Non-Aggression Principle. This transgression had dire consequences.

All other schools of thought, disregarding the Austrian School, most commonly revert to utilizing Keynesian models. Only the Austrian School adheres to the descriptive method of economics, while evading the desire to calculate an abstract equilibrium. Keynesianism is in essence, not a priori, but a posteriori.

Subjective Value Theory states that value derives from the individual mind, where one's actions evince their choice on their ordinal value scale, and thus the commencement of the structure of production is understood. Land then has value derived subjectively, as do all other goods and choices in the economy.

The Labor Theory of Value is negligent to this concept. They do not believe value is subjective, yet inherent. Value for them, is stated in the prices of which aggregates concoct through a supposed calculable equilibrium. Furthermore, the labor theory of value adherent believes labor diffuses value. The laborer cannot negotiate his price, only the fixed cost that the company sets is then the value inherent in the good.

The main difference between the schools of thought is the misapprehension, or one could even state, the complete lack of understanding on the rate of interest itself. Within the Austrian School, Bohm Bawerk's Capital Theory lays the foundation for the true nature of this mark-up, and consequently the importance of money and what inflation really is. Accordingly, the Real Business Cycle Theory is in no way a descriptor of how the business cycle occurs. Only the Austrian Business Cycle Theory can lay claim to this elucidation.

If one is to falsely suppose that inflation is found at the lowest order good stage of the structure of production, based upon an assumed average of a basket of randomly chosen goods, then indeed the failure lies there. Money through historical regression is a product of subjective value, and time preference (the mark-up or rate of interest), becomes ever the more enhanced with real savings.

Government, as the IS-LM curves attempt to justify, reduces real savings. The Keynesian rate of interest is unknown and as abstract as their theory of value is. For this reason they are a posteriori, as they desire quelling a supposedly disequilibrating animal spirits that if left untamed would result in massively tumultuous business cycles.

Austrians understand the quelling of the business cycle (booms and busts) is found within roundaboutness, by which factors are advanced voluntarily to each stage of the structure of production constantly and without end. Equilibrium is nonexistent, and without false price signals (with the existence of private money) then inflation is mitigated. Money is key, and as a consequence government created moral hazards should be nixed. Government should not exist.

Governments have no savings, and hence they pilfer once their money is introduced. They, ergo, expand credit to fund their wages and public goods. The overconsumption of savings arises, and in order to boost aggregate demand, call for the rapid abridging of real value. At this point in time the absence of real value (purchasing power) causes this to occur perpetually, as gold is money (of real value).

This rate of interest found within the preference of time of the individual is then distorted due to their desire for monopolization--savings (capital stock) and purchasing power are extorted. Austrians desire building an economy on savings, as one's choices would be much more wary and better calculated in absence of inflation.

Social Security tends to reduce the desire of individuals to save for the future. Inflation as well, by deceptively lowering the rate of interest (cheap credit money), then increments the quantity of jobs which are contingent upon a balance sheet engorged with overinflated assets and elevated equity prices, among other things.

If money were understood to the Keynesian, government would not exist. As the individual purveys to the market their preference for time (desire to withhold), then indeed it may seem quite obvious that money must also arise naturally on the free market from the preference of the individual. Fiat is now en vogue, as we have forgotten the true nature of money and have thus substituted it for the servility to nationhood.

The Journey of a Christian

The journey of a Christian is indeed a subjective experience or relationship with Jesus Christ that consists of one where constant perseverance, endurance through struggle, penance and revival constantly occur. This I surmise is the walk with Christ many experience daily. As an Austrian economist one may revert quickly to the description of the business cycle.

Ascension and Parousia are two common truths we extrapolate from the importance of the crucifix. When God sent his son to fulfill his destiny of dying for our sins he did so in revealing to those whom he professed his father's grace to that he was the prophet spoken of in the Old Testament.

He was sent to fulfill his father's promise and thus the third temple all should worship. This third temple is prophesied in the Tanakh and is foretold to be erected by the prophet. Jesus Christ is this erected temple whom arrives at Parousia, meaning that you erect the temple in your heart when you accept him as your savior.

Jesus Christ came to lead all of Yahweh's followers back to God's Law, essentially reaffirming Mosaic Law. Jesus Christ was able to express the meanings of Jewish culture by evincing Mosaic Law in the fruits of the spirit. His evangelizing as well as his miracles enacted God's grace.

By accepting Jesus Christ as one's savior we then Hope to one day arrive to Zion, which is Heaven. All the while a Christian must continue his journey along the narrow path, which requires them to repent once one has transgressed from what is the eternal Love of God.

As one disobeys what is evident in scripture, that of the Golden Rule, one ultimately feels a sense of remorse. This is so because a Christian has voluntarily accepted Jesus Christ as his savior. It is the guiding principle of Love which impels us to espouse peace in every action. Retrospectively, the crucifix symbolizes our sinful selves hung up and dying on the cross, then allowing us to be reborn again as we cleanse and purify the soul, that being repentance.

The constant reiteration of forbearance or withholding, measuring every step carefully so as not to give into sin, which leads to remembering that one must turn the other cheek when a desire to hate arises. In Semitic language, hate means to Love less. Turning the other cheek is forbearing, holding back emotion or initiated coercion.

This overwhelming amount of God's Love only causes then a process of transference to arise. Others reciprocate when you Love excessively. Within scripture when it is transcribed that the wrath of God will be undertaken, or punishment of any sort is delineated, what is meant is the profuse amount of Love emanating from a simple action of withholding negative emotion. A common adage of "killing someone with kindness" comes to mind.

As one continues to live by these guiding principles within the pious compendium, the Bible, the deviations from God's Law are enhanced within us. As we sin further, or fail as Christians ever the more, then God's innocence is enhanced. For a Christian the humility of which they measure their lives, aids in their ability to repent. Regret for an iniquitous action transpires, then a Christian responds with a conciliatory remark. This alludes to the maturity of an adult, to utter "I'm Sorry." Repentance, or penance, then becomes a common practice.

The life of the Christian is a daily journey, as well as struggle, where the uneasiness felt by these various transgressions then is subdued with repentance. Ultimately one struggles less by humbling one's self. We struggle when we desire more than what we presently have. For this reason we iterate to ourselves to be thankful for what we own.

The consistency of the Christian to remain productive reminds us that forbearance is as well the benevolence we are taught in the Bible. Reaping what one sows allows the fruits of labor to be ever the more abundant. As well, forbearance helps us save these ever returning fruits to be plentiful in the future as we constantly sow further and further Love over time. Benevolence is therefore God's eternal Love.

Government Money is Unwarranted

Government money has been a complete deception from the time governments have attempted to convince societies that prosperity derives from the coffers of stolen wherewithal from the private sector.

Murray Newton Rothbard once concocted a small book called, "What Has Government Done to Our Money?" which inter alia summarized the unnecessary existence of government money. Essentially what Rothbard did in this recapitulation was vanquish any ideas which exist among scholars as well as the intelligentsia espousing government existence in general.

As Austrians, cogently we notice that individual decisions arise from time preference, which is subjective. Value is indeed subjective. The preference of undertaking a particular choice and what portion of time will be allocated toward this endeavor are enumerated concepts of human action and praxeology delineated by Von Mises. Money is what organizes a society, as transactions elucidate the indicative natures of man. Prices are of the essence, as they are the guiding tool toward professing ones actions of exchange.

Based on the aforementioned theories, we then realize the harmful nature of inflation. Inflation is a rise in the money stock, yet at what point in time one measures this specific rate or increase is very important when setting the corresponding rate of return or mark up. This is best left for private entities borrowing money (debt instruments) or lending money (loans).

Banks would be the reference point corporations would most certainly revert to in order to gauge the price at which they borrow funds from investors at as they hold the capital of others. This would be their agio of enticing, which would also include the specifics of their savings, or solvency. Surely at this point one may notice how important the equity price of a corporation is.

Market capitalization is of course the price spread for the speculator which suggests the possibility of generating a certain rate of return. A low equity price with substantial debt would mean higher risk (low savings), moreover a high equity price with less debt would engender less risk (more savings). Again, this is subjective as a higher equity price may allude to a lower rate of return (shrinking price spreads). Certainly one would also use other particulars of noted company savings to render a choice of capital allocation such as the price spreads of Sales or Net Income.

Government money is so parlous to these price signals, which create these price spreads, because the overabundance of money reduces the purchasing power. As previously mentioned, the rapid increase in the denominator results in an abridging of the price spread of purchasing power. All to stimulate the economy governments then cause a scenario of the then rapid increase of the numerator, all the while the denominator continues to increase yet at a slower pace. This causes an overconsumption of savings (the unseen), or what Austrians refer to as Capital Consumption.

The Treasury should not exist, it's truculence is that of a coercive central monopoly desiring to gauge it's costs and ultimately does not comprehend the natures of money. Their intention is to fund all of their public goods and in order to do so, they issue debt instruments. The business cycle is a natural occurrence, and governments simply amplify the booms and busts which arise during these cycles. A monopolized money therefore wreaks havoc on all whom hold the inflated instruments.

In order for a government to have money, they must extort it from the private sector. By issuing debt instruments they require then implementing taxes so as to pay back these debt instruments. Thus capital stock pilfering arises. Managing the cash flows is what all whom issue obligations must undertake, and in paying these cash flows government creates more money due to delusive estimates. At maturity the face must be imparted.

In order to pay par value (the principal of this loan from the issuer), corporations create sinking funds which is debt issued in advance to pay for debt maturing at a much closer time. Their other option is to manage their Sales (top line) in order to withhold enough funds to remunerate the debt that will quickly mature. Those that fail at this process, go bust or bankrupt.

Governments do not ever go bankrupt, and if so ever they did, the economy using their money would collapse. An Austrian would not hesitate to assert the necessity of this position for the very reasons that weeding out bad practices and readjusting the market toward unfettered Capitalism is required in order to attain the level of a truly free society. The statist is fearful of this and thus enjoys intervening by setting lower rates through their central banks. They presume asset purchases quickly provide funds to those feeble banks on the brink of collapse. Both processes are often performed simultaneously. This inflates the money stock, and reamplifies the business cycle as the clearing out process never truly occurred.

Debt instruments issued by a government are instruments of consumption. Government debt instruments steal money from the productive sector, which is the non-governmental private sector, and thus reduce the real value of it by expanding credit overall.

As the same process of creating a sinking fund aforesaid is partaken in by governments, the estimates their bureaus generate never signal revenues (stolen capital from the private sector) to the level of solvency. In order to avoid constantly issuing further government debt instruments to remunerate those whose securities are maturing, they would need surpluses large enough to pay off those outstanding instruments soon to mature.

As time has passed, no new president, cabinet or those other lawyers arguing in DC, have been able to confect such a scenario. Debt has mounted up for so long whilst the government officials promote the preservation of their union. We have been deceived, and now our money is valueless (fiat inconvertible). We are at the precipice of the empire, and secession is on the way. The debt has never been reduced, and will never disappear. Let us not forget that the desire to keep the Union together, led to the creation of the Federal Reserve Bank in the first place.

Standardized Tests Delude

The practicality of time is of the essence in imparting to us the success of an individual. Whether one allocates more or less time to an activity, will ultimately describe how well that person was able to ingurgitate fully the information studied or gleaned over. 

IQ tests do not measure anything but how well a person was able to regurgitate information on a standardized test.

After noticing the array of IQ scores, one tends to vet those which confer to us their position to the left hand side of the bell curve (or below average), confounding us on why those scores fell in that position. When attempting to correlate the IQ score with later success in life, there is a discrepancy which leaves many individuals befuddled. Indeed it is true that standardized test scores serve as a descriptor of taking only one test. They describe only but a small parcel of life's challenges.

The Intelligence Quotient is an average, which is based upon a certain sample size--the data available which includes those whom solely took that test. Averages do not reflect the proficiency of an individual to absorb information taught to them, which could include the protocol a new employee learns in order to perform the repeated processes of a certain job. Most importantly it does not evince the innovative capacity of one particular individual, as ideas burgeon spontaneously and due to experiential circumstances.

Placing people into certain groupings is deletarious to both the confidence of that group or those whom associate with them, even if those people score in the upper echelons. The array of outliers, if one can attribute this label to those not falling within the average, will then also have trouble living up to the stereotypes society has formulated about those which score highest.

All one can respectfully claim is that each unique individual appropriates the necessary amount of time to recursively imbibe the information they understand will be communicated on the test. It is therefore only the individual whom finally comprehends his own capacity, as studying for the test is confirmed within the guidelines given prior to the test.

For example, all people have a designated quantity of time to study, and a specific amount of time to complete the exam. This is not a conclusive affirmation of an individual's capacity to learn as some may require more time than others to eventually imbue the information toward full aptitude. Subjectively, an adept person does not necessarily exist, as one tends to continue to build knowledge and learn things over time during which they undertake these same tasks daily.

Additionally, a person who is diligent in their study habits tends to solidify the concepts in their mind for a longer period of time than a person which has a lack of desire to learn the information does. The theories of psychology tend to denote to both of these ideas, long-term and short-term memory, respectively. This is all theoretical.

From this what can be proclaimed is that tests should be used as a marker for those whom desire receiving a certificate or permission slip of some sort. This certificate would be used to enhance a resume, build renown, or to be permitted by law to undertake certain tasks. All other purposes of using standardized tests are impractical. The intelligence quotient is thus unnecessary and as abstract as any other average resulting factor.

Every job predominantly requires recursion often and constantly. Those employers looking to hire individuals desiring to perform these repeated processes, must find a reference point of proficiency and this is where the experience becomes so vital. Experience assists those whom are hired to select employees that will learn the protocol, and essentially the duties of the job, much quicker. The employer therefore needs to allocate less time toward training this new employee to perform those specific details.

Education is different than schooling, as experience is of the greatest educator in our lives.

What Is The Market Peak?

When considering the most effective way to refine the process of component valuation as well as market valuation, an investor can easily manage this by theoretically understanding what these valuations entail.

Firstly, there is the market price. This market price is set through contractual terms, either verbal or written, where two parties exchange; once they decide to act on their desired value subjectively itemized on their value scale.

Secondly, there is the process of gauging this rate of return, the difference between buying and selling prices which occurs over time. As well, this is a subjective decision. You purchase something at one point in time, and sell this good or set of goods at a later point in time.

The process of price discovery is using the available information to then purchase goods based upon their price, whilst also measuring the mark up you will offer to generate the proper amount of sales. This difference, or net amount, is a rate of return.

The best examples of rates of return are the Sales (Top Line) of the Income Statement, and all of the costs which are then subtracted in a descending fashion until one arrives at what is Net Income (Bottom Line). Net Income can be considered a Rate of Return.

Another Rate of Return would be more abstract, that which is the asset price. Assets include Securities (Stocks and Bonds) as well as Real Assets (Land, Edifices-Buildings and Homes). Each of these has future value, or better stated, can generate a rate of return. This means that the price will be different in the future as compared to it's current price. Indeed this is subjective.

Liabilities are obligations, simply put, anything that is owed. Moreover, anything that does not belong to you and which you are obliged to pay back in installments over time. The net amount, Assets minus Liabilities, is the value of the company or market capitalization. It is in other words the Net Worth; that which is what the claimants own.

Solvency is arrived at subjectively for a company. Corporate owners must manage their obligations, and allocate their funds to the proper returning assets. If Stockholder's Equity is elevated far above real value (overvalued), corporate owners presume the value of their company places them in a position of solvency. They therefore mismanage expenses.

The rate of interest (when this reference point is monopolized) creates a large amount of debt issuance due to their supposed ability to borrow cheaply. This is how entrepreneurs are deceived. Furthermore, lots of Credit Money (obligations) bid up prices during this speculative process. As it is an obligation for one, it becomes an asset for another.

Rates of return, as constantly mentioned, are everywhere. Thus, purchasing power itself is a rate of return. As more money enters the system (by issuing more Credit Money as well as Fed asset purchases), the rate of return shrinks.

The market sell-off occurs once investors realize their rates of return dwindling near zero. This is in actuality a shifting of money to a different sector. Systematic risk is this apogee in the market, a herd movement out of one group of securities into another. Many times it is a desperation by investors to preserve rates of return from diminishing during this process (shrinkage in value).

Conclusively, withholding consumption is this notion of which the mainstream economists over explicate as demand to hold. A ceasing of consumption, or consumption at a lesser rate, is the holding of money. It is, to chiefly reiterate, subjective.

The Gold Standard

The Gold Standard is a very complex issue for some to fathom. Many mainstream economists believe that reinstating this method of banking will revert us back to an outdated system that is no longer viable with the models given or the desires of the government thereof.

After contemplating the likelihood of a return to the Gold Standard, what gives me optimism is the deflationary period which would be required prior to it's arrival. This would culminate in the end of the monopoly of money (the Treasury), as well as the inessential functions of the great inflator, the central bank. Not even a public clearinghouse is needed these days with the remarkable advances in technology we lay witness to. Allow me to further elaborate.

The Fiat Dollar, which is an inconvertible money by decree, was instituted to allow for unlimited government credit expansion. This removal of the Gold reserve essentially begot what was an elastic currency and the continuous deterioration of our purchasing power. Ubiquitously evinced are the calamitous booms and busts since the introduction of government money, as well as the enhanced erosion to real wealth since the inception of the Federal Reserve Bank in 1913. There were also other forgoeing central banks along the way.

As I reviewed the common visuals provided to us on the world wide web, which to me are quite accurate in concordance with the historical data available, I found that the presumption of the manipulation of the Gold Spot Price as being very true.

A consistent announcement by the London Gold Market Fixing Ltd, of the spot price of Gold during the burgeoning years of the Fed, aided the US government in their desire to manage the world's money supply. As the above chart demonstrates, the manipulated price was fixed (constantly announced at or around a certain price) up until the peg was removed in 1971.

A Gold Peg is intended to aid a banking institution in preserving the value of it's medium. This means that with a precious metal, as aforesaid in the explanation of a medium of exchange arising on the free market, the price of the most commonly accepted unit (that of objective-use value) will tend to greatly affect the management of revenues and expenses for banks.

If one were to consider a simple example constituting ratios, the reason for the depegging of the dollar to Gold becomes more lucid. Allow me to simplify:

If the US were to peg the dollar to Gold at $1000/1oz., then issuing a Treasury would permit a person to purchase 1oz of Gold at the current spot price. If another Treasury were issued, then there would be more dollars in the system, now $2000 which would bid up the price of Gold in the open market.

For the purpose of codification in layman's terms, we can see that the issuance of more Treasuries would increase the number of dollars and reduce the purchasing power of the currency. This would in essence force up the Spot Price of Gold in the open market.

The $1000/oz Treasury needs to be paid back, but Gold is at a higher price. The further issuance of Treasuries is now needed. To pay the holder of the second Treasury that was issued, 2 must now be issued in the third round of debt issuance, since the price would be at $2000/oz. Indeed this process is much more complex.

Without a doubt it was the Bretton Woods Agreement in 1944 (which exacerbated globalism with the creation of the IMF and later the World Bank Group) that changed the monetary system the world was using. Prior to it, each country typically had a reserved currency (representing a certain weight of a commodity). Once the mainstream economists, lead by John Maynard Keynes, had their way, they finally believed that in order to control inflation (due to an ignorant perspective on money), the dollar should be the reserve currency. Every country would need to purchase Treasuries.

World currencies would then peg to the dollar, whilst the dollar continued to maintain it's conversion to Gold (Bretton Woods Gold Peg). Let us not forget that all central banks intervene in the Forex markets as well as purchase debt instruments in the same manner that the Fed does, this is global central bank manipulation. Currency pegs basically advocate this central bank manipulation.

During the years of the $35/oz Gold peg, the amount of debt issuance was excessive and therefore the denominator was much higher than the numerator. The Spot Price of Gold needed to have risen, but never did, so the central banks found themselves selling Gold and decreasing their Gold stock. The banks were attempting to remunerate the holders of claims to Gold (the dollar pegged to Gold and it's corresponding exchange). The London Gold Pool collapsed in 1968.

Due to the profound necessity of raising rates in 1961, resulting from a larger money stock, cash flows became more difficult to manage. When governments, and as well private companies, issue a frenzy of debt, it becomes difficult for them to manage the cash flows of debt instruments if there is not a sufficient Surplus (or high enough Net Income in the case of a private corporation).

In lowering the Fed Funds Rate, this debt frenzy abounds. For the government, debt issuance is already scheduled monthly. And with a lower rate the amount of debt issuance is exacerbated. Once it becomes clear that the enshrouded decrement of real profit margins (they would basically go negative) is elucidated in nominal terms, investors would pull their money out of the shrinking price spreads and move them into higher earning sectors. The need to entice investors with higher yields becomes clear for the Fed.

As the business failures amount and the dollar turnover effect manifests the rise in the money stock in market prices (by causing a shrinking of the price spreads), it becomes clear that the rate of interest must rise as Savings decreases. Indeed this process should be left to the private sector.

The Federal Reserve Bank is incapable of managing this system, and relies on its models to guide the economy. This perspective is utopian, and not at all in line with the Free Market approach of competing rates of return set contractually by private free-banks. As is noticed, the debt never disappears and the money stock grows. Lowering the rate of interest, as Socialists enjoy, is to restimulate the economy. The key question here is "How high is high, and how low is low?" Only the free market can decide.

It is essential to a Capitalist system that market prices fall to their required market level. For this to occur all government regulations must be removed, most specifically the minimum wage. Government needs to get out of the way completely.

When Corporations go bankrupt or fail, processes such as restructurings or flat out debt cancellation occurs. When a government desires perpetuating the existence of it's union or monopoly on money, the compromises end up being the iniquitous measures that constantly occur time and time again. One may now see why a Treasury is dangerous, as they are the entity that creates the government money. Extortion and currency devaluation are the confections of an economy reliant on public goods. All things should be privatized.