Foundation for Economic Growth - Newsletter

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Last Updated: Jul 3rd, 2017 - 15:54:31


Newsletters : 2010 Newsletters : 14 May 2010
Thought for the Day

Ludwig von Mises once said, "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

As you will know by now I have come down on the side of the latter - the catastrophic collapse of the currency system involved. I hypothesized that this would be the option taken by political and banking leaders as they struggled to keep their paper money system and the welfare state going. The politicians have the final say in what happens and they will be unable to vote for immediate hardship amongst the population.

Far better to put it off until tomorrow. Maybe REAL Economics is wrong!

But Ludwig is not wrong. In the complete history of mankind he has been proven right every time. We have a choice - but there is no third way. Tony Blair and Helen Clark were wrong. We can have capitalism and small governments and create wealth or not. Socialism and/or big controlling governments produce poverty. Admittedly it is equal poverty for all. But Kiwis, according to a recent Listener poll are not so interested in equality - they want more wealth.

This thinking about wealth creation is starting to enter the political realm.

In this morning's DomPost Anne Tolley explained New Zealand's low spending on education, as shown in a new report by the OECD, as simply a direct reflection of the country's low wealth.

"Its because we're quite poor compared to other countries," Mrs Tolley said."It's a direct reflection of where we are. We're down the bottom, because that's where our wealth is."

The Kiwi welfare state has been giving us a gentle ride down for 60 years. It has been very comfortable but it is about to stop and the stop will be very abrupt.

As Ludwig von Mises also pointed out in Human Action in 1949, “The boom produces impoverishment. But still more disastrous are its moral ravages. It makes people despondent and dispirited. The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration. The individual is always ready to ascribe his good luck to his own efficiency and to take it as a well-deserved reward for his talent, application, and probity. But reverses of fortune he always charges to other people, and most of all to the absurdity of social and political institutions. He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse. In the opinion of the public, more inflation and more credit expansion are the only remedy against the evils which inflation and credit expansion have brought about.”

And so the European Politicians produce more credit for the Greeks - and the Portugese - and the Spanish - and the Italians - and so on and on.

The answer is to go back to the discipline of a universal gold standard. Even Alan Greenspan said that, “Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

This quote is from "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan.

Alan Greenspan knew the full story of central banking and fiat currency but he still tried to control the US economy under paper money - and failed.

As James Grant, said in the Wall Street Journal on the 20th of September 2009, "The dollar is a scrap of paper, or an electronic impulse, the value of which is anchored by the analytical acuity of the monetary bureaucracy that failed to predict the greatest financial crackup since the 1930s."

But what do we do now? Can increased taxes solve the problem?

Arthur Laffer in a recent (September 2009) Wall Street Journal editorial said, “The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I'd give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s.”

That says it quite well. We can't tax our way back to prosperity.

As Ludwig von Mises says, "No one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interest of everyone hangs on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us."

I will leave the last words to Thomas Jefferson:

”Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if they have any, in manufacturing, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits. Profits which are the price of no useful industry of theirs.”

“The Central Bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an enemy to all banks discounting bills or notes for anything but coin. If the American people allow private banks to control the issuance of their currency, first by inflation, then by deflation the banks and corporations that grow up around them will deprive the people of all their property, until their children will wake up homeless on the continent their Fathers conquered.”

And by coin Thomas Jefferson meant GOLD coin. The concept of brass tokens being coins as we use them today was unthinkable in the days of REAL Money.


May 14, 2010, 10:28

Newsletters : 2010 Newsletters : 14 May 2010
Deciphering the 'I' in IOU

Bill Bonner spends a lot of time in France. Here is his take on recent events in Europe.


May 14, 2010, 10:17

Newsletters : 2010 Newsletters : 14 May 2010
Gold Has Bugs Gasping, Gloating -- But Still Bullish

People are starting to understand about paper money. This is but the beginning of things to come.

Visit Website ]
May 13, 2010, 12:04

Newsletters : 2010 Newsletters : 14 May 2010
Italy's Official Cars

Italy's roads are choked with government-owned cars.

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May 13, 2010, 11:51

Newsletters : 2010 Newsletters : 14 May 2010
The Gold Standard: The Case For Another Look

The Wall Street Journal is now starting to discuss the world's money problems sensibly. There is no doubt that all our current inflationary problems with the current threat of hyperinflation are due to the world going off the gold standard in 1914 and America finishing the use of gold as "final money" between countries in the early 1970s.

We have been a voice in the wilderness for some years now and it is very nice to be joined by such an illustrious publication. Maybe the world will get sensible.


May 12, 2010, 10:42

Newsletters : 2010 Newsletters : 14 May 2010
IMF Can't Explain Gold Sales Now Without Revealing Squeeze

Gold is being double counted and leveraged around the world. This is becoming a big problem for everyone.


May 11, 2010, 15:08

Newsletters : 2010 Newsletters : 14 May 2010
Feds Probing J P Morgan Trades in Silver Pit

The main stream press is now feeling brave enough to comment on the silver suppression story and to name J P Morgan as the principle player.

Things are really warming up.

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May 10, 2010, 15:52

Newsletters : 2010 Newsletters : 14 May 2010
The Euro Crisis

This is the most complete and rationally discussed article I have found on the current world financial crisis.

This is not just about Greece. We are all involved. The options are clearly stated and you may assess which ones the politicians will opt for. Economies are no longer run by the participants but are controlled for good or ill by the democratically elected politicians.

Laissez faire never had a chance.

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May 10, 2010, 13:36

Newsletters : 2010 Newsletters : 14 May 2010
Was Keynes a Liberal?

We hear a lot about Keynes in the study of Economics. This article describes him from the Austrian point of view.

He does not fare well, needless to say, but the reasons are very interesting.

The article is long and arduous and I only recommend a skim through to get a flavour of the "Problem With Keynes".

Visit Website ]
May 4, 2010, 16:58

Newsletters : 2010 Newsletters : 14 May 2010
What About the Raters?

As economists have known for a long time - "If we use paper money backed by nothing but government debt then we will continue to suffer from Moral Hazard."

No amount of regulation will stop people from finding a way to make money from dubious enterprises. The only way to have no moral hazard is to have a gold standard so that money is REAL money - not just debts to be paid by tax payers in the next generations.

This editorial from the New York Times illustrates one more aspect of the moral hazard problem. You watch the new regulations as they come out. They will be subverted in time.

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May 4, 2010, 15:37

Newsletters : 2010 Newsletters : 14 May 2010
Australia Considers 40% Tax on Mining Profits

Looks like we may catch up with Australia after all. They seem to be trying to tax themselves into prosperity.

When the China mineral boom busts and the Aussie housing bubble bursts the lucky country may experience a bit of a hard time.

This won't do us any good, of course, as they won't have money with which to buy our exports - apples for instance.


May 3, 2010, 08:53

Newsletters : 2010 Newsletters : 14 May 2010
Corporate Socialism

America marches towards a socialist society.

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May 3, 2010, 08:42

Newsletters : 2010 Newsletters : 14 May 2010
Greek Elites Whack Greeks Over Crisis

We sure can learn a lot by observing what is happening in other countries.

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May 2, 2010, 18:00

Newsletters : 2010 Newsletters : 14 May 2010
Interview With Jay Taylor - Fiat Currency versus Gold

Things are heating up. REAL Investment advisers know what is happening.

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May 2, 2010, 11:43

Newsletters : 2010 Newsletters : 14 May 2010
Quote for the Week

At a lunch at the Bank of England, just ten days before his death in 1946, John Maynard Keynes remarked, "I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago."


May 1, 2010, 10:26

Creating Wealth and Keeping it

The New book by Phil Scott, President of the Foundation for Economic Growth.

"This book is good, damn good and no statistics!" Lindsay Gordon, MA, MSC, PHD.

Every serious economics student should have a copy and read this ground-breaking foundation of clear economic thinking. Real Economics explains how human actions shape our world and why so much seems to be going wrong for Western economies. This book will bring enlightenment for the general reader who will see why a few very wealthy are becoming exceedingly rich and the middle classes are on the road to serfdom.

See more: www.realeconomics.co.nz