Tuesday, 13 November 2012 10:00 via www.thenewamerican.com
Defending President Barack Obama against Republican charges that he has not been tough enough on Iran, David Axelrod, senior advisor to the president, said on ABC’s This Week on March 4 of this year that the president had succeeded in “bringing the entire world together over the last few years with the most withering economic sanctions that have ever been administered against any country.” On August 1, both the House and Senate approved even more sanctions, which the president signed into law. Yet barely a month later Republican presidential candidate Mitt Romney was repeating his call for still tougher, “crippling sanctions” to force Iran to abandon its alleged pursuit of a nuclear weapon.
“I will have a very different approach with regard to Iran,” including “crippling sanctions that should have been put in place long ago,” Romney said in a September 9 interview on Fox News — despite the fact that U.S. intelligence agencies have reported there is no evidence Iran has decided to develop a nuclear weapon. The Tehran regime claims it is developing nuclear power for peaceful purposes, including energy production and the making of medical isotopes.
Innocent Victims
Perhaps Mitt Romney should talk to the parents of Milad, an eight-year-old Iranian in Kuhdasht, a town 400 miles southwest of Tehran. The Washington Post recently reported on the 12-hour bus journey to the capital the parents made with their child to purchase Feiba, a U.S.-made medicine needed to control the youngster’s severe hemophilia. They were able to obtain only enough for two days.
“I am really worried. My son’s life is at risk,” said Afsaneh, his mother. In addition to nose bleeds that could be life threatening, there is the possibility that the child could lose the use of his right leg. That would make the sanctions imposed by the United States and allied governments, in Romney’s word, truly “crippling.”
“This is a blatant hostage-taking of the most vulnerable people by countries which claim they care about human rights,” said Ahmad Ghavidel, head of the Iranian Hemophilia Society, which assists about 8,000 patients. One young man in southern Iran died after an accident when the blood-clotting injection he needed was not available, Ghavidel told the Post. “Even a few days of delay can have serious consequences like hemorrhage and disability,” he said.
Government officials in Tehran have said international sanctions have had little impact on the country, claiming 97 percent of Iran’s medicine is produced domestically. But while the volume of medical imports affected by the embargo may be small as a percentage, health experts say they are having a significant effect on medicines needed for chronic diseases for which there are no effective domestic remedies. And even those medicines that are produced domestically are dependent on imports for the materials used in their manufacture.
Exemptions in Theory
While the sale to Iran of most goods is banned outright under the terms of the international embargo, the export of food and medicine from the United States is not banned. It is subject to the licensing requirements of the U.S. Treasury’s Office of Foreign Assets Control. But even those with licenses have trouble making purchases. After going from one European bank to another or resorting to middlemen and unofficial transactions, importers say they are unable to obtain the amount of medicines needed, when they are needed.
“The exemption of medicine from sanctions is only in theory,” one importer told the Post. “International banks do not accept Iran’s money for fear of facing U.S. punishment.” Shortages of kidney dialysis machines and transplant equipment have been reported and are expected to worsen as the sanctions continue to take their toll. But the sick are not the only innocent victims of the sanctions, which are wreaking havoc on businesses in Iran that have nothing to do with the government’s nuclear program.
“Western countries have always claimed that they don’t want to make trouble for the Iranian people,” a member of the Energy Commission at Tehran’s Chamber of Commerce told the Wall Street Journal. Yet he described the private sector of the nation’s economy as “severely suffering.” The web of restrictions and the limited access to capital is affecting a broad range of businesses, making it difficult for entrepreneurs to buy or sell even those goods not covered by sanctions, since they can no longer use normal payment channels. Unemployment in Iran is, by some estimates, triple the official rate of 12 percent, the British journal The Economist reported, and the severe unemployment is accompanied by soaring prices:
On October 1st and 2nd Iran’s rial lost more than 25% of its value against the dollar. Since the end of last year it has depreciated by over 80%, most of that in just the past month. Despite subsidies intended to help the poor, prices for staples, such as milk, bread, rice, yogurt and vegetables, have at least doubled since the beginning of the year. Chicken has become so scarce that when scant supplies become available they prompt riots. On October 3rd police in Tehran fired tear-gas at people demonstrating over the rial’s collapse. The city’s main bazaar closed because of the impossibility of quoting accurate prices.
Blunt Instruments
Despite the frequent protestations by U.S. and Western diplomats that the economic pressure is aimed at the government in Tehran and not intended to cause the suffering of the general population, it is ordinary citizens among the 75 million people of Iran who are paying the price of the dispute between Tehran and the West over Iran’s nuclear program. Economic sanctions are blunt instruments for forcing a government into compliance with demands of other nations, and they seldom work. The sanctions imposed on Iraq after the first Gulf War were tightened over a period of 12 years and neither altered the course of the government in Baghdad nor drove Saddam Hussein from power. On the contrary, they appeared only to solidify his control over a people whose suffering had been intensified by governments hostile to his regime. Shortages of food and medicine were accompanied by disease run rampant, as the government was unable to purchase equipment needed to repair bombed out water and sewer lines. That the United States and its allies were aware of the harm the sanctions inflicted on ordinary Iraqis is well documented. In 1996, when the embargo was five years old, then-Secretary of State Madeleine Albright was questioned by Lesley Stahl on CBS’s 60 Minutes, about the human suffering caused by the sanctions:
“I will have a very different approach with regard to Iran,” including “crippling sanctions that should have been put in place long ago,” Romney said in a September 9 interview on Fox News — despite the fact that U.S. intelligence agencies have reported there is no evidence Iran has decided to develop a nuclear weapon. The Tehran regime claims it is developing nuclear power for peaceful purposes, including energy production and the making of medical isotopes.
Innocent Victims
Perhaps Mitt Romney should talk to the parents of Milad, an eight-year-old Iranian in Kuhdasht, a town 400 miles southwest of Tehran. The Washington Post recently reported on the 12-hour bus journey to the capital the parents made with their child to purchase Feiba, a U.S.-made medicine needed to control the youngster’s severe hemophilia. They were able to obtain only enough for two days.
“I am really worried. My son’s life is at risk,” said Afsaneh, his mother. In addition to nose bleeds that could be life threatening, there is the possibility that the child could lose the use of his right leg. That would make the sanctions imposed by the United States and allied governments, in Romney’s word, truly “crippling.”
“This is a blatant hostage-taking of the most vulnerable people by countries which claim they care about human rights,” said Ahmad Ghavidel, head of the Iranian Hemophilia Society, which assists about 8,000 patients. One young man in southern Iran died after an accident when the blood-clotting injection he needed was not available, Ghavidel told the Post. “Even a few days of delay can have serious consequences like hemorrhage and disability,” he said.
Government officials in Tehran have said international sanctions have had little impact on the country, claiming 97 percent of Iran’s medicine is produced domestically. But while the volume of medical imports affected by the embargo may be small as a percentage, health experts say they are having a significant effect on medicines needed for chronic diseases for which there are no effective domestic remedies. And even those medicines that are produced domestically are dependent on imports for the materials used in their manufacture.
Exemptions in Theory
While the sale to Iran of most goods is banned outright under the terms of the international embargo, the export of food and medicine from the United States is not banned. It is subject to the licensing requirements of the U.S. Treasury’s Office of Foreign Assets Control. But even those with licenses have trouble making purchases. After going from one European bank to another or resorting to middlemen and unofficial transactions, importers say they are unable to obtain the amount of medicines needed, when they are needed.
“The exemption of medicine from sanctions is only in theory,” one importer told the Post. “International banks do not accept Iran’s money for fear of facing U.S. punishment.” Shortages of kidney dialysis machines and transplant equipment have been reported and are expected to worsen as the sanctions continue to take their toll. But the sick are not the only innocent victims of the sanctions, which are wreaking havoc on businesses in Iran that have nothing to do with the government’s nuclear program.
“Western countries have always claimed that they don’t want to make trouble for the Iranian people,” a member of the Energy Commission at Tehran’s Chamber of Commerce told the Wall Street Journal. Yet he described the private sector of the nation’s economy as “severely suffering.” The web of restrictions and the limited access to capital is affecting a broad range of businesses, making it difficult for entrepreneurs to buy or sell even those goods not covered by sanctions, since they can no longer use normal payment channels. Unemployment in Iran is, by some estimates, triple the official rate of 12 percent, the British journal The Economist reported, and the severe unemployment is accompanied by soaring prices:
On October 1st and 2nd Iran’s rial lost more than 25% of its value against the dollar. Since the end of last year it has depreciated by over 80%, most of that in just the past month. Despite subsidies intended to help the poor, prices for staples, such as milk, bread, rice, yogurt and vegetables, have at least doubled since the beginning of the year. Chicken has become so scarce that when scant supplies become available they prompt riots. On October 3rd police in Tehran fired tear-gas at people demonstrating over the rial’s collapse. The city’s main bazaar closed because of the impossibility of quoting accurate prices.
Blunt Instruments
Despite the frequent protestations by U.S. and Western diplomats that the economic pressure is aimed at the government in Tehran and not intended to cause the suffering of the general population, it is ordinary citizens among the 75 million people of Iran who are paying the price of the dispute between Tehran and the West over Iran’s nuclear program. Economic sanctions are blunt instruments for forcing a government into compliance with demands of other nations, and they seldom work. The sanctions imposed on Iraq after the first Gulf War were tightened over a period of 12 years and neither altered the course of the government in Baghdad nor drove Saddam Hussein from power. On the contrary, they appeared only to solidify his control over a people whose suffering had been intensified by governments hostile to his regime. Shortages of food and medicine were accompanied by disease run rampant, as the government was unable to purchase equipment needed to repair bombed out water and sewer lines. That the United States and its allies were aware of the harm the sanctions inflicted on ordinary Iraqis is well documented. In 1996, when the embargo was five years old, then-Secretary of State Madeleine Albright was questioned by Lesley Stahl on CBS’s 60 Minutes, about the human suffering caused by the sanctions:
Stahl: We have heard that a half million children have died. I mean, that’s more children than died in Hiroshima. And, you know, is the price worth it?
Albright: I think this is a very hard choice, but the price — we think the price is worth it.
Albright: I think this is a very hard choice, but the price — we think the price is worth it.
Albright did not dispute the half-million figure cited by Stahl in apparent reference to a report of the UN Food and Agriculture Organization that 567,000 Iraqi children under the age of five had died as a result of the sanctions. Whatever the number, the fact that the United States and its allies — and the United Nations, as well — were willing to sacrifice the lives of hundreds of thousands of Arab children to the goal of “regime change” in Iraq was much publicized throughout the Arab world and no doubt did much to inflame anti-American and anti-Western hostility. Years later, when the abuse of prisoners by American military personnel at the Abu Ghraib prison in Iraq became an international scandal, columnist Joseph Sobran observed sardonically, “There goes all the good will we built up through years of bombing Arab cities and starving Arab children.”
Indifference to Suffering
Indifference to Suffering
complete article here
http://www.thenewamerican.com/usnews/foreign-policy/item/13486-sanctions-the-economic-war-on-iran
Militant anti-Americans need not depend on years-old scandals or statements by officials of previous administrations to find evidence of indifference to humanitarian concerns on the part of U.S. policymakers. In an article published in the Washington, D.C., journal The Hill on August 9, U.S. Rep. Brad Sherman (D-Calif.), a senior member of the House Foreign Affairs Committee and the top Democrat on its Subcommittee on International Terrorism, Non-proliferation and Trade, called for strict enforcement of the latest sanctions approved by Congress. Calling the legislation “the most significant measure on Iran that Congress has ever passed,” Sherman said its goal is to “drive Iran’s economy into a crisis and force its leaders to the negotiating table” where Iran must “agree to end [uranium] enrichment and other sensitive nuclear activity.”
“Iran needs to import most machines and hi-tech goods, goods and technology needed to make a nation run,” Sherman wrote, boasting that “the largest corporations in the world will have to forgo business with Iran or lose all their U.S. government contracts,” while “banks will do business in Iran at considerable peril.” He acknowledged, if only to dismiss, claims by some critics that the sanctions could spark trade wars between the United States and other nations.
“Critics also argued that these measures will hurt the Iranian people,” the congressman wrote. “Quite frankly, we need to do just that.”
Iraq Redux?
When a dozen years of sanctions and the resulting economic hardship on Iraq failed to achieve their goal, the United States and its coalition partners went to war with that nation over its alleged “weapons of mass destruction.” More than 4,000 American lives were lost, a hundred thousand or more Iraqis were killed, and millions were made homeless from the devastation of a war started over weapons that were not there. The war did achieve the U.S. goal of “regime change,” however, as the government of Saddam Hussein was replaced by an elected Shiite parliament and president with friendly ties to Saddam’s old enemy — the Shiite government of Iran.
Now Democrat Barack Obama appears to be following the same policy toward Iran that Republican George W. Bush followed into a war with Iraq. This time, we are told, it is the possibility of a nuclear-armed regime in Tehran that threatens the peace and stability of the Middle East and the safety and security of the United States and its allies. Iranian President Mahmoud Ahmadinejad has replaced Saddam Hussein as the world’s most dangerous leader and his oft-stated hostility toward the state of Israel has given rise to fears of an Iranian attack on the Jewish state once Iran has a nuclear bomb at its disposal.
But Israel is believed to have some 200 to 300 nuclear warheads, and Iran’s rulers know that an attack on Israel would mean their own and their nation’s destruction. Yet President Obama insisted in his United Nations speech of September 25 that “a nuclear-armed Iran is not a challenge that can be contained.” Two days later, Israeli Prime Minister Benjamin Netanyahu told the General Assembly why deterrence would not work against Iran as it did against the Soviet Union with its thousands of nuclear weapons.
“There’s a great scholar of the Middle East, Professor Bernard Lewis, who put it best,” Netanyahu said. “He said that for the Ayatollahs of Iran, mutually assured destruction is not a deterrent, it’s an inducement.”
Yet in that same speech, Netanyahu called for the drawing of a red line, backed by the promise of military action, on Iran’s nuclear program to deter Tehran from developing a nuclear weapon. But if “the Ayatollahs of Iran” are hell-bent on achieving their own destruction, why would a red line and threats of military reprisals stop them from developing a nuclear bomb? And why would the human suffering and damage to their nation’s economy caused by the sanctions prevent them from doing so? North Korea is acknowledged to be among the world’s worst economic basket cases, yet that country was able to develop a nuclear weapon over the strenuous objections of “the international community.”
Both Barack Obama and Mitt Romney have made clear their willingness to use military force, if necessary, to prevent Iran from having a nuclear weapon. Romney has even promised to prevent the nation from acquiring the “capability” of developing a nuclear weapon, echoing the policy declared by Netanyahu. Yet a National Intelligence Estimate (NIE), prepared by all 16 U.S. intelligence agencies, reported in 2007 that Iran had abandoned its nuclear weapons program in 2003. An NIE released late last year reported no evidence that Iran had decided to renew its quest for a nuclear weapon. Secretary of Defense Leon Panetta has acknowledged more than once the absence of such evidence. Asked about Netanyahu’s call for a “red line,” Panetta told CBS News: “When they make the decision to go ahead and build a nuclear weapon, that, for us, is a red line.”
Why the economic war and threats of military action if there is yet no evidence Iran has even decided to build a nuclear weapon? Mitt Romney’s two dozen foreign policy advisors include 17 who served in the Bush-Cheney administration that took the nation to war over alleged weapons of mass destruction in Iraq. Barack Obama, who spoke out against the Iraq War while a state senator in Illinois, appears to have found military action more to his liking since entering the White House, his Nobel Peace Prize notwithstanding. While the Constitution puts the question of war and peace for the United States in the hands of the U.S. Congress, Romney has said he would not need congressional approval for military action against Iran. Obama, with his unauthorized intervention in Libya’s civil war last year and his continued bombing of targets and killing of civilians in Pakistan, Yemen, and other Middle East nations, has also demonstrated his determination that the making of war shall be solely the prerogative of the president.
Some may see an opportunity to build the “New World Order” sought by the first President Bush, or the “global democratic revolution” declared by the second, out of the chaos of another Middle East war. But before the American people are called upon to “support our troops” in another ill-conceived war, we might ask this question: “Does it really make moral, political, or practical sense to start another war with a country over what it might do with a weapon it does not have?”
Militant anti-Americans need not depend on years-old scandals or statements by officials of previous administrations to find evidence of indifference to humanitarian concerns on the part of U.S. policymakers. In an article published in the Washington, D.C., journal The Hill on August 9, U.S. Rep. Brad Sherman (D-Calif.), a senior member of the House Foreign Affairs Committee and the top Democrat on its Subcommittee on International Terrorism, Non-proliferation and Trade, called for strict enforcement of the latest sanctions approved by Congress. Calling the legislation “the most significant measure on Iran that Congress has ever passed,” Sherman said its goal is to “drive Iran’s economy into a crisis and force its leaders to the negotiating table” where Iran must “agree to end [uranium] enrichment and other sensitive nuclear activity.”
“Iran needs to import most machines and hi-tech goods, goods and technology needed to make a nation run,” Sherman wrote, boasting that “the largest corporations in the world will have to forgo business with Iran or lose all their U.S. government contracts,” while “banks will do business in Iran at considerable peril.” He acknowledged, if only to dismiss, claims by some critics that the sanctions could spark trade wars between the United States and other nations.
“Critics also argued that these measures will hurt the Iranian people,” the congressman wrote. “Quite frankly, we need to do just that.”
Iraq Redux?
When a dozen years of sanctions and the resulting economic hardship on Iraq failed to achieve their goal, the United States and its coalition partners went to war with that nation over its alleged “weapons of mass destruction.” More than 4,000 American lives were lost, a hundred thousand or more Iraqis were killed, and millions were made homeless from the devastation of a war started over weapons that were not there. The war did achieve the U.S. goal of “regime change,” however, as the government of Saddam Hussein was replaced by an elected Shiite parliament and president with friendly ties to Saddam’s old enemy — the Shiite government of Iran.
Now Democrat Barack Obama appears to be following the same policy toward Iran that Republican George W. Bush followed into a war with Iraq. This time, we are told, it is the possibility of a nuclear-armed regime in Tehran that threatens the peace and stability of the Middle East and the safety and security of the United States and its allies. Iranian President Mahmoud Ahmadinejad has replaced Saddam Hussein as the world’s most dangerous leader and his oft-stated hostility toward the state of Israel has given rise to fears of an Iranian attack on the Jewish state once Iran has a nuclear bomb at its disposal.
But Israel is believed to have some 200 to 300 nuclear warheads, and Iran’s rulers know that an attack on Israel would mean their own and their nation’s destruction. Yet President Obama insisted in his United Nations speech of September 25 that “a nuclear-armed Iran is not a challenge that can be contained.” Two days later, Israeli Prime Minister Benjamin Netanyahu told the General Assembly why deterrence would not work against Iran as it did against the Soviet Union with its thousands of nuclear weapons.
“There’s a great scholar of the Middle East, Professor Bernard Lewis, who put it best,” Netanyahu said. “He said that for the Ayatollahs of Iran, mutually assured destruction is not a deterrent, it’s an inducement.”
Yet in that same speech, Netanyahu called for the drawing of a red line, backed by the promise of military action, on Iran’s nuclear program to deter Tehran from developing a nuclear weapon. But if “the Ayatollahs of Iran” are hell-bent on achieving their own destruction, why would a red line and threats of military reprisals stop them from developing a nuclear bomb? And why would the human suffering and damage to their nation’s economy caused by the sanctions prevent them from doing so? North Korea is acknowledged to be among the world’s worst economic basket cases, yet that country was able to develop a nuclear weapon over the strenuous objections of “the international community.”
Both Barack Obama and Mitt Romney have made clear their willingness to use military force, if necessary, to prevent Iran from having a nuclear weapon. Romney has even promised to prevent the nation from acquiring the “capability” of developing a nuclear weapon, echoing the policy declared by Netanyahu. Yet a National Intelligence Estimate (NIE), prepared by all 16 U.S. intelligence agencies, reported in 2007 that Iran had abandoned its nuclear weapons program in 2003. An NIE released late last year reported no evidence that Iran had decided to renew its quest for a nuclear weapon. Secretary of Defense Leon Panetta has acknowledged more than once the absence of such evidence. Asked about Netanyahu’s call for a “red line,” Panetta told CBS News: “When they make the decision to go ahead and build a nuclear weapon, that, for us, is a red line.”
Why the economic war and threats of military action if there is yet no evidence Iran has even decided to build a nuclear weapon? Mitt Romney’s two dozen foreign policy advisors include 17 who served in the Bush-Cheney administration that took the nation to war over alleged weapons of mass destruction in Iraq. Barack Obama, who spoke out against the Iraq War while a state senator in Illinois, appears to have found military action more to his liking since entering the White House, his Nobel Peace Prize notwithstanding. While the Constitution puts the question of war and peace for the United States in the hands of the U.S. Congress, Romney has said he would not need congressional approval for military action against Iran. Obama, with his unauthorized intervention in Libya’s civil war last year and his continued bombing of targets and killing of civilians in Pakistan, Yemen, and other Middle East nations, has also demonstrated his determination that the making of war shall be solely the prerogative of the president.
Some may see an opportunity to build the “New World Order” sought by the first President Bush, or the “global democratic revolution” declared by the second, out of the chaos of another Middle East war. But before the American people are called upon to “support our troops” in another ill-conceived war, we might ask this question: “Does it really make moral, political, or practical sense to start another war with a country over what it might do with a weapon it does not have?”
Twin Demons, Central Banks and War (They go Hand in Hand)
written by Lew Rockwell see his blog here www.marketoracle.co.uk/UserInfo-LewRockwell.html
The twentieth century was the century of total war. Limitations on the scope of war, built up over many centuries, had already begun to break down in the nineteenth century, but they were altogether obliterated in the twentieth. And of course the sheer amount of resources that centralized states could bring to bear in war, and the terrible new technologies of killing that became available to them, made the twentieth a century of almost unimaginable horror.
It isn’t terribly often that people discuss the development of total war in tandem with the development of modern central banking, which – although antecedents existed long before – also came into its own in the twentieth century. It’s no surprise that Ron Paul, the man in public life who has done more than anyone to break through the limits of what is permissible to say in polite society about both these things, has also been so insistent that the twin phenomena of war and central banking are linked. "It is no coincidence," Dr. Paul said, "that the century of total war coincided with the century of central banking."
If every American taxpayer had to submit an extra five or ten thousand dollars to the IRS this April to pay for the war, I'm quite certain it would end very quickly. The problem is that government finances war by borrowing and printing money, rather than presenting a bill directly in the form of higher taxes. When the costs are obscured, the question of whether any war is worth it becomes distorted.
For the sake of my remarks today I take it as given that Murray Rothbard’s analysis of the true functions of central banking is correct. Rothbard’s books The History of Money and Banking: The Colonial Era Through World War II, The Case Against the Fed, The Mystery of Banking, and What Has Government Done to Our Money? provide the logical case and the empirical evidence for this view, and I refer you to those sources for additional details.
For now I take it as uncontroversial that central banks perform three significant functions for the banking system and the government.
First, they serve as lenders of last resort, which in practice means bailouts for the big financial firms.
Second, they coordinate the inflation of the money supply by establishing a uniform rate at which the banks inflate, thereby making the fractional-reserve banking system less unstable and more consistently profitable than it would be without a central bank (which, by the way, is why the banks themselves always clamor for a central bank).
Finally, they allow governments, via inflation, to finance their operations far more cheaply and surreptitiously than they otherwise could.
As an enabler of inflation, the Fed is ipso facto an enabler of war.
Looking back on World War I, Ludwig von Mises wrote in 1919:
"One can say without exaggeration that inflation is an indispensable means of militarism. Without it, the repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier."
No government has ever said, "Because we want to go to war, we must abandon central banking," or "Because we want to go to war, we must abandon inflation and the fiat money system." Governments always say, "We must abandon the gold standard because we want to go to war." That alone indicates the restraint that hard money places on governments. Precious metals cannot be created out of thin air, which is why governments chafe at monetary systems based on them.
Governments can raise revenue in three ways. Taxation, Borrow, and Create, Print Money!!!
Taxation is the most visible means of doing so, and it eventually meets with popular resistance.
They can borrow the money they need, but this borrowing is likewise visible to the public in the form of higher interest rates – as the federal government competes for a limited amount of available credit, credit becomes scarcer for other borrowers.
Creating money out of thin air, the third option, is preferable for governments, since the process by which the political class siphons resources from society via inflation is far less direct and obvious than in the cases of taxation and borrowing. In the old days the kings clipped the coins, kept the shavings, then spent the coins back into circulation with the same nominal value.
The sequence of events today is complicated, but as I’ve said, not fundamentally different. What happens today is not that the government needs to pay for a war, comes up short, and simply prints the money to make up the difference. The process is not quite so crude. But when we examine it carefully, it turns out to be essentially the same thing.
Central banks, established by the world’s governments, allow those governments to spend more than they receive in taxes. Borrowing allowed them to spend more than they received in taxes, but government borrowing led to higher interest rates, which in turn can provoke the public in undesirable ways.
When central banks create money and inject it into the banking system, they serve the purposes of governments by pushing those interest rates back down, thereby concealing the effects of government borrowing.
But central banking does more than this. It essentially prints up money and hands it to the government, though not quite so directly and obviously.
First, the federal government is able to sell its bonds at artificially high prices (and correspondingly low interest rates) because the buyers of its debt know they can turn around and sell to the Federal Reserve.
It’s true that the federal government has to pay interest on the securities the Federal Reserve owns, but at the end of the year the Fed pays that money back to the Treasury, minus its trivial operating expenses.
That takes care of the interest. And in case you’re thinking that the federal government still has to pay out at least the principal, it really doesn’t. The government can roll over its existing debt when it comes due, issuing a new bond to pay off the principal of the old one.
Through this convoluted process – a process, not coincidentally, that the general public is unlikely to know about or understand – the federal government is in fact able to do the equivalent of printing money and spending it.
While everyone else has to acquire resources by spending money they earned in a productive enterprise – in other words, they first have to produce something for society, and then they may consume – government may acquire resources without first having produced anything. Money creation via government monopoly thus becomes another mechanism whereby the exploitative relationship between government and the public is perpetuated.
Now because the central bank allows the government to conceal the cost of everything it does, it provides an incentive for governments to engage in additional spending in all kinds of areas, not just war. But because war is enormously expensive and because the sacrifices that accompany it place such a strain on the public, it is wartime expenditures for which the assistance of the central bank is especially welcome for any government.
The Federal Reserve System, which was established in late 1913 and opened its doors the following year, was first put to the test during World War I. Unlike some countries, the U.S. did not abandon the gold standard during the war, but it was not operating under a pure 100-percent gold standard in any case. The Fed could and did engage in credit expansion.
In brief, the Fed essentially created money and used it to add war bonds to its balance sheet. Benjamin Anderson, the Austrian-sympathetic economist, observed at the time, "The growth in virtually all the items of the balance sheet of the Federal Reserve System since the United States entered the war has been very great indeed."
Fed’s accommodating role was not confined to wartime itself. In America’s Money Machine, Elgin Groseclose wrote: "Although the war was over in 1918, in a fighting sense, it was not over in a financial sense. The Treasury still had enormous obligations to meet, which were eventually covered by a Victory loan. The main support in the market again was the Federal Reserve."
Monetary expansion was especially helpful to the U.S. government during the Vietnam War. Lyndon Johnson could have both his Great Society programs and his overseas war, and the strain on the public was kept – at first, at least – within manageable limits.
So confident had the Keynesian economic planners become that by 1970, Arthur Okun, one of the decade’s key presidential advisers on the economy, was noting in a published retrospective that wise economic management seemed to have done away with the business cycle. But reality could not be evaded forever, and the apparently strong war economy of the 1960s gave way to the stagnation of the 1970s.
There is a law of the universe according to which every time the public is promised that the boom-bust business cycle has been banished forever, a bust is right around the corner. One month after Okun’s rosy book was published, the recession began.
Americans paid a steep cost for the inflation of the 1960s. The loss of life resulting from the war itself was the most gruesome and horrific of these costs, but the economic devastation cannot be ignored. As many of us well remember, years of unemployment and high inflation plagued the U.S. economy. The stock market fared even worse. Mark Thornton points out that
in May 1970, a portfolio consisting of one share of every stock listed on the Big Board was worth just about half of what it would have been worth at the start of 1969.
The high flyers that had led the market of 1967 and 1968 – conglomerates, computer leasers, far-out electronics companies, franchisers – were precipitously down from their peaks. Nor were they down 25 percent, like the Dow, but 80, 90, or 95 percent.
...The Dow index shows that stocks tended to trade in a wide channel for much of the period between 1965 and 1984. However, if you adjust the value of stocks by price inflation as measured by the Consumer Price Index, a clearer and more disturbing picture emerges. The inflation-adjusted or real purchasing power measure of the Dow indicates that it lost nearly 80% of its peak value.
And for all the talk of the Fed’s alleged independence, it is not even possible to imagine the Fed maintaining a tight-money stance when the regime demands stimulus, or when the troops are in the field. It has been more than accommodating during the so-called War on Terror. Consider the amount of debt purchased every year by the Fed, and compare it to that year’s war expenditures, and you will get a sense of the Fed’s enabling role.
Now while it’s true that a gold standard restrains governments, it’s also true that governments have little difficulty finding pretexts – war chief among them – to abandon the gold standard. For that reason, the gold standard in and of itself is not a sufficient restraint on the government’s ambitions, at home and abroad.
As we look to the future, we must cast aside all timidity in our proposals for monetary reform. We do not seek a gold-exchange standard, as existed under the Bretton Woods system. We do not seek to use the price of gold as a calibration device to assist the monetary authority in its decisions on how much money to create. We do not even seek the restoration of the classical gold standard, great though its merits are.
In the 1830s, the hard-money Jacksonian monetary theorists coined the marvelous phrase "separation of bank and state." That would be a start.
What we need today is the separation of money and state.
There are some ways in which money is unique among goods. For one thing, money is valued not for its own sake but for its use in exchange. For another, money is not consumed, but rather is handed on from one person to another. And all other goods in the economy have their prices expressed in terms of this good.
But there is nothing about money – or anything else, for that matter – that should make us think its production must be carried out by the government or its designated monopoly grantee. (THE Federal Reserve) Money constitutes one-half of every non-barter market transaction. People who believe in the market economy, and yet who are prepared to hand over to the state the custodianship of this most crucial good, ought to think again.
Interventionists sometimes claim that a particular good is just too important to be left to the market. The standard free-market reply turns this argument around: the more important a commodity is, the more essential it is for the government not to produce it, and to leave its production to the market instead.
Nowhere is this more true than in the case of money. Government control of money has yielded monetary debasement, the impoverishment of society relative to the state, devastating business cycles, financial bubbles, capital consumption (because of falsified profit-and-loss accounting), moral hazard, and – most germane to my topic today – the expropriation of the public in ways they are unlikely to understand. It is this silent expropriation that has made possible some of the state’s greatest enormities, including its wars, and it is all of these offenses combined that constitute a compelling popular brief against the current system and in favor of a market substitute.
The war machine and the money machine, in short, are intimately linked. It is vain to denounce the moral grotesqueries of the U.S. empire without at the same time taking aim at the indispensable support that makes it all possible. If we wish to oppose the state and all its manifestations – its imperial adventures, its domestic subsidies, its unstoppable spending and debt accumulation – we must point to their source, the central bank, the mechanism that the state and its kept media and economists will defend to their dying days.
The state has persuaded the people that its own interests are identical with theirs. It seeks to promote their welfare. Its wars are their wars. It is the great benefactor, and the people are to be content in their role as its contented subjects.
Ours is a different view. The state’s relationship to the people is not benign, it is not one of magnanimous giver and grateful recipient. It is an exploitative relationship, whereby an array of self-perpetuating fiefdoms (POLITICIANS, and PARTY) that produce nothing live at the expense of the toiling majority.
Its wars do not protect the public; they fleece it.
Its subsidies to not promote the so-called public good; they undermine it.
Why then, should we expect its production of money to be an exception to this general pattern?
As F.A. Hayek said, it is not reasonable to think that the state has any interest in giving us a "good money." What the state wants is to produce the money or have a privileged position vis-a-vis the source of the money, so it can dispense largesse to its favored constituencies. We should not be anxious to accommodate it.
The state does not compromise, and neither should we. In the struggle of liberty against power, few enough will oppose the state and the conventional wisdom it urges us to adopt. Fewer still will reject the state and its programs root and branch. We must be those few, as we work toward a future in which we are the many.
Llewellyn H. Rockwell, Jr. [send him mail], former editorial assistant to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute, literary executor for the estate of Murray N. Rothbard, and editor of LewRockwell.com. See his books.
http://www.lewrockwell.com
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