Editor’s note. Two items at bottom of Page C1 in Friday’s Chattanooga Times Free Press business section catch our notice. One is the arrival at Liberty Tower downtown of a F$2 million Statue of Liberty replica, standing serenely in the lobby of a building refurbished by parking and real estate mogul Jim Berry. The second report is about Chattanooga company TransCard’s hiring 69 people for its line of debit card services to more than 180 banks across the country. TransCard is helping lenders go after the hundreds of thousands of people outside the banking system, a potentially lucrative market as the U.S. dollars seems to drive ever harder away from the physical world to digital abstraction.
➤ The Liberty Tower story puts us in mind of the meaning of liberty, which many Americans associate with that monument over the waters in New York. Mr. Berry connects his Christian faith and his vast business holdings to an American ideal we might call “free government” as referred to in the Tennessee constitution, namely government serving a free — vs. an enslaved — people. Local economy will prosper insofar as people live and serve others in terms of that ideal, acting as if it were true and as if they are, indeed, a free people.
➤ The second story advances my thinking about corporate colonialization by out-of-town or out-of-state companies. I introduce this idea in my text about local economy sweating its own shell. Since profit flows to ownership, a town filled with out-of-town companies is one that does not prosper, because profit is sucked out to the remote owners. Such a city seems unsustainable. In framing the local vs. nonlocal players competition in terms of the colonialism, I ask myself if my theory of local economy has gone too far. Am I making a false distinction? Has the argument become an unreasoning jealousy in favor of local? To what extent is my slogan of “Love your neighbor — shop local” against liberty, or against the free market (if at all)?
The Transcard story makes clear that a local company serving companies in other cities is forcing those other cities to export profit to the Chattanooga owners. Alien companies suck profit from Chattanooga with their local branches. But Chattanooga companies suck profit from alien jurisdictions with their stores and offices in those places. The marketplace balances itself out. Every city colonizes others.
Still, the idea of local economy seeks to encourage wealth creation locally, and prosperity locally. So the city desires more of the likes of Craig Fuller and his trucking magnate father, Max, who founded TransCard in 2010. Chattanooga needs more local business, more local entrepreneurs such as the Fullers.
The dangers to local economy, still, are terrifying. Below is a portion of an essay, “The great gold and silver plunger of 2013[;] End of the bull market?” in the April Moneychanger newsletter, published in Westpoint, Tenn. Though its analysis of the precious metals market is omitted, the part I reproduce offers cogent macroeconomic analysis of the U.S. economy, and offers fresh arguments why Chattanoogans should self-consciously think local and in terms of production vs. financial speculation. (End of editor’s note. — David Tulis)
The fundamentals surrounding local economy
**** Technical analysis tells us where a market is and where it likely will head, but fundamental analysis tells us what drives that market. Think about cause and effect.
What drives silver & gold bull markets? Monetary demand. Nothing else, not increased jewelry demand or electronic demand or anything else. Those just have to stay about the same, while monetary demand, that new demand, entering the market at the margin, drives the bull.
What drives monetary demand? Inflation, pure and simple. Central banks and banks printing money, creating new money out of thin air. Why do central banks and banks create new money? Because that’s what they are made to do. The Federal Reserve System was created to inflate, and therefore it will always inflate. See the nearby chart for the proof.
Why do central banks create new money? So their governments can spend more than they can tax (“deficit spending”). No people of any nation would support modern wars or welfare states if they had to be taxed for them. They would sooner rise up in rebellion. However, if they are taxed through inflation, by steadily depreciating their currency and capital, not one in 100 will catch on.
Why can’t governments stop spending? Because, in the United States at least, half of all income arises from government spending, about 20 percent from state and local government spending, and about 30 percent from federal government spending. And forget welfare. That’s the least part. Defense spending and now, medical spending, cost far more.
Ask yourself: Where is the statesman who will dismantle this system? Where is the constituency that favors dismantling it? Forget all the theatricals with the debt limit and sequestration, that is all fidgeting with meaningless fringes. That statesman appeareth not. And if he were to step forth, how long would it take to make the transition? That spending can’t be stopped tomorrow without a civil war. The constituency that now benefits from that government spending will not give it up without a fight.
Why does government and private debt keep growing? Because all money is borrowed into existence, and is born with an interest burden. Stop creating money, and the interest can’t be paid.
Debt substitutes for production
Because, as the late Charles Walters of “Acres, USA” explained, in the last 60 years by conscious government policy debt has been substituted for production to sustain living standards.
Charlie explained it this way. Every dollar of agricultural income processed through the economy became seven dollars of national income. Since the federal government took control of agriculture in the Great Depression and farm incomes have plummeted. Farmers have been driven off the land. Production vanished, so what can be substituted for that lost income? Debt.
Add more: in the last 30 years U.S. industrial production has been shipped overseas, and with it all that income. We’ve replaced jobs in steel mills with jobs in casinos and McDonald’s, and, sure enough, they don’t pay as well.
Debt has replaced production, and to keep that debt alive and to continue feeding the banks, inflation must continue. People must keep borrowing, America must keep borrowing, to maintain its living standards.
Doubt it? Look at the chart, “America’s Private Debt To GDP Ratio.” Think of GDP, Gross Domestic Product, as “income.” So this chart shows how much private folks in America owe divided by how much they earn. In 1950, Americans owed a little more than 50 percent of their income. In 2009, when this chart ends, they owed nearly 300 percent of their income.
Would you feel financially stable if you earned $100,000 a year but owed $300,000?
Spending 20 percent to 30 percent of your income merely to pay the interest, never mind the principle? Lose much of that income, and you’re looking for a bankruptcy lawyer.
Chart 3 shows both private and federal government debt. This chart runs into 2012, and notice that private people have reduced their debt load, which the US government has raised its debt load to levels now approaching that at the end of World War II.
Wait, wait! What does the federal government produce? Oh, that’s right: nothing. Everything it spends has to be taxed away from the producers, or stolen from them by inflation. And every dollar producers pay in tax means one less dollar they have to spend themselves or invest in production. All government spending is a drain. Say, that does complicate things, doesn’t it?
I hope what I have explained above will convince you that inflation is not an accident, not caused by greedy industrialists or short supply or anything else but central banks and banks creating money. Inflation is their nature; inflation is institutional to the present financial and government system.
Not Ben Bernanke or anybody else intends to stop inflation. He and all the rest of his cronies know all this better than I do. Oh, and about his famous “exit strategy” that he claims will extinguish the roughly 3 trillion dollars created since 2008: He has none. The Fed cannot withdraw even a small portion of that from the money supply without lighting a deflationary implosion.
Inflation is not going away, it is maturing and growing old. The crises which had grown more frequent and greater now won’t go away. In fact, since 2008 the U.S. central bank and every other bank and government in the world has demonstrated that they have only one weapon against depression: inflation. They will keep shooting that inflation gun until they can shoot it no more. They never learn, and they are trapped in a system that cannot change.
Inflation, the economy run by government for big business, at big business’ control, forms one seamless system. Every part meshes with every other part. Jefferson’s nightmare has come true. Hamilton has won: Government and money interest are one.
Under financialization the financial elite that benefits most from inflation has, effectively, taken over the government.
Long-term inflation always turns the nation’s economic focus from production to speculation. Simply put, inflation enters the economy first in the financial world, making money artificially cheap & plentiful for speculators. People aren’t dopes, and don’t want to work any harder than they have to. People see speculators – gamblers – getting rich, and that attracts them away from the get-rich-slow world of production. They drift into the financial industry.
Financialization is the child of inflation and fractional reserve banking, which provides the leverage. The financial sector of the economy has nearly quadrupled, grown from less than 3 percent of the economy 60 years go to almost 9 percent today. See the chart, “GDP Share of Financial Industry” (on page 12). Financial sector profits make up about 30 percent of all corporate profits.
Financialization has fed on the securitization of all assets. Every thing that could be packaged and sold forward as a “security” has been. Think of it this way: A worker wants a house, but hath not yet the money. The bank accepts his future labor as collateral for a mortgage, “securitizes” his future labor, places a lien on all his future production, and creates a mortgage, collateralized by a building but secured by his future labor.
Or a student wants to become a physician. The bank makes him student loans (backed by the U.S. government) which “securitize” his future labor. [Think of our stories on Thomas Gokey and the debt Jubilee he proposes. DT] That loan has a claim against all his future labor, and in 2005 Congress changed the bankruptcy laws so that claim can never be bankrupted. Once you’re a debt slave, you’re a debt slave forever. Banks can’t even spell “manumission,” let alone practice it. Mortgages are then bundled into “Mortgage Backed Securities” and marketed. Yes, you’re right, that is piling one level of abstraction upon another. Insurance, too, has been securitized with derivatives of all sorts.
The financial elite benefiting from this speculation and financialization eventually grows so powerful, as it has in the United States, that it effectively takes over and runs the government. That’s why banks make bad loans and the government bails them out with a TARP plan, picking the taxpayer’s pockets for $700 billion to make good the banks’ losses. Laws that stand in the way of their recklessly expanding their speculation are done away to make the way for even riskier speculation.
This throws the economy out of balance. Instead of applying capital to production which produces economic growth, capital is diverted to financing, speculation, mergers, acquisitions, Credit Default Swaps, and financial markets. Productive industry is starved for capital as “finance” crowds out all other economic activity. Speculation replaces production.
At the very best, the financial world and banking are a necessary evil – evil in their threat to economic health, self-government, economic freedom, and freedom from debt slavery, necessary as mediators of capital from savers who have it to entrepreneurs who need it.
But wait. Banks are now mediating capital away from productive entrepreneurs to gamblers. They have transmogrified from a necessary evil to a plain vanilla evil without any redeeming social value. If you think I sound like a communist, I have to laugh. Look around you: What big business and financial capitalism and industrial capitalism always lead to is NOT free markets or free enterprise, but the exact opposite: Communism, whether called “socialism,” “fascism,” or “communism” is all the same.
Traitor, terrorist, bourgeois, or bankrupt, they are all pleased as punch to put you up against the wall and shoot you or take your house. All the same to them. Whatever way they have to suppress competition and free markets is fine with them. **** [This essay concludes with a discussion about gold and silver market manipulation, and the assertion that the bull market for metals has not ended.]
Used by permission. Subscribe to the Moneychanger’s daily commentary by dropping your email address at Franklin’s website, the-moneychanger.com. Franklin Sanders is publisher of The Moneychanger, a privately circulated monthly newsletter that focuses on gold and silver and the application of Christianity to economics, culture and family life. We have subscribed to this newsletter for more than 20 years, and consider it a must read. F$149 a year. Franklin is an active trader in gold and silver (he’ll swap your green Federal Reserve rectangles and give you real money in return). He trades with savers and investors outside Tennessee. F. Sanders, The Moneychanger, P.O. Box 178, Westpoint, Tenn. 38486 Tel. 888-218-9226.
Great exposé and primer for the naive.