Fractional Reserve Banking

I have mentioned this in earlier posts. I haven't gone into detail because I only dimly understand it. The problem is not the complexity of the issue – although it isn't simple. The problem is believing that this is how banking works, how banks create money out of nothing. An additional difficulty is believing that the process works with the connivance of government. Only Victor Meldrew could do justice to this colossal scam, "I don't believe it!"

Below is a link to the first of a series of videos on YouTube: Money as Debt - Fractional Reserve Banking part 1 of 5

http://www.youtube.com/watch?v=KyDU4X8GSmE

It is in cartoon format. When it's over you will see links to the other four parts. If and when you have understood all five parts you will be astonished – and depressed. Sorry!

When I have described in earlier posts the process by which depositors save money in banks (at x%) and banks lend the money (at y%) to entrepreneurs, who use it to produce stuff (ie wealth), I was oversimplifying. Would that I were not! That is how the system should work. Paper money should be "backed" by some commodity (traditionally gold or silver), which is valued for itself. In our world, paper currency is printed by the government and its value is simply the government's say-so. Economists call it fiat money – Latin subjunctive meaning, "Let it be!"

In an honest system, the rates of interest would depend on how much depositors save. If they are prepared to forgo present consumption themselves and save more, interest rates will be lower. If they spend instead of saving, rates will be higher. In our world, the government or the central bank decides the rate. They usually get it wrong. We are where we are because governments have kept rates too low. We have had low rates not because we were all saving so much but because the government wanted to create an artificial "boom", which makes us feel richer – for a time. This is cynical in the extreme. They want us to re-elect them. But it is unsustainable. Booms are always followed by "busts".

The Austrians teach us that although a boom feels good (for a while), booms are bad and the inevitable bust is the period when the economy is starting to cure itself. The Keynesians would like to "buck the market". It can't be done. They would have us believe that they can repeal the Law of Gravity.

Their solution is "stimulus": continued low interest rates and "quantitative easing". The "idea" is to cure the disease with more of what caused it. They claim that they can keep the boom going. Cloud Cuckoo Land!

Governments have an interest in our almost universal ignorance.

I have a headache!

Kevin still hasn’t read this blog!

Perhaps he will do so on Wednesday, in the library.

He and I have been drinking gin-and-tonic together at the Robin Hood, as we do once a fortnight – very pleasant.

He is the most courteous of debating partners. I don't know how many times he has said, "You make a very good point."

I try to reciprocate in courtesy. I keep saying, "Kevin, you are too decent to get it!" And this is the point. Decent, thinking people naturally, inevitably, by default, inspired by a desire for the economic wellbeing of all (particularly the poor), tend to the belief that we can legislate wellbeing.

You can't! All you can do is facilitate the means whereby people can improve the wellbeing of themselves and their neighbours.

You, imaginary reader, are the benevolent dictator of Poorland. Children in your country work long hours for low wages in horrid conditions. You want to help. So you issue decrees to the effect that the very young will henceforth not be employed at all; and that low wages are to be abolished. You feel very good.

First question: Are the kids any better off? No, they are unemployed and the subtraction of their wages from their family economies means that they and their parents and their baby siblings are hungrier than before. Perhaps they will try prostitution. Ouch!

Second question: Did your decrees, in any way, increase the wealth of Poorland? No, production has declined – the country is poorer than before. Wealth is production. Production is wealth. Ouch, ouch!

The minimum wage you set doesn't have the effect of making everybody richer – it simply means that the least productive people get the sack. Why would any sane employer give work to anyone who couldn't more than cover the cost of employing them? The question answers itself.

You are decent; you are benevolent – you are desperate to improve the lot of the poor. What do you do?

• You look at the Statute Book.
  
• You repeal all the laws (and the bureaucracy) that inhibit the acquisition of capital. For example, you make it easy for people to prove that they have title to the land on which they live. If they are not paying rent, then nobody else owns it. Trillions of dollars worth of capital is unavailable in the Third World because the land-holders are not, legally, the landowners.
  
• Some of the "new" landowners will approach lenders with propositions for enterprises wherein their ideas, mixed with the money they want to borrow and their own labour and perhaps that of others will create stuff that people want to buy. Production, geddit?
  
• If they are convincing, the lenders will be forthcoming. The capital goods, premises, machinery etc will make them (the borrowers, the entrepreneurs) and their employees (if any) more productive than they would otherwise have been. The lenders' money is at risk but they know that they can call upon the security provided by the borrowers – the land.
  
• Your advisors tell you that a very large percentage of everything people earn is taxed away from them and used to pay for a variety of programmes designed to make things "fairer" in Poorland. You observe that these programmes don't make things fairer. You also observe that it costs money to tax people and it costs money to spend the tax take.
  
• You wonder what would happen if your overtaxed countrymen were allowed to keep more of their income. What would they do with it? They would spend some of it on themselves – thereby providing profit and employment to businessmen and their employees – vicious, huh? They would save some of it. The savings would available to be lent to businesses, capital – which enables the businesses to be more productive, and the country (by definition) richer.
  

OK, Your Excellency, you are beginning to get it. It will soon be time to start thinking about changing the name of your country. How does Richland sound?

Children don't have to work long hours for low wages in horrid conditions in Richland. Their parents are so much more productive than they used be that they don't need the pittance that their kids used to earn.

Our wise overlords, as Tom Woods calls them, have got the wrong end of the stick. They are infected with the hare-brained idea that "consumption" creates wealth. It doesn't, as a moment's reflection will prove. Production creates wealth.

Less than two years ago I accepted the idea that stimulating spending on consumption was a rational idea. How stupid was I?

Two Excellent Books by Catholics – Now, there’s a surprise!

I have recently read Peter Kreeft's CS Lewis for the Third Millennium. It is magnificent. I downloaded it to my Kindle – what a fabulous device! More at a later date on PK, perhaps.

Over the weekend I read for the third time Tom Woods' The Church and the Market – beyond magnificent!

It was occasioned by Woods' disquiet about certain trends in "Catholic Social Doctrine" from the nineteenth century onwards. He is very courteous about the authors with whom he takes issue (including Popes Leo XIII, Pius IX and John XXIII). He does not question their Theology. Indeed, as an orthodox Catholic, Woods subscribes impeccably to the Catholic view that when the pontiffs pronounce on Faith and Morals, we have to accord to their words a very special importance indeed. Am I being wishy-washy about papal infallibility? Perhaps. Woods does not have a problem with it. However, it is when they come to recommending particular social policies, even popes will err if those policies lead to outcomes that are contrary to the very objectives they espouse – because those policies are based upon faulty economic reasoning. If they were to recommend bleeding for sundry diseases, neither their Charity nor their Theology would be at fault. It would be their medical knowledge.

The so-called Late Scholastics were the first to observe in the fifteenth and sixteenth centuries that there are Scientific Laws of Human Behaviour – and this before the idea of Scientific Laws of Nature (gravitation etc) was generally accepted. Their writings influenced Adam Smith. In fact they understood prices better than he did. Their latter day successors were Mengler, von Mises and Rothbard – the Austrian School, of which Woods is such a distinguished member.

TC&TM contains an excellent introduction to Austrian Economics, which I am not going to summarise here. I will only say that it is true, as irrefutable as Pythagorus.

What a tragedy that we have not accepted these well-founded theories. If we had similarly disregarded the Germ Theory of Disease, our life expectancy would be half what it is, or less.

Private property, the rule of Law, free markets and sound money would have vouchsafed us a standard of living light years beyond what we now enjoy (having only sporadically based policy upon them). We could easily have eradicated poverty and probably war.

Bien pensants elites have not only failed to understand what the Austrians teach. They have actively embraced contrary ideas: State Interference, Social Justice (the whole disastrous panoply of Socialism). Would it be enough to erase the influence of Marx and of Keynes – if we could? Perhaps not. There is something seductive about meddling.

Nevertheless, Hope is a virtue. Watch me as I practise it! Truth will out! The inexorable rightness of Austrian thinking will continue to spread. Its future is assured by the failure of current policies. God's Kingdom is not of this World. Austrian Economics will not abolish Original Sin. But we can make the World better.

Apologies to David Rasnick

I misspelled his name in an earlier post.

Here is a link to his website:

http://www.davidrasnick.com/David_Rasnick/Cancer.html

A Catholic Falls out with a Priest

Whaddya gonna do, abandon your faith? Come on!

Priests are men. Men (and therefore priests) are fallible and sinners.

It is a very painful situation. You know he is fallible and sinful – you always did. You have an opinion about his intellectual ability – brilliant, ordinary, not particularly gifted. You have an opinion about his social skills – amazing, clumsy, crass or whatever. Likewise about his judgement.

It is painful but it affects your participation in the Mass not at all. As in the military, we salute the uniform, not the man. We are lucky when our commanders or clergy are inspiring. We don't have the right to expect it. When an ordained priest consecrates the bread and wine, it is consecrated.

The above is personal. But it does relate to something for which anti-Catholics have enjoyed castigating the Church: child abuse.

[Incidentally, typical anti-Catholic castigators have helped to create a society in which (almost) any sexual preference or sexual behaviour is simply regarded as a lifestyle choice.]

As a father, I find the very idea of children being abused (in whatever way), particularly by one entrusted with their spiritual development, nauseating.

Here follow a few personal thoughts:

I am sure that the individuals involved in recent scandals are (for the most part) filled with self-loathing. Their superiors have been disgusted. Those superiors are (as it happens) charged with responsibility for the welfare (spiritual and non-spiritual) not only of the laity but of the perpetrators. I don't envy them.

They are presented with evidence of appalling abuse, perpetrated by clergy. They are confronted with conflicting choices. Should their primary concern be for the children, or for the reputation of the Church?

For what it is worth, my view is: the children!

I love the Church. Her reputation matters to me. I want everybody to be a Catholic. Insofar as the scandal has encouraged anyone to reject the Church, I am appalled.

God's Church on Earth is a human institution, (though instituted by Christ Himself). It has been ruled by monsters in the past – and by fallible men in every generation.

Catholics are as disgusted by priestly abuse as any one – more so, I assume. Catholics, as a whole, are disgusted by "cover ups" by the hierarchy.

Catholics should be aware that Bishops have multiple responsibilities. And yet! They should have had greater courage. They should have had greater Faith!

God's Church doesn't need cover ups. Don't do it – ever!

HIV/AIDS – A Response to Elisa: Part III

I'm going to wrap this up fairly quickly with a few bullet points. Please let me have your comments.

• None of the predictions of the AIDS establishment have come true. It never became a heterosexual epidemic. No vaccine has been developed. As Duesberg points out, Jenner developed the first vaccine in a few weeks for a few quid. Billions of dollars and thirty years have not produced an AIDS vaccine.
  
• The anti-viral "therapies" have killed more people than AIDS. An American couple wrote to Duesberg when their adopted daughter became very ill while on an anti-viral regime. He implored them to take her off it. They did and she immediately recovered.
  
• Many people who died while taking the drugs died of kidney failure. Kidney failure is not an AIDS defining disease.
  
• There are many people who have been diagnosed as "positive" who have eschewed the drugs and lived healthy lives.
  
• Google Rethinking Aids.
  
• Never take an AIDS test.
  
• Never take the AIDS drugs.
  

Thank you for your attention.

HIV/AIDS – A Response to Elisa: Part II

Apologies for spending so much time on this subject:

Why am I doing so? Well, Elisa deserves it. Not because she is stunningly beautiful or because she is frighteningly intelligent; but because she has asked me for my opinion and my justifications therefore.

Well now. On Shakespeare's birthday 1984, A US government bureaucrat, Margaret Heckler announced that the probable cause of AIDS had been discovered – in spite of what you have read in the previous post.

The very next day the New York Times removed "probable".

There had been no peer review (not that I place much reliance on peer review- not a hoop that Newton ever had to jump through); there had been no scientific paper; there had been a press conference. Gallo invented the HIV theory of AIDS, Heckler endorsed it, the New York Times confirmed it and the rest of the scientific community rolled over. But not quite – Peter Duesberg and Kary Mullis (Nobel Laureate) refused to give in. Of the two, Duesberg has suffered the most. Having a Nobel Prize confers a certain degree of immunity.

[Oh dear, Paul Krugman has a Nobel Prize (Economics) and he is certifiable. He won't debate Robert Murphy. Why not?]

AIDS was a sexually transmitted virus and we were in the middle of an epidemic.

Viral epidemics have a well defined trajectory. A few people get the disease, others have natural immunity, yet others develop immunity from contact with the virus. The curve goes up, peaks and declines. In the case of AIDS the numbers remained flat. There was some confusion because "AIDS diseases" were added to the original definition; but essentially AIDS did not behave like a "normal" epidemic".

Normal epidemics do not discriminate. When syphilis or smallpox enters a population, males and females suffer equally. Not so with AIDS – the victims remained resolutely within the gay community.

Intelligent gays were disquieted by the facts. Are our friends getting sick because of our lifestyle? Or is there a deadly microbe out there which will kill regardless of sexual preference? A gay activist will be drawn inexorably to the second hypothesis. The first implies a criticism of the new gay lifestyle. The second puts the wind up heterosexuals. They will spend money to address the problem.

Is one true and the other false? Which one will kill gays? If our friends are getting sick and dying because of their lifestyle, then they will continue to die as a result of the second hypothesis.

Where did AIDS come from?

The conventional answer as to why a new syndrome arose alongside a new lifestyle was not that the former was the result of the latter – not an unreasonable supposition. Occam's razor – essentially that the fewer factors you call upon to explain a phenomenon the better – was cast aside. Monkeys and clandestine CIA operations were called upon. Africa seemed promising and Africa was it!

Africans are not more promiscuous than Europeans or Californians but they are (for the most) part poor, ironically and tragically, because their continent is so rich in natural resources. Being poor means that clean drinking water doesn't come out of your taps – you don't have taps (or flush toilets) and your faeces contaminate your drinking water and that of your neighbours. You and they get sick. This was the situation in Europe two/three/four hundred years ago. It was in Africa one/two/three hundred years ago. We got sick, they got sick. We are rich; they remain poor. We stopped getting sick. They still get sick. There is no new sickness in Africa.

You have to be racist to blame sickness on Africans' inability to keep their trousers fastened. We are the ones who teach promiscuity to our children.

AIDS is not decimating Africa. Check this out for yourself. Since the eighties the population in every African country (except Ruanda!) has risen. Check this out for yourself. All Africans have had more to eat in the past quarter century – until recently, when subsidies for bio-fuels have raised the cost of food for everyone. You might not notice it; but an African who spends most of his income on food certainly has.

Rian Malan has lost friends by comparing alarmist AIDS death statistics to actual death rates. "AIDS" deaths in South Africa are not increasing – coffin makers are going out of business.

Charles Geshekter is very good on African AIDS statistics.

Good night. More tomorrow, I'm afraid.