The Dollar Bubble

This video ties into my earlier post, The Myth of Deflation.

The Myth of Peak Oil

Projection of Peak Oil

In continuance of the Myth series, today we explore “peak oil.” Last week, an IEA whistleblower made headlines by stating, “We have [already] entered the ‘peak oil’ zone.”  This has obviously caused some stir among environmental experts and politicians.

What is Peak Oil?

Peak Oil is the period of time in which we start finding fewer and fewer places to extract oil. Imagine a bell curve which represents access to oil, peak oil would be at the very tip of the curve, thus the term “peak oil” (see image at right). It’s at this point, it is said, that oil prices will increase at an exponential rate because finding oil fields will become harder and harder. And since our economic infrastructure is based on cheap oil, it will devastate our economy.

Virtually everything we use is based on oil; plastic, rubber, fuel, etc. If the cost of oil rises too quickly, it could cause a snowball effect of rising prices in virtually every product we use. Thus, the collapse of our very way of life.

The Free Market Solution

While this post is titled The Myth of Peak Oil, it’s actually more about the myth of collapse due to peak oil. Scientifically speaking, peak oil makes sense. There are only so many places we can drill before we eventually run out. And, aside from the Abiotic Synthesis Theory, there is no way to quickly replenish those wells.

However, despite this “doomsday” scenario of running out of oil, the free market has the solution. Or, let me rephrase: the free market is the solution.

The free market has this uncanny ability to adjust to consumers’ demands. If demand for a product increases, the market will adjust their supply accordingly. In this case, demand for alternative fuels will force manufacturers to increase supply in those alternative fuels, be they natural gas, electricity, hydrogen, or whatever. Instead of plastics made from oil, perhaps supplies of plastics made from hemp or other materials would increase. As more of those alternative sources are used, the costs associated with those items will decrease.

Will product prices increase overall after peak oil? Only the free market can tell you that. It is possible the prices will increase. However, unlike what the doomsdayers believe, they will rise gradually, not immediately. Eventually, those increased prices will top off as well, as the costs of alternative sources decrease because of increased usage.

So, in the event that we’ve already reached peak oil, the free market is the only solution for preventing a total economic collapse.

The Myth of the Free Market

Milton Friedman, Proud Father of Global Misery?

It has become the mantra on the left that the free-market is dead. Posters have sprung up all across the country showing Milton Friedman’s face with text underneath it reading, “Proud Father of Global Misery.” And it’s not limited to the left. Even former president George Bush said, “I’ve abandoned free-market principles to save the free-market system.”

The irony is, we don’t have a free market system in America. We have corporatism. Some may argue that they are one and the same. Some may say that free market capitalism leads to corporatism. However, hardly anyone disagrees that what we currently have is corporatism.

What’s the difference you ask? In a true free market, businesses are left to their own devices. Supply and demand are determined by market forces (manufacturers and consumers) . In corporatism, supply and demand are manipulated by the government to promote the interest of select corporations. For instance, sugar producers lobby Congress to limit the importation of sugar from outside the country. So while demand remains the same, the supply is limited, causing prices to increase. This is obviously desirable to sugar producers in America, as it increases their profits while reducing their competition. And so it goes with every industry in America.

In a free market, demand is created by human behavior. In corporatism, demand is created through government intervention. An example of this is the housing industry. Demand for more houses were erroneously increased by government programs to increase availability and affordability of homes. The Federal Reserve kept interest rates artificially low, allowing banks to make riskier loans than they would have otherwise made. Private banks also had to compete with Fannie/Freddie whose government mandated objective was to provide provide mortgages to those who couldn’t afford them. Since this was an artificial increase in demand, it created a housing bubble.

Many will argue that government intervention in the free market is necessary to protect us from fraudulent businesses. However, as evident by the Bernie Madoff scandal, government intervention simply makes matters worse. The government tells its people that they are safe because of the regulations they have put into place; that their watchdogs are on top of things. No need to worry. However, con men will still find ways to con people; with government regulations or not. This merely sets a false sense of security and allows for con men to prosper in areas where people would otherwise be more cautious.

So the next time you hear that the free market is dead, remember one thing: we didn’t have a free market to begin with. Corporatism is dead. And there seems to be only two solutions. Either go back to a free market economy or embrace socialism. Which would you prefer? An economy run by the government, or one run by the people?

The Myth of Deflation

Wendy Macy put together a good video of Rand Paul and Peter Schiff discussing the myth of our current “deflationary crisis.” As the myth goes, prices for consumer goods and commodities have been falling during this last year of the recession, therefore we have a deflationary crisis.

However, nothing could be further from the truth. While prices have indeed decreased, the expansion of the money supply has increased exponentially. The more money the Federal Reserve prints, the more the value of the dollar decreases, thus goods and commodities increase in price. However, in our current situation, we have a couple of factors playing into why prices have decreased.

First, the increase in money supply has been soaked up by banks. The idea was for banks to use the money to  rid themselves of toxic assets and open up credit to businesses and individuals again. However, the banks have not used the money yet, as the toxic assets are still on their books and credit is still tight. Therefore, the increased amount of money has not fully made into into the market yet.

Another reason for decreased prices is liquidation. Businesses are liquidizing their assets in order to stay in business. As evident by the increasing unemployment numbers, businesses are still finding it hard to stay in business. One way to decrease their costs is to let their employees go. Another way is to reduce the prices of their products to drive up demand.

Eventually, however, the banks will let go of the newly printed money, unleashing a fury of inflation on Americans; 1970′s style. How long the banks continue to hoard the money and keep credit tight is unknown, however, what we do know is that with our government spending and deficit increases in the next couple of years, inflation will strike regardless. The Federal Reserve/Treasury will have to print the differences, thus increasing the money supply to the market immediately.

Stimulus Working Great: Unemployment Graph

Unemployment in the United States hit 9.8% in September, despite the $787 billion stimulus that a Democratic Congress passed without a single Republican vote in the House and only 2 in the Senate.

That is roughly 2 points higher than the 7.8% that the White House had promised for September if the stimulus package became law.

How’s that stimulus working for ya?!

Unemployment graph as of August

Source: The Heritage Foundation

Looking Back…

At the risk of becoming just a parrot of the Campaign for Liberty blog, here is another great post from today by Matt Hawes.

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Take a trip down memory lane with two very different economists.

Fed Chairman Ben Bernanke (2005-2007):

During the same time frame, here’s Peter Schiff (2006-2007; Youtube has plenty more dating back farther):

Where do we stand just a few years after these opinions were aired?  Ben Stein has publicly apologized to Peter Schiff, while the Federal Reserve’s unprecendented power grab during a crisis it made possible has led to more than half the House of Representatives signing up in support of Auditing the Fed!

Get Educated

The Creature from Jekyll Island

It is my understanding that people make reasonable decisions based on the information they get. The problem is the information they get is not always truthful. If you want to get super-philosophical, then nobody ever really knows the truth. The only thing I can trust is information that is at least honest.

For example, people who talk about big government always deal with half truths. They talk about the benefit while downplaying the negative. When the Federal Reserve System was enacted, it was promoted as a way to take power away from the money trust, regulate interest rates and make sure that the country never ran out of money. What they didn’t tell the people was that the system was designed precisely by the money trust (J.P. Morgan, Rockefeller, Kuhn Loeb, and the Warburgs) in secrecy. The System was designed to artificially lower interest rates to encourage loans and expand the credit and money supply, which caused many bad investments to be made. When these loans were recalled, they were defaulted, and the recent boom and bust cycle was created. After the crash of ’29, the banks were cleaned out of their cash and the Federal Reserve didn’t supply them with any, which was one of the “reasons” it was created in the first place. (See America’s Great Depression by Murray Rothbard and The Creature from Jekyll Island by G. Edward Griffin)

Austrian Economics, another term for free market or laissez faire, makes sense because it is honest about its’ faults and fairly criticizes and compares the alternative, which is socialism or communism. If people were to honestly look at the material, I believe they would not be afraid to embrace it and at least 75% (obviously a guess, basically I am saying an overwhelming majority) of Americans would be in sync on the basic fundamentals that our founding fathers provided for us, at least I would hope so. Opposition, of course, would come from beneficiaries of the current system.

For Liberty of these States United,

Aaron Burr is my Hero

Clueless Federal Reserve Inspector General

I’m not typically a fan of The Huffington Post, but they offered a great article recently detailing an exchange between Rep. Alan Grayson (D-Fla.) and inspector general Elizabeth A. Coleman. (See video below)

Coleman could not tell Grayson what kind of losses the Fed has so far suffered on its $2 trillion portfolio, which has greatly expanded since September.

She appeared unaware that the Fed engages in trillions of dollars in off-balance-sheet exchanges.

She is not investigating the role of the Fed in allowing the collapse of Lehman Brothers.

She did not know where the Fed has invested its $2 trillion on the liability side of the balance sheet. “I do not know. We have not looked at that specific area at this particular point on,” she said.

This exchange highlights just how little anyone knows about what’s going on at the Federal Reserve. Since Congress delegated their Constitutional obligations to “coin Money, regulate the Value thereof, and of foreign Coin” to the Federal Reserve in 1913, the US dollar has been devalued 95%.

The Federal Reserve is immune from government audits, specifically, they are allowed to make make transactions between foreign governments and banks without any approval or oversight from the federal government. If the State Department did this, they would be considered a rogue agency and would be taken down by the Department of Justice. If a civilian did this, he would be tried for treason under the Logan Act. Yet, the Federal Reserve continues these policies without fear of either consequence.

There is a bill in the House that would allow for a full government audit into the practices of the Federal Reserve. H.R 1207 currently has 149 cosponsors and will most likely get a hearing within the House Financial Service Committee in the very near future.