INTELLIGENT SYSTEMS
Volume XI, Number 1 January,
2009
Copyright © 2009 Chenault Systems, Inc. All rights reserved.
Texas Business Innovators
During the first quarter of 2009,
Chenault Systems will launch a non-profit organization, Texas Business
Innovators © (TBI). Nothing like this
has ever been done before.
Local businesses and technology
groups are hungry for factual information.
TBI’s primary mission is to meet this desire by providing open debates
for the Dallas-Fort Worth business community on relevant subject matter
normally not presented in more traditional forums. (For example, the subject of offshoring
software development to foreign countries and why development is returning to
the United States is considered “controversial” and not an acceptable topic for
many groups.)
Articles and speeches will be
researched and all facts, not just the politically correct ones, will be
presented. Additionally, articles and
speeches will be edited to minimize clichés and other overused, trendy
phrases. Also, TBI provides a web site
for member articles and other pertinent information (http://www.texasbusinessinnovators.org/index.htm).
TBI intends to position itself as
a local business think tank, presenting topics to uncover information, to help
recover statesmanship, ethics, and long-term thinking so desperately needed in
American business.
Possible program topics
include:
1.
Offshoring software development and call centers and their
long-term effects.
2.
The Federal Reserve Bank: who controls it and its effect on
inflation and the economy?
3.
The North American Union and illegal immigration.
4.
Sarbanes-Oxley: what it does to the small public companies and the
economy.
5.
ERP systems: sometimes one
size does not fit all.
6.
Supply-side economics, the Laffer curve, and taxation.
We are open to any comments (tom@chenaultsystems.com) regarding the
above topics or any other topics.
Remember, we are talking about competitive debates, not traditional
panel discussions.
by Michael S.
Rozeffby Michael S. Rozeff
Dictatorship
is unlimited rule. Collective dictatorship is unlimited rule by an assembly. National government in the U.S. has tended
toward collective dictatorship over its entire history.
No
new alarm bell is rung when I say that the U.S. collective dictatorship is now
enlarging, for that is its usual tendency. We recognize this tendency at the grass-roots
level by the increasing control that government has over our personal lives. There is almost nothing that we do that is not
touched by government rules and power. We
cannot work, play, invest, obtain medical care, drive a car, eat, smoke, speak,
gesture, wash, have a baby, buy or sell a good, without encountering the
government.
Yet
the alarm bell needs now more than ever to be rung loudly and vigorously, for the
most recent enlargement is coming in the area of financial control over the
banking system and thus the economy. What
is left of liberty in America faces an extremely dangerous threat. It is all the more serious because it is not
widely recognized as a threat.
To
understand what is happening now in the U.S., it is useful to compare the
parallel developments that occurred in Nazi Germany. The German central bank, the Reichsbank, was
far more restricted by law (before 1939) than our central bank, the Federal
Reserve (Fed) in the kinds and amounts of loans it could make. The Fed, in this sense, is far more powerful
than the Reichsbank was before 1939. The Reichsbank was, like the Fed,
independent of the government. The
German government could not order it to make loans to the government, for
example. This situation changed in 1939
when the Nazi government needed more funds to finance its armament build-up. At that point, the government basically
absorbed the Reichsbank.
It
helps to read the words of Hjalmar Schacht, who headed the Reichsbank between
1933 and the time of his dismissal in early 1939. Schacht is something of a controversial figure
in history. In 1946 he was tried as a
war criminal at Nuremberg where he testified.
Dr. Schacht, who was acquitted, had
ended up in a concentration camp. An
extended discussion of Schacht’s activities that brings out the negatives is
contained here. A less critical account is here.
Here
is some of what Schacht testified that is germane today:
"Consequently,
when it became clear that Hitler was working toward a further increase in
rearmament – and I spoke about that yesterday in connection with the
conversation of the 2nd of January, 1939 – when we became aware of that, we
wrote the memorandum which has been quoted here and is in the hands of this
Tribunal as an exhibit. It indicates
clearly that we opposed every further increase of State expenditure and would
not assume responsibility for it. From
that, Hitler gathered that he would in no event be able to use the Reichsbank
with its present directorate and president for any future financial purposes.
Therefore, there remained only one alternative; to change the directorate,
because without the Reichsbank he could not go on. And he had to take a second step; he had to
change the Reichsbank Law. That is to
say, an end had to be put to the independence of the Reichsbank from
governmental decrees. At first he did
that in a secret law – we had such things – of 19th or 20th January, 1939. That law was published only about six months
later. That law abolished the
independence of the Reichsbank and the president of the Reichsbank became a
mere bank teller for the credit demands of the Reich or, that is to say, of
Hitler."
Schacht
makes crystal clear that the central bank was essential for the government to
be able to arm the country and make war. Without the bank, Hitler "could not go
on." He would not be able to use
the bank "for any future financial purpose" such as paying for
armaments. Furthermore, if the bank
would not cooperate, then "an end had to be put to the independence of the
Reichsbank from governmental decrees." That having been done by Hitler, the president
of the bank "became a mere bank teller for the credit demands of the Reich
or, that is to say, of Hitler."
These
observations about the role and necessity of the central bank in supporting the
government, usually in its war efforts, and of the threat to the bank’s
independence are as true of the United States as they were of Nazi Germany. As bad as the Fed is, our liberty declines
even more when, as, and if the Fed becomes a direct arm of the government. This
has happened before. The Fed supported
the U.S. government bond market during World War II, which laid the foundation
for the resulting inflation:
"The
Federal Reserve System formally committed to maintaining a low interest rate
peg on government bonds in 1942 after the United States entered World War II.
It did so at the request of the Treasury to allow the federal government to
engage in cheaper debt financing of the war. To maintain the pegged rate, the
Fed was forced to give up control of the size of its portfolio as well as the
money stock."
Central
banks are brought into being and allowed extraordinary powers with the
overriding aim of supporting government borrowing, often for purposes of making
war, and with inflation being the accompanying method by which this support is
rendered. I quote: "Many on the
Board of Governors, including Marriner Eccles, understood that the forced
obligation to maintain the low peg on interest rates produced an excessive
monetary expansion that caused the inflation." Similarly, we are told concerning Schacht:
"Schacht had always feared inflation in Germany. As early as 8 May 1936,
he emphatically stated that he would ‘never be party to inflation’ (1301-PS). In January 1939, Schacht was convinced that
ruinous inflation was, in fact, imminent (EC-369). There was, it appears, ample basis for his
fear. The Finance Minister, von Krosigk,
had already recognized the situation in September 1938, and had written to
Hitler warning that we are steering towards a serious financial crisis..."
Because
Schacht’s official central banking powers were not as great as the Fed’s, he
hid what he did to get around the law and help finance Hitler. In the U.S., the Fed has so much power that it
can do openly what Schacht did secretly. In that sense, we are further along the path
of collective dictatorship than Germany in the 1930s. Schacht set up a dummy corporation, called
MEFO for short, which "bought" arms from the arms manufacturers. It accepted the (mefo) bills of these
manufacturers who then were able to discount them at banks and get paid. The banks then discounted them with the
Reichsbank. Lo and behold, inflationary
finance paid for the arms production in huge amounts, circumventing the law’s
prohibitions.
Bernanke
makes Schacht look like a piker. In the
U.S., the Fed has no statutory limits on its finance! It is openly financing whatever institutions
it pleases. In particular, the Fed is
directly financing the government’s Troubled Assets Relief Program with $440
billion. It has extended $56 billion to
AIG Company, another $298 billion for the commercial paper of various
companies, and $407 billion to banks using its own holdings of Treasury
securities. The critics of these loans
are vastly outnumbered by those applauding the Fed’s inflation as the means of
saving America. The sycophants eagerly
await the Fed’s next moves. The Fed is
preparing the way by leaking to the press hints of "unconventional
steps." These will involve
interventions in markets such as mortgage markets. Bernanke and Company seem to have none of the
fear that Schacht had of inflation or being held responsible for inflation.
When
the dictatorship, embodied in one person or in a collective, obtains the
unlimited ability to finance its purposes, there is no stopping it except by
restraining its powers; and that takes a revolution or, at a bare minimum, the
deposition of persons from the government and replacement by those willing to
abridge the government’s powers, if such a thing is possible.
Hitler
ended the independence of the Reichsbank by secret decree. Such matters are handled slightly differently
in the U.S. Secrecy does not seem to be necessary, inasmuch as the mainstream
media do not understand what is going on and, in any event, promote the party
line, that is, the official interpretation of official acts. If the Treasury absorbed the Federal Reserve,
it would no doubt be treated as a welcome event rather than an enlargement of
the collective dictatorship.
The
President of the Federal Reserve Bank of New York, Timothy Geithner, has been
appointed as the new Secretary of the Treasury. Geithner is a government man through and
through. He believes in intervention and
bailouts. His name comes up again and
again in accounts of the various programs. There could not be much more of an incestuous relation
between Treasury and Fed than this one, short of Bernanke becoming chief teller
of the Fed for the Government, which he already appears to be.
The
Treasury has taken preferred stock positions in the largest banks in America. This is part and parcel of Emergency Economic
Stabilization Act of 2008, which is openly dictatorial.
We
are entering upon a sequence of events that will, in the end, transform the
American economy even more than now into a slow-growth, no-growth,
inflationary, regulated, stalled, and inefficient economy. It will be a miracle if the Fed’s expansion is
brought under control and reduced. The
Fed will maintain its lending and even expand it. This can only atrophy both the banking system
and the capital markets. Inflationary pressures are bound to build up, and that
will lead to economic controls. The Treasury will look for ways to regulate
capital markets still further, and this will undermine them. There is no worse signal than the Treasury’s
intrusion into maintaining zombie institutions that should fail and be
re-organized. This has already happened
in the cases of Fannie Mae and Freddie Mac.
This
all means that efficient institutions, companies, and persons will be penalized
at the expense of the inefficient ones or the deadbeats. More and more will buy tickets to Washington
to beg for relief. The end of the road is government control of the means of
production. When companies can no longer
finance themselves through the standard private means of capital markets and
banks, they turn to government. When
government can no longer handle the bankruptcies, it seizes the means of
production.
December 6, 2008
Michael S.
Rozeff [send him mail] is a retired
Professor of Finance living in East Amherst, New York.
Re-printed
with permission from Michael Rozeff.
Copyright ©
2008 LewRockwell.com
Quotes Worth Noting
“An essential
element of a healthy free market is that both success and failure must be
permitted to happen when they are earned. But instead with a bailout, the rewards are
reversed – the proceeds from successful entities are given to failing ones.” –
Ron Paul, former candidate for the president of the United States
“If man asks for many
laws it is only because he is sure that his neighbor needs them; privately he
is an unphilosophical anarchist, and thinks laws in his own case superfluous.”
– Will Durant
“I don't build in
order to have clients. I have clients in
order to build.” – Ayn Rand