The “Cyprus Crisis” is the best recent example of how not to
use your commercial and central banking system.
The banks in Cyprus are stuffed with cash, but the country is having a
financial crisis. How can that be?
Simple. The massive
mounds of money that have the vaults bulging at the seams represent two things:
past accumulations of the wealthy, and the present value of future tax
collections by the government. There is
also a small amount representing past accumulations belonging to Cypriots.
Virtually none of this money has been invested in sound new
capital formation in Cyprus or anywhere else.
It has been put into questionable investments pushed by crony
capitalists and the debt of other governments.
Even the relatively few sound capital investments have not created
enough jobs to increase people’s income.
This is because new capital investment tends to decrease, not increase
the number of jobs, especially in a generally declining economy. Technology replaces labor, it does not
increase the demand for labor or enhance labor.
Here’s the problem. Without
jobs or widespread, dividend-paying ownership of productive capital, people
have no income. If they have no income,
they cannot purchase whatever marketable goods and services others produce, or
pay taxes.
The government then steps in and prints more money, at least
until it can no longer float any new debt because people aren’t paying
taxes. At that point the economy
collapses, unless the government of Cyprus can convince somebody to bail them
out . . . putting other countries in the same position as Cyprus as the ability
to issue endless streams of new government debt to cover shortfalls in taxable
income begins to decline.
Obviously there needs to be a shift away from the Keynesian
idea that you don’t have to worry about production as long as you stimulate
demand. The government of Cyprus (and
other governments throughout the world) has been stimulating demand in some
cases for over a century. At some point somebody
is going to have to start stimulating production to meet the demand and generate
the taxable income to pay down the debt from past consumption.
To get a Capital Homestead Act and start stimulating demand
naturally rather than by printing money, here’s what we’ve been doing for the
past week:
• Don’t forget to clear your calendar for Friday, April 26,
2013 and the annual rally at the Federal Reserve in Washington, DC to
demonstrate for democratic access to capital credit for a “Capital HomesteadAct” so ordinary people can become
capital owners without redistributing the wealth belonging to the rich or
increasing government debt, and the money supply can be backed with private
sector assets instead of government debt.
We don’t have all the details yet, but it looks as if there is going to
be some entertainment and a number of interesting speakers.
• On Tuesday of this week, Norman Kurland, president of
CESJ, and Michael D. Greaney, CESJ’s Director of Research, met with the
president, a board member, and staff of the March for Life. Although they are clearly very busy
organizing the most visible Pro-Life demonstration in the country, CESJ got a
full hour to introduce some basics of the Just Third Way and how “Capital
Homesteading” could be a politically (and financially) viable “Pro-Life
Economic Agenda” acceptable politically
to both the Pro-Life and Pro-Choice positions.
The meeting went very well. Copies
of Introduction to Social Justice
(1948), Capital Homesteading for Every Citizen
(2004),
and Supporting Life (2010)
were given. The CESJ core group looks
forward to future talks and relationship building as practical applications of
the Just Third Way develop and meetings with other prime movers occur. At the very least, CESJ has a moderately vast
amount of information that Pro-Life groups and individuals can use in
countering the economic arguments of those who disagree.
• There’s been a lot of buzz about the bank stress
tests. On investigation, the “stress
tests” appear to be a way to substitute for what central banks have been
failing to do: back up the commercial banking system and provide liquidity on
an as-needed basis to member banks in times of, well, financial stress. Instead, with the full resources of the
world’s central banks dedicated to financing government spending, there is
nothing in place to provide a sound private sector economy and accommodation
for commercial banks . . . which was the original purpose of a central bank.
• The Wall Street
Journal had a sound idea about the Cyprus Crisis. Don’t bail them out. Let the current shareholders take the hit,
and make the depositors the new shareholders.
This is only half the solution, however.
The next step would be to restrict all new money creation to sound new
capital investment that also expands the direct ownership of the new capital,
as Kelso and Adler advocated.
• The “aquaponics” pilot project in Louisville, Kentucky
proceeds apace. Individuals close to the
deal report that things are moving very well in a very positive way, and much
faster than previously anticipated.
Obviously as CESJ we do not know when the project is scheduled to be
completed and move into production of fish and vegetables, but we are keeping a
close watch on developments. Once the
concept has been proved, the “Family Fish Farm” concept has a great deal of
potential to address local nutrition needs, even global poverty and hunger as
the project is replicated.
• Speaking of world hunger and poverty, we recently saw a
segment of the “Science View”
program on the NHK World channel out of Japan about a businessman, Masaaki Oya,
who has developed a new method of dehydrating food that retains the nutrients,
to which NHK World very kindly sent us a link on request. Being concerned with waste, Masaaki Oya’s
company only processes “substandard” vegetables and fruit that would otherwise
have been thrown away as unsuitable for sale.
Part of his idea is to allow farmers to generate additional revenue by
turning what was formerly regarded as waste into a marketable product. Eventually Masaaki Oya would like to see his
technology used to reduce or even eliminate world hunger.
• As of this morning, we have had
visitors from 54 different countries and 53 states and provinces in the United
States and Canada to this blog over the past two months. Most visitors are from
the United States, Canada, the United Kingdom, the Philippines, and India.
People in Nepal, Argentina, Jamaica, Singapore, and Sweden spent the most
average time on the blog. The most popular postings this past week were “Thomas
Hobbes on Private Property,” “Aristotle on Private Property,” “Gold is Not
Enough, II: Gold and Supply and Demand,” “State Sovereignty . . . or
Sovereignty of the People,” and “Why Did Nixon Take the Dollar Off the Gold
Standard?”
Those are the happenings for this week, at least that we
know about. If you have an
accomplishment that you think should be listed, send us a note about it at
mgreaney [at] cesj [dot] org, and we’ll see that it gets into the next
“issue.” If you have a short (250-400
word) comment on a specific posting, please enter your comments in the blog —
do not send them to us to post for you.
All comments are moderated anyway, so we’ll see it before it goes up.
#30#
