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Saturday, January 1, 2011

Quantitative Easing-II and History’s Ominous Parallels

2011 begins, the debate over Quantitative Easing-II continues

Bernanke argues that Fed purchases of T-bonds is the only way to end the Great Recession. Some opponents cry that QE2 equates to printing dollars out of thin air, thereby seeding long-term inflation.

Helicopter Ben adamantly denies that quantitative easing is the same as printing money. “Look,” he says, “the money supply has not increased.” Other critics say QE2 simply won’t work, while Warren Buffett praises Bernanke and Geithner for saving the economy. And the lone voice of reason in Congress, Ron Paul, continues his campaign to abolish the Fed altogether.

The brouhaha rages, but for the sovereign People it is so much sound and fury—the debate will have no effect. Bernanke’s critics will fail, and the central bank will continue with QE2 (doubtless to be followed with QE3). We must concentrate on the effect Bernanke’s actions will have on us as investors and citizens. Where do we turn for clues about what lies ahead?

History
If We Forget Our Mistakes of the Past, We are Doomed to Repeat Them

We can look to history. For thousands of years the consequences of money creation have been the same whether money was gold, silver, paper, or ciphers on a computer hard drive. There have been no exceptions.

Three hundred years before the birth of Christ, Roman emperors experimented with QE by continually reducing the gold, silver, and copper content of the coinage. From the point the denarius coin was introduced in 211 BC, the silver content was persistently reduced until the amount of silver in the original denarius eventually produced 150 denarii. As the coin supply increased, the price of goods did so as well, in direct proportion—the quantity of wheat that had sold for one denarius in the second century increased to 200 denarii a century later.

As prices rose, Roman emperors blamed price inflation on public greed, and attempted to stop it by making rising prices illegal. In 301 A.D., with the survival of the state at risk, Emperor Diocletian issued an edict that set price ceilings on over 1,000 products and set death as the penalty for profiteers and speculators who tried to evade the controls.

In America

In 1775, with the American colonies rebelling against the British Crown, the Continental Congress needed money to pay the army. It printed “continental dollars” promises to pay silver out of "future tax revenues." The result was the hemisphere’s first hyperinflation. As George Washington noted toward the end, "A wagonload of currency will hardly purchase a wagonload of provisions."

Following Diocletian’s model, the Massachusetts Provisional Council declared that anyone who refused to accept these notes was an "enemy of the country." The states enacted price controls, and made it a crime to refuse paper money, demand a premium in paper, or charge lower prices for payments in specie.

Then, in Europe

In the aftermath of the French Revolution, the French National Assembly authorized the printing of assignats, paper notes backed by the lands confiscated from the church. The intermittent burst of printing (read quantitative easing) led to hyperinflation which, as always, the authorities blamed on greed. Wage and price controls were imposed along with increasingly draconian penalties, ultimately including death by the guillotine for violators.

And thus it has gone from ancient Rome to modern day. Colonial America, Revolutionary France, post-war Germany, Argentina, Hungary, Brazil, and China, and a hundred other countries repeated the process of money creation leading to price inflation leading to laws against individual choice. Like me, you may remember the 1970s during which, after decades of continuous monetary expansion, pent-up inflation struck and the political answer was, once again, wage and price controls.

No Matter How It’s Done, It’s Theft

Money creation, whether under the cover of stimulus or quantitative easing, is pure theft carried out through sapping the purchasing power of money. The first consequences of quantitative easing must be price inflation. You can be certain that as soon as it rears its head in earnest, the attack on individual liberty will escalate.

To paraphrase Thomas Paine, now is the time for all good men (and women) to become sovereign individuals.

By John Pugsley, Chairman, The Sovereign Society

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The Obama Administration insists the Recession is over. They point to the "recovery" in the Dow Jones Index (Unemployment still hovers at 9.7%). But the numbers really tell a story of weakness, not strength.

Consider the dollar cost of all things: They "prices" in dollars are going up, because the dollar's value is going down. People are pouring money into the stack market in order to protect the value, of their wealth, not the dollars.

Mr Obama's Quantitative Easing-II is a massive tax on your purchasing power. This tax is hard to see but too painful to feel.

Tomorrow we get a Cap &Trade tax imposed by this Administration without the required Congressional enactment.

We are getting taxed without representation.

Things have not changed; King Obama still hates America.

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