This is so helpful that I’m re-posting the entire entry:

The Fed’s monopoly of money has meant not only monopoly (i.e “play” money that lacks fixed value, in contrast to gold), but also actual monopolies in every industry across the board. The reason is that bigger organizations can and do borrow more, paying back only in “cheapened” money. That lets them outlast their smaller competitors and lets them grow bigger and bigger….

The Fed’s monopoly of money also makes possible the rise of “pirate” states which can shift the tax inherent in rapidly cheapening money onto others:

1) internally, onto the backs of its savers

2) externally, onto the backs of other countries which have to use the monopoly currency. (e.g. emerging markets have to use the US$).

Here’s an excellent comment on that:

“Anyway, the appalling truth, which explains what’s happened in our own era, is that when Roosevelt managed to make the dollar the world’s currency, and the Federal Reserve began to be able to tax the rest of the world simply by expanding the money supply, what happened is that the whole American economy quietly started to shift from production-and-taxation mode, into “pirate” mode, “without anyone noticing!”

The global consequences have been enormous. It’s enabled American power (and the amount of military spending possible) to expand enormously, beyond what was sensible in the long term. It’s made foreign war seem cost-free to the American public, which in turn has caused a whole string of foreign lobbyists to try to buy American support and intervention in every corner of the world. It’s also made the American economic and political system very unstable in the long term, I suspect, because it’s now “addicted” to getting things cheap. Pirate economies (unlike the old boring taxation ones) tend to collapse, when they can no longer expand, or at least can no longer tap the outside world any more. It’s also gutted American industry and production, because once you could pay for things in paper dollars, it became cheaper to outsource everything possible and buy things from the third world. It’s had a very oligarchic effect on government and big business, since their access to easy credit enabled big organisations to buy up smaller ones on an unprecedented scale; and, finally, it’s been very corrupting, to get something for nothing in this way, for so long. It’s the true background reason for the predicament you’re in today.

And as I said, it’s created a world were “everything” is rigged against traditional conservatism. Currencies that are purely creations of government not only give unprecedented power “to” governments to interfere in all of our lives, but their inherently inflationary nature has created a world that rewards borrowers at the expense of savers. That is historically unprecedented, and an extraordinary thing to build a civilisation on. Should one be surprised that the culture associated with this civilisation should be one of personal self-indulgence, rather than one of self-restraint? That is the world that Roosevelt (and, later, Nixon) gave us…”

Comment by ‘Alexander’ on Rod Dreher’s Crunch Con

via The Monopoly of Money and the Money of Monopolies | Lila Rajiva: The Mind-Body Politic.

Some time I will have to try to list here all the outcomes I have defended because I believed they were market outcomes, when they were never anything of the kind.  Mea Culpa in advance.

The fundamental problem is that everything got levered up to the gills during the bubble years.  Now all these “upside down” assets are a huge millstone around everyone’s neck – a problem from which we cannot realistically escape by any means other than realizing the losses.

Why not?  Because for nearly 20 years one of the fundamental requirements for sound lending – that is, the sharing of risk by the borrower and provision of a buffer against asset value declines (this is commonly known as a “down payment”) was systematically removed from our financial system across allasset classes.

See, assets do not always rise in price.  It doesn’t matter whether the asset is a stock, a bond, a piece of real estate or anything else. This is especially true when one “pumps” asset prices through the provision of nearly-unlimited credit without regard for ability to pay.

The government has, for nearly two years now, been concerned about “stabilizing housing prices.”  This is not only wrong-headed it is dangerous; there has been several trillion dollars in residential real estate “value” wiped out and there is more to come; in order to “stop it” you’d have to replace the money somehow. Then you’d get to do it again with commercial real estate, and again with credit cards, and……

This goal is not possible to achieve, but admitting the truth means admitting that a lot of our financial institutions that “ate their own cooking” are in fact bankrupt, and that just won’t do.  Never mind that some darned inconvenient questions might get asked about Washington DC’s role as “enabler in chief” for all the fraud of the last couple of decades – and perhaps more than a bit of personal complicity. 

I understand that at least a couple of sitting Senators might be able to provide tips on vacations in Antigua (Stanford Financial), as just one example of the outrageous “sleeping with thy sister” campaign that lay at the root of the faux prosperity of the last decade.  Senator Bill Nelson is reported to have received nearly $46,000 in campaign bribes, er, “donations”, along with Senator Pete Sessions of Texas ($41,375).  Even more outrageous is the fact that Stanford apparently gave $800,000 (!) to the Democratic Senatorial Campaign Committee during the year that Senator Nelson was vice-chairman – 2002, specifically.

What’s important about 2002?  It was a year in which Stanford was lobbying furiously against anti-fraud legislation for the securities industry. 

How’d that turn out?

The bill was killed in Senate committee.

The best government money can buy, compliments of Senators Nelson and others. 

via Foreclosure Prevention? BS! More Fraud Coverup! – The Market Ticker.

Not sure this is the only problem.  I’d tend to see the root cause as the easy money policies of the Fed enforcing below market interest rates.  That new money then gets into the system and there were other problems created to adjust to that “pressure.”

Still, “perfect storm” seems to have developed from additional factors, including Banana-Republic collusion between “public” and “private” sector.  I use quotation marks around the virtually meaningless words.  We should just refer to the Ruling Sector, or the Parasite Sector.  It’s the Wall-Street-WashingtonDC nexus.

link

The Obama administration has abandoned the idea of naming a “car czar” to help oversee the U.S. auto industry’s restructuring, instead creating an inter-agency task force to deal with the issue, according to senior administration officials.

via Obama Backs Off ‘Car Czar’ to Oversee Detroit – WSJ.com.

The illusion here is that government agents have the power to second guess the auto business to make it better.  The fact is that most of the reason the car companies can’t and won’t be financially sound is due to regulations driven by political interest (unions, green inefficiency, etc).  Government oversight will only be worse because the only thing that has changed is that there is now more government oversight than there was before.

In every other way, the government has no advantage over the private sector.  It doesn’t have any special knowledge about the economy, consumer preferences, etc, that are not available to business owners and stockholders.

So what is the key to government success?  The only possible way to “improve” the companies is to ruthlessly force and subsidize an agenda and use the full force of government propaganda to ensure a specific agenda is followed, that it is reported as a wise agenda, and as long as possible it is reported as a successful agenda.

This won’t come from a committee.  It requires a powerful and usually charismatic leader.  Hayek has explained why and I won’t repeat the argument here.

That’s why Obama is smart to select a committee.  Any one person would be a possible rival.  He’s already having conflicts with others getting media coverage.  Instead, he can play the part himself with a group of “advisors” establishing his role as “the decider” (as another President described the role).

YouTube – Opposing ‘Stimulus’ — Hundreds of Economists Sign on to Cato Institute Ad.

On the one hand, it seems impossible.  On the other hand, how long before the wall came down was that considered feasible.? (Note to infant readers, I mean the Berlin Wall.  Google it.).  Another hand in that direction: have we not seen an unprecedented power grab by the Federal Government by the Bush Administration via TARP, which the Obama Administration promises to perpetuate and increase?  I was frustrated by the way everyone pretended what happened was legal and constitutional.  I was frustrated that there was no real blowback.  Well maybe this is it:

So far, eight states have introduced resolutions declaring state sovereignty under the Ninth and Tenth Amendment to the Constitution, including Arizona, Hawaii, Montana, Michigan, Missouri, New Hampshire, Oklahoma and Washington.

Fair warning about the source, but you can check out the resolutions yourselves.  Will they go anywhere?  Are the predictions that more will follow based on anything.

But even if nothing comes of this, there is another issue:

California counties are considering forms of tax revolt after the state imposed a 30-day payment delay that could potentially become much longer under Gov. Arnold Schwarzenegger’s proposal to preserve cash.

The Riverside County Board of Supervisors has authorized staff to file a lawsuit, while elected officials in Colusa County decided to impose a 30-day delay on sending any taxes and fees it collects to the state after the state controller announced a delay in refunds to taxpayers, money for college tuition-assistance programs and payments to state vendors starting Feb. 1.

Schwarzenegger has proposed delaying the payments by as long as seven months, which Jim Wiltshire, deputy director of the California State Association of Counties, said could result in $3.5 billion in deferment to the state’s 58 counties.

“I just think we need to look at all our options,” said Don Knabe, a supervisor of Los Angeles County, which is also considering payment delays. “When they say deferred payments, they don’t say you can defer the services.”

The rift between state and county government comes amid growing frustration over the inability of Schwarzenegger and state lawmakers to reach a midyear budget agreement. The state is facing a budget deficit of $42 billion by June 2010, and the governor is battling state lawmakers who oppose possible tax hikes and labor leaders who have sued over imposed state worker furloughs in efforts to save money.

And here:

Counties in California say they’ve had enough – and they aren’t going to take it anymore.

In what amounts to a Boston Tea Party-style revolt against the state Capitol, they’re threatening to withhold money.

Los Angeles is considering such an option. And Colusa County supervisors said they authorized payment delays for February.

“We didn’t vote on it, because I don’t think anybody wants to go to jail,” Colusa County Supervisor Kim Vann said.

Pretty interesting stuff.  Even if it this is “only” a state v. counties struggle, the principles can’t be restricted to California.

Ultimately, it seems to me that the more we hear about what is “too big to fail” it becomes evident to people that nothing is too big the fail.  The failure just passes up the food chain.  “The buck stops here” takes on new meaning.

YouTube – Rahm Emmanuel to Disarm America.

Pretty incredible. The no-fly list is a pure instance of police-state rules. And notice how the war on drugs is invoked. Why shouldn’t it be? How else are we going to justify shooting down civilian aircraft and killing family pets with SS troops (happens all the time; argue with me about it in the comments and I’ll post the links).

Obama’s arrival is change from the Bush administration the way a baby is change from a pregnancy. He’s not a repudiation; he’s the ultimate end.

P.S. More about the no-fly list here.