Freedom News Blitz

U.S. Treasury Secretary Timothy Geithner offered fresh reassurances to Asian nations that the Obama administration was committed to a strong dollar and to actions aimed at bolstering its value.

“It’s very important to the United States that we have a strong dollar,” he said at a news conference at the Asia-Pacific Economic Cooperation forum, or APEC in Singapore on Thursday. “As growth recovers, (we will) move our fiscal position back into balance.”

You’ve got to be joking. Obviously, Geithner told “The Big Lie”, one hell of a whopper of a lie. Honestly folks, the political and financial establishment shows absolutely no indication that they will abandon their mission of destroying the dollar. Just look at the Fed’s efforts at holding interest rates (gasp) close to 0%. How inflationary can you get?

My God, the treachery of these people running the show is truly disheartening. I mean, you can expect much mischief coming from a tinhorn dictatorship—but in the United States of America. Our founding fathers are no doubt turning in their graves. We can only hope that the ongoing destruction of The American Dream results in their sudden revival.

The current price of Gold is over $1100 per ounce. If the government was really dedicated to protecting the dollar, don’t you think gold would be around $35 per ounce—its price when President Nixon slammed shut the Gold Window on August 15, 1971? Only an economic dimwit could possibly believe the words that carelessly flew off the lips of Timothy Geithner. I’m surprised attendees of the news conference didn’t laugh in his face. He must take the rest of us for a bunch of morons.

Let me explain why the monetary policy of the Federal Reserve System is ludicrous. I don’t know where anyone got the idea the Fed could manipulate interest rates willy-nilly. Sound economic theory demonstrates that the market rate of interest is composed of three components—that correspond to the actual state of reality.

The three components are:
1. Time Component
2. Risk Component
3. Inflation Premium

By now it should be obvious to all that Federal Reserve manipulation of interest rates cause boom and bust cycles due to the fact that an artificially low interest rate gives investors and entrepreneurs false signals—resulting in them diverting production from the consumers’ most urgent desires into areas of production that cannot be sustained.

This short article doesn’t allow me to go into a lengthy discussion of trade cycle theory and the three components of the market rate of interest. However, I can definitely state that the natural rate of interest is a market phenomenon that is in tune with reality.

Let’s discuss the three components. The time component supplies information on how people weigh the future against the present. If they prefer to delay some consumption and save for the future, the rate of interest tends to fall. If they prefer immediate consumption at the expense of savings, the rate tends to rise.

The risk component is just that—how risky a loan is. The riskier the loan—the higher the rate of interest. A safe loan tends to have a low or negligible rate of interest included in its final rate.

An inflation premium is included if lenders and borrowers expect prices to rise. The more they expect prices to increase—the higher the rate of interest. The final rate of interest includes all three components.

As you can see Federal Reserve policy of lowering the rate of interest to practically 0% is absurd. As unbelievable as it might seem, this perpetrator of monetary mayhem is acting as if:

1. People no longer wish to consume anything today. They are delaying all consumption until sometime in the future. Fact: This is ridiculous. If people actually behaved in this manner, the human race would perish.

2. There is no longer any risk in making loans to businesses and individuals. Fact: This is the height of absurdity. Our current crisis was caused by massive amounts of easy money resulting in excessive debts that many debtors can never repay.

3. Inflation is past history. Fact: Don’t you think the gold price clearly shouts that massive price inflation is relentlessly marching in our direction? When the quack monetary policies of the Fed rear their ugly heads the only thing that will be in abundant supply is all the inflationary money the Federal Reserve System has created. Because of this, goods and services will quickly disappear from the marketplace resulting in massive shortages of what people need and desire.

One obvious solution to our economic woes is to allow the rate of interest to increase to its natural level. A natural interest rate washes away the mal-investments spawned by the artificial boom—resulting in producers finally being able to satisfy the most urgent desires of productive citizens.

One last word of advice. If you value your life, liberty and property, you will disregard anything that comes out of out of the mouths of members of the political and financial establishment. In fact, you would be wise to believe the opposite. For your own good, you need to adopt the mindset of a contrarian.

Robert A. Meyer
The Libertarian Way